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
There are two main reasons why we need to deal with depreciation. Which of the below is one of these reasons? A) The gain but not the loss when a capital asset is disposed B) The loss but not the gain when a capital asset is disposed C) The tax flow implications from the OCF […]
________ is the process of “expiring” the cost of a long-term tangible asset over its useful life. A) Expiration B) Depreciation C) Economic recovery D) Salvaging ANSWER Answer: B
When considering fixed operating cost increases, a financial manager must weigh the increased financial risk associated with greater operating leverage against the expected increase in returns. Indicate whether the statement is true or false ANSWER FALSE
