The purpose of managing current assets and current liabilities is to ________. A) achieve a balance between short-term and long-term financing of a firm B) achieve as low a level of current liabilities as possible C) achieve a balance between profitability and risk that contributes to a firm’s value D) achieve as high a level […]
The hypothesis is stated as follows: Among long-term assets, the firm should finance long-term tangible assets, such as PP&E, with long-term debt, while other long-term assets, such as investments and intangibles, must be financed with equity. a. tangible asset b. debt-equity c. collateral d. Fisher ANSWER C
The current market value of the assets of levered firm ABC, Inc is $100 million. The annual standard deviation of returns on the assets is 30%. The firm’s capital structure consists of equity and pure discount debt for which payment of $80 million is due in 5 years. The risk-free rate is 5%. Using the […]
Net working capital is defined as ________. A) total assets minus total liabilities B) total liabilities minus total assets C) current liabilities minus current assets D) current assets minus current liabilities ANSWER D
Which of the following is true of net working capital? A) When current assets of a firm exceed its current liabilities,a firm is said to have negative net working capital. B) When current assets of a firm are less than its total assets,a firm is said to have positive net working capital. C) When current […]
The remaining book value when a project is terminated is the ________ minus accumulated depreciation over the life of the project. A) original cost B) ending cost C) salvage cost D) sunk cost ANSWER Answer: A
Economies of scale are present where the cost of producing each unit declines as the quantity of product produced increases. In this environment, large-scale firms have a cost advantage. Thus, economies of scale serve to _ the cost of entry into an industry. a. increase b. decrease ANSWER A
In this problem, we admit only one real-world factor in an otherwise ideal capital market. This real world factor is corporate taxation; specifically that interest payments on debt are deductible while dividend payments are not deductible. Suppose Delaware East, Inc has until now been an all-equity firm with a market value of $100 mn. Now, […]
The inexpensive nature of long-term debt in a firm’s capital structure is due to the fact that ________. A) the equity holders are the true owners of the firm B) equity capital has a fixed return C) interest payments are tax-deductible D) equity holders have a higher position in the priority of claims […]
An increase in current assets increases net working capital, thereby reducing the risk of insolvency. Indicate whether the statement is true or false ANSWER TRUE
