FINAL FINAL FINAL

ex dividend day

2 business days before the date of record

costs of raising new capital

Future investment plans are important determinants of payout policy because of

the day before ex dividend date

How many business days before dividend payment date must you own the stock for to receive a dividend

FALSE

Most companies that pay dividends pay them semiannually

true

in a stock split or stock dividend, the company issues additional shares rather than cash to its shareholders

the average length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product

what is a firms operating cycle

13.1%

what is the effective annual cost of credit terms of 2/20 net 60 if the firm stretches the accounts payable to 80 days

the credit that a firm extends to its customers

what is trade credit

reduced, declines

when a firm repurchases shares, the supply of shares is __________, but at the same time, the value of the firms assets _____________

Firm value

A financial manager makes a choice of the amount and source of capital based on how the choice will impact the ____________

tax shield benefits exceeds distress costs

As the level of debt increases the tax benefits of debt increase until

regular dividends, strong

Because____________ are seen as an implicit commitment, they send a _____ signal of financial strength to shareholders

True

In general, the gain to investors from the tax deductibility of interest payments is referred to as the interest rate tax shield

a firm should choose a debt level where the tax savings from increasing leverage and just offset by the increased probability of incurring the costs of financial distress

Tradeoff theory suggests that

NPV of (Annual interest payment * tax rate)

Value of interest rate tax shield

to place in short-term investments

Which of the following is NOT a motivation for holding cash?

firm value

a financial manager makes a choice of the amount and source of capital based on how the choice will impact the

13%

a firm offers its customers 1/10 net 40. what is the cost of trade credit to a customer who chooses to pay on day 40

false

a firm that does not have trouble meeting its debt obligations is said to be in financial distress

special

a one time payment to shareholders that is much larger than a regular dividend is often called a _________ dividend

share repurchases

an alternate way to pay investors is when the firm uses cash to buy shares of its own outstanding stock aka

levered equity

equity in a firm with debt is called

true

equity in a firm with no debt is called unlevered equity

true

even if two firms operate in the same industry, they may prefer different choices of debt-equity ratios

transaction costs and financial distress costs

firms may retain amounts of cash to cover future potential needs that allows a firm to avoid ___________

leverage increases the risk of the equity of the firm

it is not correct to discount the cash flows of a levered firm with the cost of equity of the unlevered firm because

probability of financial distress

one of the factors that determine the present value PV of financial distress costs is

false

t/f if the aging schedule gets "top heavy" that is, if the percentages in the upper half of the schedule begin to increase the firm will likely need to revisit its credit policy

precautionary balance

the amount of cash a firm holds to counter the uncertainty surrounding its future cash needs known as an

ex-dividend

the date two business days prior to the date on which all shareholders of record receive a payment is called the _____________ date

ex-divident

the date two days prior to the date on which all shareholders of record receive a payment is called the _____ date

its account payable days

the difference between a firms operating cycle and its cash cycle is

record

the firm will pay the dividend to all shareholders of record on a specific date, set by the board called the _________ date

false

the firms cash cycle is the avg length of time between when a firm originally purchases its inventory and when it receives the cash back from selling its product

signaling

the idea that dividend changes reflect managers views about a firms future earnings prospects is called the ________________ hypothesis

divident smoothing

the practice of maintaining relatively constant dividends is called _____________

capital structure

the relative proportions of debt, equity, and other securities that a firm has outstanding constitute its _________

market value of assets

the share price falls when a dividend is paid because the reduction in cash decreases the _______

financial distress

the tradeoff theory of optimal capital structure weighs the benefits of debt against the costs of