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Sophia Finance Milestone 4(a)|Principle of Finance Milestone 4 Sophia Course (100% correct)

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Principle of Finance Milestone 4 Sophia Course 1 When performing capital budgeting and considering replacement projects, one factor that must be considered is the potential __________ of equipment t... hat is no longer needed. · taxation · depreciation · salvage value · sunk costs CONCEPT Cash Flow Analysis and Other Factors 2 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 3 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 4 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 5 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 6 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 7 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 8 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 9 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 10 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 11 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 12 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 13 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 14 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 15 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 16 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 17 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 18 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 19 Which inventory technique is most useful when a business has inventory that varies greatly in value? · ABC · FIFO · LIFO · Average cost CONCEPT Inventory Management 20 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 21 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? · 30 · 55 · 35 · 85 CONCEPT Cash Conversion Cycle 22 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 23 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 1 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? · 35 · 85 · 30 · 55 CONCEPT Cash Conversion Cycle 2 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 3 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 4 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 5 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 6 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 7 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 8 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 9 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 10 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 11 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 12 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 13 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 14 Which inventory technique is most useful when a business has inventory that varies greatly in value? · Average cost · FIFO · ABC · LIFO CONCEPT Inventory Management 15 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 16 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 17 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 18 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 19 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 20 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 21 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 22 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 23 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 1 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 2 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 3 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 4 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 5 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 6 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 7 Which inventory technique assumes that the most recently purchased inventory is sold first? · FIFO · LIFO · ABC · Average cost CONCEPT Inventory Management 8 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 9 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? · 35 · 55 · 30 · 85 CONCEPT Cash Conversion Cycle 10 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 11 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 12 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 13 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 14 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 15 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 16 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 17 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 18 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 19 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 20 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 21 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 22 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 23 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 1 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 2 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 3 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 4 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 5 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? · 75 · 165 · 25 · 105 CONCEPT Cash Conversion Cycle 6 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 7 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 8 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 9 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 10 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 11 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 12 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 13 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 14 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 15 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 16 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 17 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 18 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? · Peer-to-peer lending · Commercial lending · Trade credit · Factoring CONCEPT Short-Term Financing 19 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 20 Seed money is a type of financing appropriate for a company in what stage of development? · Decline · Introduction · Growth · Maturity CONCEPT Types of Financing 21 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 22 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 23 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? · 53 · 87 · 103 · 47 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 [Show More]

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