Discuss and contrast the three types of loans discussed in the text that use inventory as collateral: floating inventory liens, trust receipt inventory loans, and warehouse receipt loans. What will be an ideal response? ANSWER A floating inventory lien is certainly the easiest for a firm since the lender just takes a lien […]
Working capital refers to a firm’s long-term capital. Indicate whether the statement is true or false ANSWER FALSE
Akerlof also discusses the problem of _ in the health insurance market. Health insurers attempt to estimate, for each individual insurance applicant, the probability that they will file an insurance claim, and price insurance premiums accordingly. However, this is an imperfect process, so the insurer must offer a common premium to a specified group of […]
The ________ a capital asset is NOT part of the MACRS and is ignored for depreciation expense. A) salvage value of B) dividends paid from C) inventory from D) straight-line value of ANSWER Answer: A
A firm is considering purchasing an asset that will have a useful life of 8 years and cost $5.5 million; it will have installation costs of $90,000 and a salvage or residual value of $1,600,000. What is the annual straight-line depreciation for this asset A) $400,000 per year B) $422,000 per year C) $498,750 per […]
The advantage of ________ over ________ depreciation is that you can write off more of your capital costs in the earlier years. A) straight-line depreciation; the modified accelerated cost recovery system B) straight-line depreciation; straight-line deductions C) MACRS; straight-line depreciation D) MACRS; straight-line deductions ANSWER Answer: C
________ costs each year do not reflect cash flow because the actual purchase and installation (outflow of dollars) of the asset have already taken place. A) Depreciation B) Sunk C) Opportunity D) Working Capital ANSWER Answer: A
A firm is considering purchasing an asset that will cost $5 million. Other depreciable costs include $800,000 in installation costs. If the asset is classified in the 5-year class, what is the annual depreciation for years 1, 3, and 6 for this asset, using the fixed depreciation percentages given by MACRS? (The percentages are 20.00%, […]
Short-term financial management is concerned with management of a firm’s current assets and current liabilities to achieve a balance between profitability and risk. Indicate whether the statement is true or false ANSWER TRUE
Which of the following was NOT mentioned by Akerlof to mitigate the lemons problem? a. certification b. using a costly signal c. private negotiation d. establishing a reputation e. contract enforcement ANSWER C
