The cash conversion cycle of a firm is the difference between the number of days resources are tied up in the operating cycle and the average number of days the firm can delay making payment on the production inputs purchased on credit. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A corporation has $10,000,000 of 10 percent preferred stock outstanding and a 40 percent tax rate. The amount of earnings before interest and taxes (EBIT) required to pay the preferred dividends is ________. A) $1,000,000 B) $400,000 C) $600,000 D) $1,666,667 ANSWER D
Date: September 19th, 2020
Johnson’s Diner has an adjusted WACC of 10.08%. The company has a capital structure consisting of 70% equity and 30% debt, a cost of equity of 12.00%, a before-tax cost of debt of 8.00%, and a tax rate of 30%. Johnson is considering expanding by building a new diner in a distant city and considers […]
Date: September 19th, 2020
A firm’s provides valuable services in terms of ensuring that: (i) all parties involved in a project are working on coordinated and timely bases; (ii) original plans and specifications are followed, or alternatively that necessary changes are approved by senior management; (iii) effective product quality and cost controls are instituted at every stage of the […]
Date: September 19th, 2020
The adjusted WACC is the correct discount rate to use when evaluating a firm’s average-risk projects. Indicate whether the statement is true or false. ANSWER Answer: TRUE
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
