The before-tax cost of debt for a firm, which has a marginal tax rate of 40 percent, is 12 percent. The after-tax cost of debt is ________. A) 4.8 percent B) 6.0 percent C) 7.2 percent D) 12 percent ANSWER C
The specific cost of each source of long-term financing is based on ________ and ________ costs. A) before-tax; historical B) after-tax; historical C) before-tax; book value D) after-tax; current ANSWER D
A(n) ________ is useful in evaluating credit policies. A) average payment period B) current ratio C) average collection period D) inventory turnover ratio ANSWER C
A call premium is the amount by which the call price exceeds the market price of the bond. Indicate whether the statement is true or false ANSWER FALSE
When determining the after-tax cost of a bond, the face value of the issue must be adjusted to the net proceeds amounts by considering ________. A) the risks B) the flotation costs C) the approximate returns D) the taxes ANSWER B
The ________ ratio may indicate poor collections procedures or a relaxed credit policy. A) average payment period B) inventory turnover C) average collection period D) quick ANSWER C
Stock purchase warrants are instruments that give their holder the right to purchase a certain number of shares of the firm’s common stock at the market price over a certain period of time. Indicate whether the statement is true or false ANSWER FALSE
If a corporation has an average tax rate of 40 percent, the approximate annual, after-tax cost of debt for a 10-year, 8 percent, $1,000 par value bond selling at $1,150 is ________. A) 3.6 percent B) 4.8 percent C) 6 percent D) 8 percent ANSWER A
ABC Corp. extends credit terms of 45 days to its customers. Its credit collection would likely be considered poor if its average collection period was ________. A) 30 days B) 36 days C) 44 days D) 57 days ANSWER D
A firm has a current ratio of 1; in order to improve its liquidity ratios, this firm might ________. A) improve its collection practices by providing extended credit policy B) improve its collection practices and pay accounts payable, thereby decreasing current liabilities and decreasing the current and quick ratios C) decrease current liabilities by utilizing […]