Which of the below statements is FALSE? A) Whenever a new product competes against a company’s already existing products and reduces the sales of other products, opportunity costs occur. B) Erosion can provide cost savings. C) A synergy gain occurs when a new product can be introduced that complements another current product so that sales […]
Whenever a new product competes against a company’s already existing products and reduces the sales of the other products, net working capital increases occur. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Whenever a new product competes against a company’s already existing products and reduces the sales of these […]
If the company had a large depreciation expense during the period, the income statement could show a loss for the period, even though the cash account may have grown during the same period. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Effective capital structure decisions can lower the cost of capital, resulting in higher NPVs and more acceptable projects, thereby increasing the value of a firm. Indicate whether the statement is true or false ANSWER TRUE
A trust receipt inventory loan is an arrangement in which the lender receives control of the pledged inventory collateral, which is stored by a designated agent. Indicate whether the statement is true or false ANSWER FALSE
Consider the case of a business that has had a very profitable year and earned a million dollars in profits. Can it distribute a million dollars to its owners (via dividends)? A) Yes, definitely B) Maybe, maybe not C) Definitely not D) It can certainly distribute over a million dollars. ANSWER Answer: B […]
A firm initially finances its assets with specified proportions of debt and equity, and then later issues additional debt, using the proceeds to pay a dividend to shareholders. If the new debt has the same priority as the original debt, the value of the original debt will probably fall, an effect called claim dilution. Which […]
A firm has revenue of $50,000, the cost of goods sold is $23,000, other expenses (from selling and administration) are $14,000, interest expenses are $4,000 and depreciation is $5,000. What is the EBIT? A) $4,000 B) $8,000 C) $13,000 D) $27,000 ANSWER Answer: B Explanation: B) EBIT = Revenue – Cost of Goods […]
The more fixed cost financing a firm has in its capital structure, the greater is its financial leverage and risk. Indicate whether the statement is true or false ANSWER TRUE
Inventory is more attractive than accounts receivable as a short-term collateral since it normally has a market value greater than its book value, which is used to establish its value as collateral. Indicate whether the statement is true or false ANSWER FALSE
