Financial risk is the risk to a firm of being unable to cover operating costs. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following is an advantage of factoring? A) accounts receivable immediately turned into cash B) addition of credit and collection departments C) less costly form of secured short-term loans D) improves current ratio ANSWER A
Date: September 19th, 2020
One principal-agent conflict is that between a firm’s creditors (as a principal) and its shareholders (as agent). For example, after issuing risky debt, stockholders have an incentive to increase the riskiness of the firm’s assets (e.g. , by changing operating strategy), which would tend to expropriate wealth from creditors to stockholders. Which of the assumptions […]
Date: September 19th, 2020
Which of the following creates a secured short-term loan with accounts receivable? A) lines of credit B) commercial paper C) pledge of accounts receivable D) factoring of accounts receivable ANSWER C
Date: September 19th, 2020
Hollister, Inc. is currently considering an eight-year project that has an initial outlay or cost of $120,000. The future cash inflows from its project for years 1 through 8 are the same at $30,000. Hollister has a discount rate of 11%. Because of capital rationing (shortage of funds for financing), Hollister wants to compute the […]
Date: September 19th, 2020
Dakota, Inc. is currently considering an eight-year project that has an initial outlay or cost of $140,000. The cash inflows from its project for years 1 through 8 are the same at $35,000. Dakota has a discount rate of 12%. Because there is a shortage of funds to finance all good projects, Dakota wants to […]
Date: September 19th, 2020
The primary source of secured short-term loans to businesses are ________. A) commercial banks and commercial finance companies B) lines of credit and revolving lines of credit C) commercial paper dealers and investment bankers D) life insurance companies and government securities brokers ANSWER A
Date: September 19th, 2020
Transaction costs and personal taxes may affect investors’ ability to undertake arbitrage. Also, a firm’s earnings are taxed, and interest payments are deductible while dividends are not. These are examples of the violation of which of the assumptions of an ideal capital market? a. Capital Markets are frictionless b. Homogeneous expectations c. Atomistic competition d. […]
Date: September 19th, 2020
Project A has an NPV of $20,000 and a PI of 1.2. Project B has an NPV of $10,000 and a PI of 1.3. Both projects have equal lives. Which project should be preferred if we are NOT concerned with capital rationing (that is, we are NOT concerned with being short of funds)? A) We […]
Date: September 19th, 2020
The present value of the benefits and costs needed to calculate Profitability Index (PI) is the same information one finds when computing the NPV. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
