1) What differentiates "discretionary financing needs" from "external financing needs?"

1) What differentiates "discretionary financing needs" from "external financing needs?"

   A) assets
   B) retained earnings
   C) spontaneous liabilities
   D) sales

2) The quick ratio of a firm would be unaffected by which of the following?

   A) land held for investment is sold for cash

   B) inventories are sold on a short-term credit basis
   C) equipment is purchased, financed by a long-term debt issue
   D) inventories are sold for cash

3) The current ratio of a firm would be decreased by which of the following?
   A) Land held for investment is sold for cash.
   B) Inventories are sold on a long-term credit basis.
   C) Equipment is purchased, financed by a long-term debt issue.
   D) Inventories are sold for cash.

4) Strategies to counter exchange rate risk include all of the following except

  A) spot-market hedges.
  B) forward-market hedges.
  C) futures contracts.
  D) money-market hedges.

5) Firms generally do not hedge against which type of exposure?  

    A) economic
    B) transaction
    C) financial
    D) translation


6) Which of the following is the initial and most important step in the preparation of pro forma

 

financial statements?

    A) Estimate the levels of investment in current and fixed assets.
    B) Approximate the cost of raw materials.
    C) Project the firm's sales revenues for the planning period.
    D) Determine the rate of interest that will be required for borrowed funds.


7) Assume that a firm has determined that its investment in accounts receivable is getting too large relative to its sales volume. Which of the following courses of action would be best for it to take in order to improve the collection of accounts receivable in future periods?

    A) sell more products
    B) change the color of the firm's invoices
    C) allow customers more time to pay for products
    D) raise the firm's credit standards
    E) reduce product quality control requirements

8) Capital market instruments include
A) commercial paper.
B) Treasury bills.
C) corporate equities.
D) negotiable certificates of deposit.


9) Activities of the investment banker include
A) providing advice to firms issuing securities.
B) selling new securities to the ultimate investors.
C) assuming the risk of selling a security issue.
D) All of the above


10) Financial intermediaries

A) include the national and regional stock exchange.
B) offer indirect securities.
C) constitute the various secondary markets.
D) usually are underwriting syndicates.


11) An example of a primary market transaction involving a money market security is

A) a new issue of a security with a very short maturity.
B) the transfer of a previously issued security with a very long maturity.
C) a new issue of a security with a very long maturity.
D) the transfer of a previously issued security with a very short maturity.


12) Which of the following refers to all institutions and procedures that provide for transactions in short-term debt instruments generally issued by borrowers with very high credit ratings?
A) stock market
B) commercial banks
C) capital market
D) money market

13) Why is the quick ratio a more refined liquidity measure than the current ratio?

A) Inventories are generally the least liquid of the firm's current assets.
B) Inventories are generally among the most liquid of the firm's current assets.
C) It measures how "quickly" cash and other liquid assets flow through the company.
D) Cash is the most liquid current asset.

14) Which of the following ratios would be the poorest indicator of how rapidly the firm's credit accounts are being collected?

A) accounts receivable turnover ratio
B) cash conversion cycle
C) inventory turnover
D) average collection period

15) A firm that wants to know if it has enough cash to meet its bills would be most likely to use which kind of ratio?

A) leverage
B) efficiency
C) liquidity
D) profitability

16) Which of the following ratios would you rely upon the most in order to determine a corporation's ability to meet its required interest payments?

A) total asset turnover
B) times interest earned
C) debt ratio
D) net profit margin

 

 

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Best View manufactures sophisticated digital cameras.

Best View manufactures sophisticated digital cameras. The company’s new models are very popular, but it has an inventory of 1,000 old models for which there is little demand. Decision to Sell or Rebuild Deficient Units Best View manufactures sophisticated digital cameras. The company’s new models are very popular, but it has an inventory of 1,000 old models for which there is little demand. Best View is considering the following options for disposing of these old models: 1. Sell them to a discount mail-order company at a total price of $150,000. The mail-order firm would then sell these old models at a unit price of $399. 2. Convert them to new models at a remanufacturing cost of $700 per unit. These new models then could be sold to camera stores for $1200 each. The old models had been manufactured at a cost of $450 per unit. The cost of manufacturing new models of the same size, however, normally amounts to $800 per unit. INSTRUCTIONS a. Perform an incremental analysis of the revenue, costs, and profit resulting from converting the old models to new models as compared with selling them to the mail-order firm. b.) Identify any sunk costs, out of pocket costs, and possible opportunity costs. c.) Indicate which of these options you would select and explain your reasoning, assuming that Best View currently:

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Best View manufactures sophisticated digital cameras.

Best View manufactures sophisticated digital cameras. The company’s new models are very popular,

 but it has an inventory of 1,000 old models for which there is little demand.

Decision to Sell or Rebuild Deficient Units

Best View manufactures sophisticated digital cameras. The company’s new models are very popular,

 but it has an inventory of 1,000 old models for which there is little demand. Best View is considering

 the following options for disposing of these old models:

1. Sell them to a discount mail-order company at a total price of $150,000. The mail-order firm would

 then sell these old models at a unit price of $399.

2. Convert them to new models at a remanufacturing cost of $700 per unit. These new models then

 could be sold to camera stores for $1200 each.

The old models had been manufactured at a cost of $450 per unit. The cost of manufacturing new

 models of the same size, however, normally amounts to $800 per unit.

INSTRUCTIONS

       a.) Perform an incremental analysis of the revenue, costs, and profit resulting from converting the

          old models to new models as compared with selling them to the mail-order firm.

       b.) Identify any sunk costs, out of pocket costs, and possible opportunity costs.

       c.) Indicate which of these options you would select and explain your reasoning, assuming that

 Best View currently:

1. Has substantial excess capacity.

2. Is operating at full capacity manufacturing new models.

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Kelp Company produces three joint products from seaweed.

Kelp Company produces three joint products from seaweed. At the split-off point, three basic  products emerge: Sea Tea, Sea Paste, and Sea Powder. Joint Products Kelp Company produces three joint products from seaweed. At the split-off point, three basic products emerge: Sea Tea, Sea Paste, and Sea Powder. Each of these  products can either be sold at the split-off point or be processed further.  If they are processed further, the resulting products can be sold as delicacies to health food stores.  Cost and revenue information is as follows: Sales Value and Additional Costs if Processed Further Product Pounds Sales Value Final Sales Value Additional Cost Produced @ Split-off Sea Tea….. 9,000 $60,000 $90,000 $35,000 Sea Paste…. 4,000 $80,000 $160,000 $50,000 Sea Powder… 2,000 $70,000 $85,000 $14,000 INSTRUCTIONS a.) Which products should Kelp process beyond the split-off point? b.) At what price per pound would it be advantageous for Kelp Company to sell Sea Paste at the split -off point rather than process it further? CLICK HERE FOR THE SOLUTION

AT&T Corp has several issues of bonds outstanding.

AT&T Corp has several issues of bonds outstanding. One of the outstanding bonds has a 5 &1/8  percent coupon and matures in 2004. The bonds mature on April 1 in the maturity year. Suppose  an investor bought this bond on April 1 1999, and assume interest is paid annually on April 1.  calculate the yield to maturity assuming the investor buys the bond at the following price, as quoted in the financial press: a. 100 b 90 c 105 CLICK HERE FOR THE SOLUTION

Southern Bell has issued 4 3/8 percent bonds that mature on August 1 2011.

Southern Bell has issued 4 3/8 percent bonds that mature on August 1 2011.  Assume that interest is paid and compounded annually. Determine the  yield to maturity if an investor purchase a $1000.00 denomination bond  for $853.75 on August 1, 2004. CLICK HERE FOR THE SOLUTION

Problem 1 Management is considering purchasing an asset for $20,000 that would have a useful life

Problem 1 Management is considering purchasing an asset for $20,000 that would have a useful life  of 10 years and no salvage value. For tax purposes, the entire original cost of the asset would be  depreciated over 10 years using the straight-line method. The asset would generate annual net  cash inflows of $12,000 throughout its useful life. The project would require additional working  capital of $6,000, which would be released at the end of the project. The company's tax rate is  40% and its discount rate is 13%. Questions: What is the annual NET (after tax) Cash Inflows? (4 points) What is the annual Depreciation Deduction? (4 points) What is the Net Present Value for this project? (12 points) CLICK HERE FOR THE SOLUTION

Problem 2 ABC Outlet Store is looking for a new location near a shopping mall.

Problem 2 ABC Outlet Store is looking for a new location near a shopping mall. It is considering purchasing a  building rather than leasing, as it has done in the past. Three retail buildings near a new mall are available  but each has its own advantages and disadvantages. The owner of the company has completed an analysis  of each location that includes considerations for the time value of money. The information is as follows Location A Location B Location C Internal rate of return 13% 17% 20% Net present value $25,000 $40,000 $20,000 The owner does not understand how the location with the highest percentage return has the lowest net present value. Explain to the owner what is (are) the probable cause(s) of the comparable differences (10 points) CLICK HERE FOR THE SOLUTION

Consider a bond with face value of $1,000.The coupon payment is made semi-annually and the yield to

Consider a bond with face value of $1,000.The coupon payment is made semi-annually and the yield to

 maturity on the bond is 12% (effective annual yield). How much would you pay for the bond if:

a) The coupon rate is 8% and the time to maturity is 20 years?

b) The coupon rate is 10% and the time to maturity is 15 years?

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5-10 HexCorp Inc. has two different bonds currently outstanding. Bond A has a face value of $40,000

5-10 HexCorp Inc. has two different bonds currently outstanding. Bond A has a face value of $40,000

and matures in 20 years

Corporate Finance, Seventh Edition

5-10 HexCorp Inc. has two different bonds currently outstanding. Bond A has a face value of $40,000

 and matures in 20 years. The bond makes no payments for the first 6 years, pays $2,000 semiannually

 for the subsequent 8 years and finally pays $2,500 semiannually for the last 6 years. Bond B also has

 a face value of $40,000 and matures in 20 years. However, it makes no coupon payments over the life

 of the bond. If the stated annual interest rate is 12 %, compounded semiannually,

a) What is the price of Bond A?

b) What is the price of Bond B?

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