Appropriate collateral for a loan secured under a trust receipt inventory loan is ________. A) drill bits B) pencils C) vehicles D) bolts ANSWER C
Date: September 19th, 2020
If four plus five equals ten, that’s synergy. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
Because of the extensive research conducted in recent years in the area of capital structure theory, it is now possible for financial managers to pinpoint with great accuracy a firm’s optimal capital structure. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Erosion is the additional cash generated by a new project beyond the current cash flow with the addition of a specific new project. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: INCREMENTAL CASH FLOW is the additional cash generated by a new project beyond the current cash flow with […]
Date: September 19th, 2020
Despite the extensive research conducted in recent years in the area of capital structure theory, it is not yet possible to provide financial managers with a specified methodology for use in determining a firm’s optimal capital structure. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Continuing with the numbers from the previous question, compute new value of the firm’s levered equity, , after the following actions by the firm’s management: Management issues additional pure-discount debt which has a promised payment of X’=621 at T=3 and has the same priority as the firm’s original debt. The firm receives total proceeds of […]
Date: September 19th, 2020
Name and describe three issues that can affect the incremental cash flow of a new project. What will be an ideal response? ANSWER Answer: Examples of issues that can affect the incremental cash flow of a new project are: Sunk Costs, Opportunity Costs, Erosion Costs, Synergy Gains, Working Capital, Capital Expenditures, and Depreciation […]
Date: September 19th, 2020
A shift toward more fixed costs increases business risk, which in turn causes earnings before interest and taxes to increase by less for a given increase in sales. Indicate whether the statement is true or false ANSWER FALSE
Date: September 19th, 2020
Explain why one must be careful when accounting for erosion costs. What will be an ideal response? ANSWER Answer: Erosion costs occur whenever a company’s new product competes against its existing products, thereby reducing the sales of these existing products. One must be careful in including the reduced sales. This is because the […]
Date: September 19th, 2020
The current value of levered firm ABC, Inc is $100 million. Its capital structure consists of equity and pure discount debt on which a payment of $80 mn. is due in 5 years. The risk-free rate is 5%. Using the Black-Scholes Option Pricing Model, the value of the firm’s equity is (i) if =20%, and […]
Date: September 19th, 2020
