Assume that a firm issues a six-month note to purchase inventory. Which of the following is true if the current ratio before the purchase is 1.0? A) The firm’s current ratio must decrease. B) The firm’s current ratio will increase. C) The firm’s quick ratio might decrease. D) The firm’s quick ratio will stay the […]
Date: September 19th, 2020
A temporary parking place for cash means holding liquid assets until the investment environment for long-term assets improves. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following statements regarding firms and value is NOT true? A) We can create value by taking on negative net present value projects. B) Shareholder control in and of itself has value. C) Value is ultimately what someone is willing to pay for a firm. D) It is important to know what is […]
Date: September 19th, 2020
You have been accepted into a prestigious private university in Southern California – congratulations! Since no one from this school has ever graduated in only four years, you anticipate that you will need to make 10 semi-annual tuition payments of $25,000 each with the first cash flow six months from today. If you choose to […]
Date: September 19th, 2020
If provided the nominal rate of interest (r) of 7.4% and the anticipated rate of inflation (i) of 4.5%, what is the real rate of interest (R)? What will be an ideal response? ANSWER r = R + i + Ri .074 = R + .045 + (.045)(R) .074 – .045 = 1.045R […]
Date: September 19th, 2020
Which of the following is not a characteristic of home equity loans? A) They may generate tax-deductible interest payments. B) Repayment may be stretched out over many years. C) The proceeds may be used to finance consumption of consumer goods. D) They carry higher interest rates than non-secured consumer loans. ANSWER D
Date: September 19th, 2020
According to the CAPM, for each unit of beta, an asset’s required rate of return increases by the market’s risk premium. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
By changing a firm’s capital structure to one more optimal, a firm may be able to A) reduce its cost of capital. B) increase its value. C) find that more of its potential projects are financially attractive due to lower capital costs. D) find that all of the above are true. ANSWER D
Date: September 19th, 2020
Vegan Foods Inc has a current capital structure of 30% debt, 70% equity, and are in a 40% tax bracket. However, after speaking with their investment bankers they have decided to increase their debt to 40% of total capital. Some of the firm’s managers are concerned that there may an increase in risk for stockholders […]
Date: September 19th, 2020
Many financial planners believe you should hold emergency reserves of no more than one month of after-tax income. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
