Nonmanufacturing firms are more likely to have positive cash conversion cycles; they generally carry smaller, faster-moving inventories and often sell their products for cash. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Richard works for a firm that is expanding into a completely new line of business. He has been asked to determine an appropriate WACC for an average-risk project in the expansion division. Richard finds two publicly traded stand-alone firms that produce the same products as his new division. The average of the two firms’ betas […]
Date: September 19th, 2020
When estimating a weighted average cost of capital, a firm can use either book values or market values for estimating the value of the component sources of capital. Where would you find book values, and what value do they represent? How would you calculate market values? In general, would you prefer to use market or […]
Date: September 19th, 2020
Using the WACC to evaluate all projects has the effect of making low-risk projects look MORE attractive and high-risk projects look LESS attractive. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Using the WACC to evaluate all projects has the effect of making low-risk projects look LESS attractive and […]
Date: September 19th, 2020
A negative cash conversion cycle (CCC) means the average payment period (APP) exceeds the operating cycle (OC). Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Operating and financial constraints placed on a corporation by loan provision are ________. A) agency costs to lenders B) agency costs to a firm C) necessary to regulate ownership of a firm D) necessary to control the risk of a firm ANSWER B
Date: September 19th, 2020
Your firm has an average-risk project under consideration. You choose to fund the project in the same manner as the firm’s existing capital structure. If the cost of debt is 9.00%, the cost of preferred stock is 12.00%, the cost of common stock is 16.00%, and the WACC adjusted for taxes is 14.00%, what is […]
Date: September 19th, 2020
Equity is an attractive form of financing for a firm because it has additional tax advantages for the firm compared to debt. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: DEBT is an attractive form of financing for a firm because it has additional tax advantages for the firm […]
Date: September 19th, 2020
A corporation has $5,000,000 of 10 percent bonds and $3,000,000 of 12 percent preferred stock outstanding. The firm’s financial breakeven (assuming a 40 percent tax rate) is ________. A) $860,000 B) $716,000 C) $1,100,000 D) $1,400,000 ANSWER C
Date: September 19th, 2020
Empirical studies have found that, across firms, Tobin’s Q ratio initially increases with managerial ownership fraction, but beyond a critical level, the ratio decreases with further increases in managerial ownership. One argument for why this ratio decreases at higher managerial ownership levels is that: a. board directors no longer believe that they need to monitor […]
Date: September 19th, 2020
