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Principle of Finance Milestone 4 Sophia Course Answer

Principle of Finance Milestone 4 Sophia Course Answer

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When performing capital budgeting and considering replacement projects, one factor that must be considered is the potential __________ of equipment that is no longer needed.

taxation

depreciation

salvage value

sunk costs

CONCEPT

Cash Flow Analysis and Other Factors

According to the residual dividend model, what takes priority over distributing dividends?

Paying off debt

Increasing share price

Establishing a target payout ratio

Financing planned projects

CONCEPT

Setting the Dividend

In what way are debt securities, equity securities and derivatives similar?

They all confer ownership in a business.

They all have fixed terms.

They can all be used to hedge against risk.

Their value is derived from an underlying asset.

CONCEPT

Securities Management

A construction company is preparing a capital budget and considering four long-term investments. The profitability index of each project is as follows:

·Project A: 0.34

·Project B: 1.12

·Project C: 1.26

·Project D: 0.93

In theory, which two projects should the company pursue?

Projects A and D

Projects B and C

Projects A and C

Projects B and D

CONCEPT

Introduction to Capital Budgeting

Which of the following is true of venture capital?

Venture capitalists reserve the right to sell their portion of company shares before an IPO.

Venture capital is comparable to a bank loan, which must be repaid over time.

One way venture capitalists evaluate potential investments is by analyzing a company's share price.

On average, venture capital investors seek a return on their investment in about five years.

CONCEPT

Venture Capital

What is one advantage of NPV as a capital budget method?

Cash flows and the discount rate are easy to accurately determine.

It is flexible, in the sense that the discount rate can be adjusted to account for factors like risk.

It accounts fully for opportunity costs.

It is equally accurate whether cash flows are known or estimated.

CONCEPT

Net Present Value

Which of the following types of financing is typical for a business in its mature stage?

Equity

Bank loans

Second-round venture capital

Start-up venture capital

CONCEPT

Types of Financing

Farrah owns 500 shares of stock valued at $30/share in Company A.

After the company issues a 3% stock dividend, what does Farrah own?

500 shares valued at $30/share

515 shares valued at $29.13/share

515 shares valued at $30/share

500 shares valued at $30.90/share

CONCEPT

Cash Dividend Alternatives

Alyx needs additional short-term financing to modify her children's clothing business. To generate funds, she sells her accounts receivable to an external party for slightly less than their book value.

What type of financing resource is Alyx using?

Trade credit

Commercial lending

Peer-to-peer lending

Factoring

CONCEPT

Short-Term Financing

Select one advantage of IRR as a capital budget method.

The IRR can easily be evaluated alongside a company's threshold rate.

It accurately reflects the reinvestment rate risk.

It is simple to understand because it ignores the time value of money.

It is more useful than NPV analysis when evaluating mutually exclusive projects.

CONCEPT

Internal Rate of Return

Which of the following is an example of an operational risk for a company that manufactures automobiles?

Damage to completed cars held on a storage lot

Rising interest rates that affect the terms of car loans, thereby decreasing demand

A state tax increase that makes buying and registering a car more expensive

A national car rental agency backing out of a contract to buy a certain volume of new cars

CONCEPT

Risk and Capital Budgeting

Which of the following describes the securities underwriting process?

A company sells its securities to an investment bank, who then sells the securities to market participants.

An investment bank helps to connect a private company with sources of capital.

An investment bank determines if a company can afford to go public.

An investment bank responsible for market liquidity quotes a bid price and an ask price for a security.

CONCEPT

The Role of Investment Banks in Financing

Ollie owned stock in a hotel company that announced a dividend, but he did not receive it.

This is because he sold the stock before the __________ date had passed.

record

ex-dividend

in-dividend

payment

CONCEPT

Introduction to Dividends

Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A method of financing an asset like equipment without purchasing it outright with equity"

Capital lease

Operating lease

Both

Neither

CONCEPT

Leasing

When does a company know that it has sufficient working capital?

When it has cash reserves

When its working capital is positive

When it can meet all of its short-term expenses and debts with current assets

When its total assets are equal to its total liabilities

CONCEPT

Working Capital

A company invests $600,000 in a project with the following net cash flows:

·Year 1: $130,000

·Year 2: $113,000

·Year 3: $98,000

·Year 4: $92,000

·Year 5: $89,000

·Year 6: $95,000

In what year does payback occur?

After Year 6

Year 6

Year 4

Year 5

CONCEPT

The Payback Method

Which of the following investors would likely prefer a stock dividend over a cash dividend?

Bayne wants to delay paying taxes on his investments for as long as possible.

Jaden values having a regular stream of income from his investments.

Catrina is risk-averse and doesn't like to count on capital gains.

Aila prioritizes short-term outcomes over long-term ones in her investing choices.

CONCEPT

Dividend Policy

Place the following steps for developing a credit policy in the correct order of process:

·A: The company hopes that few customers will miss payments, so it decides to take no action to collect bad debts.

·B: The company decides that payments must be made within 45 days.

·C: The company decides that it's willing to lose sales in exchange for less bad debt risk.

B, C, A

C, B, A

B, A, C

C, A, B

CONCEPT

Accounts Receivable

Which inventory technique is most useful when a business has inventory that varies greatly in value?

ABC

FIFO

LIFO

Average cost

CONCEPT

Inventory Management

Which of the following is a goal of working capital management?

To manage long-term assets in a way that maximizes returns

To elongate the cash conversion cycle

To ensure liquidity while reducing opportunity costs

To generate as much free working capital as possible

CONCEPT

Working Capital Financing

A company has a 70-day operating cycle, with 15 payable days, 25 receivable days and 45 inventory days.

What is their cash conversion cycle?

CONCEPT

Cash Conversion Cycle

When managing its cash, a company should make use of float to __________.

make payments before they come due

increase the length of the disbursement cycle

set aside cash for future payments

decrease the length of time for a payment to clear the bank

CONCEPT

Cash Management

Select a reason why a company would want to go public.

To decrease administrative costs

To have access to cheaper capital than a private company would

To increase direct oversight from investors

To consolidate control of the company in the hands of management

CONCEPT

Comparing Public and Private Financing

A company has a 70-day operating cycle, with 15 payable days, 25 receivable days and 45 inventory days.

What is their cash conversion cycle?

CONCEPT

Cash Conversion Cycle

An auto manufacturing company is preparing a capital budget and considering four long-term investments. The net present value of each project is as follows:

·Project A: 0.25

·Project B: 0

·Project C: -0.5

·Project D: 1.5

In theory, which two projects should the company pursue?

Projects B and C

Projects A and D

Projects A and B

Projects B and D

CONCEPT

Introduction to Capital Budgeting

Select one disadvantage of IRR as a capital budget method.

Projects of similar durations are not easily compared using IRR.

It is only useful with projects that have negative cash flows.

It can obscure the planning of mutually exclusive projects if one project has a higher IRR and another has a higher NPV.

It involves complex calculations that are not always reliable.

CONCEPT

Internal Rate of Return

Which of the following describes derivatives, rather than debt securities or equity securities?

They are often used to offset external risks like changes in commodity pricing.

They are considered a liquid investment.

They are the least risky of the three.

They are a fixed-term security.

CONCEPT

Securities Management

When does a company know that it has sufficient working capital?

When it has cash reserves

When its total assets are equal to its total liabilities

When its working capital is positive

When it can meet all of its short-term expenses and debts with current assets

CONCEPT

Working Capital

Which of the following is an example of an operational risk for a company that manufactures automobiles?

Rising interest rates that affect the terms of car loans, thereby decreasing demand

A national car rental agency backing out of a contract to buy a certain volume of new cars

A state tax increase that makes buying and registering a car more expensive

Damage to completed cars held on a storage lot

CONCEPT

Risk and Capital Budgeting

Ollie owned stock in a hotel company that announced a dividend, but he did not receive it.

This is because he sold the stock before the __________ date had passed.

record

in-dividend

ex-dividend

payment

CONCEPT

Introduction to Dividends

Which of the following describes the securities underwriting process?

An investment bank helps to connect a private company with sources of capital.

A company sells its securities to an investment bank, who then sells the securities to market participants.

An investment bank determines if a company can afford to go public.

An investment bank responsible for market liquidity quotes a bid price and an ask price for a security.

CONCEPT

The Role of Investment Banks in Financing

When performing capital budgeting and considering replacement projects, one factor that must be considered is the potential __________ of equipment that is no longer needed.

sunk costs

salvage value

taxation

depreciation

CONCEPT

Cash Flow Analysis and Other Factors

Which of the following is a goal of working capital management?

To ensure liquidity and increase cash holding costs

To minimize free working capital and maximize opportunity costs

To balance adequate cash flow against maximal returns

To lengthen the span of time between payment of accounts payable and collection of accounts receivable

CONCEPT

Working Capital Financing

Which of the following investors would likely prefer a cash dividend over a stock dividend?

Paul doesn't mind taking on some additional risk if it means a larger reward down the road.

Zakir wants to be able to purchase more shares so that he owns a larger stake in the company.

Vladamir chooses stocks strategically in order to maximize his capital gains.

Karen prefers knowing that the company she invested in has adequate liquidity.

CONCEPT

Dividend Policy

Which of the following is an advantage of venture capital?

There are no upfront costs to a company seeking venture capital funding.

Venture capital is typically easy to secure even with the most basic of business plans.

Venture capital investments typically carry a small amount of risk and generate small to moderate returns.

New companies can access large amounts of upfront capital that does not have to be repaid, as a loan would be.

CONCEPT

Venture Capital

What is one disadvantage of NPV as a capital budget method?

It is rarely used, so there is disagreement as to what an adequate NPV is.

It cannot be used to compare investments with different upfront costs.

It can be misleading if inputs like cash flow turn out to be wrong.

It does not deliver an overall picture of the gain or loss of implementing a project.

CONCEPT

Net Present Value

Which inventory technique is most useful when a business has inventory that varies greatly in value?

Average cost

FIFO

ABC

LIFO

CONCEPT

Inventory Management

A company invests $750,000 in a project with the following net cash flows:

·Year 1: $43,000

·Year 2: $48,000

·Year 3: $55,000

·Year 4: $36,000

·Year 5: $74,000

·Year 6: $65,000

In what year does payback occur?

Year 5

Year 4

Year 6

After Year 6

CONCEPT

The Payback Method

Kiran needs additional short-term financing for his robotics company, so he asks his suppliers if they could issue a discount if he pays his bills early.

What type of financing resource is Kiran using?

Trade credit

Barter

Factoring

Peer-to-peer lending

CONCEPT

Short-Term Financing

What does the residual dividend model mean for investors?

They should expect to consistently receive the same dividend.

They should expect to always receive very small dividends.

They should expect dividend distributions that are equal to net income.

They should expect a level of uncertainty regarding their dividends.

CONCEPT

Setting the Dividend

Select a reason why a company would want to go public.

To increase direct oversight from investors

To consolidate control of the company in the hands of management

To decrease administrative costs

To have access to cheaper capital than a private company would

CONCEPT

Comparing Public and Private Financing

Which of the following types of financing is typical for a business in its mature stage?

Second-round venture capital

Start-up venture capital

Bank loans

Equity

CONCEPT

Types of Financing

Place the following steps for developing a credit policy in the correct order of process:

·A: The company decides that it wants to minimize opportunity costs by having as much cash on hand as possible.

·B: The company decides that it will send out two notices of late payments to customers before pursuing other collection methods.

·C: The company decides that its payment terms will be Net 15.

A, B, C

A, C, B

C, A, B

C, B, A

CONCEPT

Accounts Receivable

Lennon owns 50 shares of stock in Company A that are valued at $10/share.

After Company A splits their stock at 2-for-1, what does Lennon own?

50 shares valued at $20/share

50 shares valued at $10/share

100 shares valued at $10/share

100 shares valued at $5/share

CONCEPT

Cash Dividend Alternatives

To manage cash efficiently, a company should try to collect payment for delivered products or services __________.

as quickly as possible

in a way that maximizes float time

within 60 days

infrequently

CONCEPT

Cash Management

Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A method of financing an asset like equipment without purchasing it outright with equity"

Capital lease

Operating lease

Both

Neither

CONCEPT

Leasing

What does the residual dividend model mean for a company?

It helps a company attract investors who seek a high dividend payout ratio.

It allows a company to maintain a consistent dividend yield.

It prioritizes the company's growth over shareholder dividends.

It helps a company attract investors who seek a low dividend payout ratio.

CONCEPT

Setting the Dividend

Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A way for a company to acquire equipment for a relatively short-term period, after which the equipment returns to the owner"

Capital lease

Operating lease

Both

Neither

CONCEPT

Leasing

What is the benefit to a company from a securities underwriter?

They help companies to receive a premium on the sale of their securities.

They help companies to reduce the risk associated with an IPO.

They study the market and advise companies on where to set their IPO share price.

They generate demand for a company's securities by giving them a strong credit rating.

CONCEPT

The Role of Investment Banks in Financing

Which of the following is a goal of working capital management?

To ensure liquidity and increase cash holding costs

To lengthen the span of time between payment of accounts payable and collection of accounts receivable

To minimize free working capital and maximize opportunity costs

To balance adequate cash flow against maximal returns

CONCEPT

Working Capital Financing

Which of the following is an example of a market risk for a company that manufactures automobiles?

Supply chain disruptions due to civil war in a country that supplies material

A downgrade in the company's credit rating

A massive lawsuit against the manufacturer over worker safety

A drop in demand due to the rise of ride-sharing as an alternative to automobile ownership

CONCEPT

Risk and Capital Budgeting

Which of the following types of financing is typical for a business in its mature stage?

Second-round venture capital

Equity

Bank loans

Start-up venture capital

CONCEPT

Types of Financing

Which inventory technique assumes that the most recently purchased inventory is sold first?

FIFO

LIFO

ABC

Average cost

CONCEPT

Inventory Management

Jerome needs funding to help start a business selling school supplies. He uses a website that connects him directly with a lender who charges a below-market interest rate.

What type of financing resource is Jerome using?

Factoring

Peer-to-peer lending

Commercial lending

Trade credit

CONCEPT

Short-Term Financing

A company has a 70-day operating cycle, with 15 payable days, 25 receivable days and 45 inventory days.

What is their cash conversion cycle?

CONCEPT

Cash Conversion Cycle

Select one disadvantage of IRR as a capital budget method.

It fails to account for the time value of money.

It can only be used with projects that have positive cash flows.

It can be difficult to interpret and understand.

It is not useful for comparing projects with different lifespans.

CONCEPT

Internal Rate of Return

What is one potential advantage of being a publicly-held company?

A public company may gain from greater investor involvement than a private company.

A public company has fewer requirements to meet when it comes to shareholder communication and reporting.

A public company always has a higher share price than a private company.

A public company may have a more prominent reputation than a private company.

CONCEPT

Comparing Public and Private Financing

Which of the following is a disadvantage of venture capital?

Companies that receive venture capital are prohibited from issuing an IPO once they become successful.

Receiving venture capital can send a message to other investors that your company is unlikely to succeed.

Venture capitalists only receive a return on their investment if the company is eventually purchased for a large sum.

Venture capital investors may place restrictions on company operations, such as setting salary caps.

CONCEPT

Venture Capital

When does a company know that it has sufficient working capital?

When it has cash reserves

When its working capital is positive

When it can meet all of its short-term expenses and debts with current assets

When its total assets are equal to its total liabilities

CONCEPT

Working Capital

Which of the following describes derivatives, rather than debt securities or equity securities?

They are the least risky of the three.

They are considered a liquid investment.

They are a fixed-term security.

They are often used to offset external risks like changes in commodity pricing.

CONCEPT

Securities Management

A company invests $750,000 in a project with the following net cash flows:

·Year 1: $43,000

·Year 2: $48,000

·Year 3: $55,000

·Year 4: $36,000

·Year 5: $74,000

·Year 6: $65,000

In what year does payback occur?

Year 5

After Year 6

Year 4

Year 6

CONCEPT

The Payback Method

Which of the following investors would likely prefer a stock dividend over a cash dividend?

Jaden values having a regular stream of income from his investments.

Catrina is risk-averse and doesn't like to count on capital gains.

Bayne wants to delay paying taxes on his investments for as long as possible.

Aila prioritizes short-term outcomes over long-term ones in her investing choices.

CONCEPT

Dividend Policy

When managing its cash, a company should make use of float to __________.

increase the length of the disbursement cycle

decrease the length of time for a payment to clear the bank

set aside cash for future payments

make payments before they come due

CONCEPT

Cash Management

What is one advantage of NPV as a capital budget method?

It accounts fully for opportunity costs.

It is equally accurate whether cash flows are known or estimated.

Cash flows and the discount rate are easy to accurately determine.

It is flexible, in the sense that the discount rate can be adjusted to account for factors like risk.

CONCEPT

Net Present Value

An electronics company is preparing a capital budget and considering four long-term investments. The payback period of each project is as follows:

·Project A: 4 years

·Project B: 5.2 years

·Project C: 2.4 years

·Project D: 3 years

In theory, which two projects should the company pursue?

Projects C and D

Projects A and C

Projects A and B

Projects B and D

CONCEPT

Introduction to Capital Budgeting

Rose is concerned about a stock in her portfolio because in recent periods, the dividend she has received for each share has gotten smaller while the share price has remained relatively constant.

What financial metric is Rose analyzing?

Dividend cover

Dividend yield

Payout ratio

Dividend per share

CONCEPT

Introduction to Dividends

Place the following steps for developing a credit policy in the correct order of process:

·A: The company hopes that few customers will miss payments, so it decides to take no action to collect bad debts.

·B: The company decides that payments must be made within 45 days.

·C: The company decides that it's willing to lose sales in exchange for less bad debt risk.

C, B, A

C, A, B

B, C, A

B, A, C

CONCEPT

Accounts Receivable

Aneeka owns 40 shares of stock in Company A that are valued at $15/share.

After Company A repurchases 5% of its outstanding shares on the open market, what does Aneeka own?

40 shares valued at a higher price/share

40 shares valued at a lower price/share

38 shares of stock valued at a higher price/share

38 shares of stock valued at a lower price/share

CONCEPT

Cash Dividend Alternatives

When performing capital budgeting, __________ incurred by a project are irrelevant to future investment decisions.

sunk costs

depreciation

taxes

opportunity costs

CONCEPT

Cash Flow Analysis and Other Factors

Select one disadvantage of IRR as a capital budget method.

It can obscure the planning of mutually exclusive projects if one project has a higher IRR and another has a higher NPV.

Projects of similar durations are not easily compared using IRR.

It is only useful with projects that have negative cash flows.

It involves complex calculations that are not always reliable.

CONCEPT

Internal Rate of Return

What is one disadvantage of NPV as a capital budget method?

Although the weighted average cost of capital is commonly used as the discount rate, it is not a perfect input.

It cannot be used to compare mutually exclusive investments.

It can only be used to evaluate bonds.

It can be very difficult to calculate, even if inputs like cash flows are quite clear.

CONCEPT

Net Present Value

When performing capital budgeting, cash flow analysis can help a company determine when to execute __________.

taxes

replacement projects

sunk costs

depreciation

CONCEPT

Cash Flow Analysis and Other Factors

Which of the following is an example of an operational risk for a company that manufactures automobiles?

A state tax increase that makes buying and registering a car more expensive

Damage to completed cars held on a storage lot

A national car rental agency backing out of a contract to buy a certain volume of new cars

Rising interest rates that affect the terms of car loans, thereby decreasing demand

CONCEPT

Risk and Capital Budgeting

A company with a 120-day operating cycle determines its cash conversion cycle using the following data:

·Receivable days: 35

·Inventory days: 95

·Payable days: 45

What is the company's cash conversion cycle?

165

105

CONCEPT

Cash Conversion Cycle

Which of the following is a goal of working capital management?

To manage long-term assets in a way that maximizes returns

To elongate the cash conversion cycle

To ensure liquidity while reducing opportunity costs

To generate as much free working capital as possible

CONCEPT

Working Capital Financing

A company invests $600,000 in a project with the following net cash flows:

·Year 1: $130,000

·Year 2: $113,000

·Year 3: $98,000

·Year 4: $92,000

·Year 5: $89,000

·Year 6: $95,000

In what year does payback occur?

After Year 6

Year 4

Year 6

Year 5

CONCEPT

The Payback Method

Which of the following is an advantage of venture capital?

New companies can access large amounts of upfront capital that does not have to be repaid, as a loan would be.

There are no upfront costs to a company seeking venture capital funding.

Venture capital is typically easy to secure even with the most basic of business plans.

Venture capital investments typically carry a small amount of risk and generate small to moderate returns.

CONCEPT

Venture Capital

Which of the following describes the securities underwriting process?

A company sells its securities to an investment bank, who then sells the securities to market participants.

An investment bank determines if a company can afford to go public.

An investment bank helps to connect a private company with sources of capital.

An investment bank responsible for market liquidity quotes a bid price and an ask price for a security.

CONCEPT

The Role of Investment Banks in Financing

What does the residual dividend model mean for investors?

They should expect dividend distributions that are equal to net income.

They should expect a level of uncertainty regarding their dividends.

They should expect to always receive very small dividends.

They should expect to consistently receive the same dividend.

CONCEPT

Setting the Dividend

In what way are debt securities, equity securities and derivatives similar?

Their value is derived from an underlying asset.

They all have fixed terms.

They all confer ownership in a business.

They can all be used to hedge against risk.

CONCEPT

Securities Management

Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A method of financing an asset like equipment without purchasing it outright with equity"

Capital lease

Operating lease

Both

Neither

CONCEPT

Leasing

Select a reason why a company would want to go public.

To consolidate control of the company in the hands of management

To have access to cheaper capital than a private company would

To increase direct oversight from investors

To decrease administrative costs

CONCEPT

Comparing Public and Private Financing

A construction company is preparing a capital budget and considering four long-term investments. The profitability index of each project is as follows:

·Project A: 0.34

·Project B: 1.12

·Project C: 1.26

·Project D: 0.93

In theory, which two projects should the company pursue?

Projects A and D

Projects B and D

Projects B and C

Projects A and C

CONCEPT

Introduction to Capital Budgeting

Which of the following investors would likely prefer a cash dividend over a stock dividend?

Zakir wants to be able to purchase more shares so that he owns a larger stake in the company.

Paul doesn't mind taking on some additional risk if it means a larger reward down the road.

Karen prefers knowing that the company she invested in has adequate liquidity.

Vladamir chooses stocks strategically in order to maximize his capital gains.

CONCEPT

Dividend Policy

Lennon owns 50 shares of stock in Company A that are valued at $10/share.

After Company A splits their stock at 2-for-1, what does Lennon own?

50 shares valued at $10/share

100 shares valued at $10/share

100 shares valued at $5/share

50 shares valued at $20/share

CONCEPT

Cash Dividend Alternatives

With respect to payroll disbursements, one way a company can manage their cash more efficiently is to __________.

implement check kiting

increase float time

use lockbox banking

limit outsourcing

CONCEPT

Cash Management

What type of financing resource is Alyx using?

Peer-to-peer lending

Commercial lending

Trade credit

Factoring

CONCEPT

Short-Term Financing

Ollie owned stock in a hotel company that announced a dividend, but he did not receive it.

This is because he sold the stock before the __________ date had passed.

record

in-dividend

payment

ex-dividend

CONCEPT

Introduction to Dividends

Seed money is a type of financing appropriate for a company in what stage of development?

Decline

Introduction

Growth

Maturity

CONCEPT

Types of Financing

What type of inventory does paint that has been colored but not yet put into cans represent for a paint company?

Class C

Raw materials

Finished goods

Work in process

CONCEPT

Inventory Management

What can a business that has too little working capital do to increase it?

Decrease inventory

Increase short-term liabilities

Reduce current assets

Increase cash on hand

CONCEPT

Working Capital

Place the following steps for developing a credit policy in the correct order of process:

·A: The company decides that it will contact customers by phone if they are late on a payment.

·B: The company decides that it will not require customers to undergo a credit check.

·C: The company decides that it will reward loyal customers with a discount for early payment.

B, A, C

C, A, B

C, B, A

B, C, A

Which of the following is true of a market maker?

Market makers rate the creditworthiness of the issuer.

Market makers purchase a company's securities before an IPO and then resell them at a premium.

Market makers assist with market liquidity by facilitating the exchange of securities.

Market makers help companies to negotiate mergers and acquisitions.

Which of the following describes equity securities, rather than debt securities or derivatives?

They carry more risk than debt securities, but less than derivatives.

They offer a fixed rate of return.

They typically generate the highest returns of the three types of marketable securities.

They are best for hedging against changes in currency exchange rates.

Which of the following is an example of a market risk for a company that manufactures automobiles?

Damage to completed cars being transported to a buyer

A failure in the company's accounts receivable process

A competitor that offers a similar line of cars with comparable quality at lower prices

Being suddenly unable to source a critical component of the automobile

Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A commercial financing agreement wherein a company may purchase the leased asset at a discount when the lease ends"

Capital lease

Operating lease

Both

Neither

Place the following steps for developing a credit policy in the correct order of process:

·A: The company decides that it will contact customers by phone if they are late on a payment.

·B: The company decides that it will not require customers to undergo a credit check.

·C: The company decides that it will reward loyal customers with a discount for early payment.

B, C, A

B, A, C

C, B, A

C, A, B

Venture capital bridge financing is appropriate for a company in what stage of development?

Introduction

Growth

Maturity

Decline

Consider the following data from a company's 95-day operating cycle:

·Payable days: 8

·Receivable days: 25

·Inventory days: 70

What is the cash conversion cycle for this company?

103

Which of the following investors would likely prefer a cash dividend over a stock dividend?

Layton prefers when companies let him decide how to benefit from his dividends.

Kylie is a high-income earner and prefers to avoid additional taxes this year.

Harriett is more focused on long-term outcomes than short-term ones when it comes to investing.

Enrique subscribes to the "bird in the hand" theory when it comes to dividends.

Which of the following is a goal of working capital management?

To minimize liquidity and maximize profitability

To balance the cash conversion cycle against maximum revenue

To eliminate the risk of customers defaulting on credit

To make long-term capital investment decisions

Determine whether the following description is true of a capital lease, an operating lease, neither or both.

"A commercial financing agreement wherein a company may purchase the leased asset at a discount when the lease ends"

Capital lease

Operating lease

Both

Neither

A company invests $40,000 in a project with the following net cash flows:

·Year 1: $3,000

·Year 2: $8,000

·Year 3: $14,000

·Year 4: $19,000

·Year 5: $22,000

·Year 6: $28,000

In what year does payback occur?

Year 3

Year 5

Year 4

Year 6

What is one potential advantage of being a privately-held company?

Risk is spread among a larger pool of investors in a private company.

If a company is private, it is better positioned to pursue acquisitions.

If managers also own the company, they are strongly incentivized to succeed.

A private company has access to less expensive sources of capital than a public company.

A business that has too little working capital can take what action?

Reduce credit to consumers

Increase short-term financing

Increase inventory

Reduce cash on hand

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Status NEW Posted 12 Aug 2020 07:08 PM My Price 35.00

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