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
Operating Cash Flow (OCF) is equal to what? A) EBIT – Depreciation + Taxes B) EBIT + Depreciation – Taxes C) EBIT – Depreciation – Taxes D) EBIT + Depreciation + Taxes ANSWER Answer: B
The revenue is $25,000, the cost of goods sold is $11,000, other expenses (from selling and administration) are $7,000, and depreciation is $1,000. What is the EBIT? A) $13,000 B) $7,000 C) $6,000 D) Cannot tell because we do not know the interest paid. ANSWER Answer: C Explanation: C) EBIT = Revenue – […]
The two most fundamental aspects of a corporation (as a form of business organization) that lead to not only tremendous economies of scale and scope (as a positive) but also are linked to the financing problems that we address in the course (as a negative) are: a. the separation of ownership and control AND private […]
The EBIT is $20,000, depreciation is $5,000, and taxes are $3,000. What is the operating cash flow (OCF)? A) $25,000 B) $22,000 C) $14,000 D) $28,000 ANSWER Answer: B Explanation: B) OCF = EBIT + Depreciation – Taxes = $20,000 + $5,000 – $3,000 = $22,000.
Asymmetric information results when managers of a firm have more information about the firm’s operations and future prospects than investors have. Indicate whether the statement is true or false ANSWER TRUE
Most businesses fail because their ________ dries up. A) net working capital B) cash flow C) liabilities D) tax shield ANSWER Answer: B
A floating inventory lien is most attractive when the firm has a stable level of inventory that consists of a diversified group of relatively inexpensive merchandise. Indicate whether the statement is true or false ANSWER TRUE
________ are an accounting measure of performance during a specific period of time, while ________ is the actual inflow or outflow of money. A) Profits; cash flow B) Cash flows; profit C) Dividends; cash flow D) Profits; a dividend ANSWER Answer: A