FIN 300 FINAL
Sunshine Corp. has a total sales of $400,000 in a year. If 10% of its sales is for cash, then credit sales per day is_____. (Assume 360 days in a year.)
$1,000
The following information relates to Pelican Corporation. Based on this information, the net working capital of the company is:
$102,000.
A firm is utilizing only 65 percent of its plant capacity to produce for sales of $7,800 million. What is the full-capacity sales of the firm?
$12,000 million
June Corporation needs $125,000 to pay its bills. Assuming that June currently holds no funds at the bank and the loan requires a 15% compensating balance to be maintained with the bank, June will have to borrow:
$147,058.82.
The credit terms of Bluemoon Corp is 5/10 net 30. Sales of Bluemoon for the year are $200,000. If 20% of the sales received the discount, then the net discount offered by the firm is _____.
$2,000
The following information relates to Smith Corporation. Based on this information, the amount of current assets financed by long-term liabilities is:
$23,700.
Leh Inc. recently borrowed $275,000 from its bank at a simple interest rate of 9 percent. The loan is for nine months and, according to the loan agreement, the interest should be added to the amount borrowed and the total amount to be repaid in monthly installments. Each monthly payment toward the loan amounts to:
$33,305.56.
Suppose Amber Company's economic order quantity (EOQ) is 5,000 units. It has a total demand of 100,000 units per period, a carrying cost per unit of 20% of inventory value, a purchase price of $10, and fixed costs per order of $20. The total inventory cost of Ace is:
$5,400.
Pure Fertilizers conducted a net present value (NPV) analysis for both its existing credit policy and its new credit policy. The net change in NPV on a daily basis is $15 and the expected return is 8%. Assuming there are 360 days in a year, the increase in the firm's value is _____.
$67,500
The following information relates to Maze Corporation. Based on this information, the net working capital of the company is:
$67,500.
2.4 - When evaluating the financial position of a firm, an analyst must be aware that different accounting techniques exist to measure the same event, that the firm might use techniques to (1) "_____ __" its financial statements, that the effects of inflation can distort values from different time periods, and so forth. Probably the most important ingredient in financial statement analysis is the (2) ________ the analyst uses when interpreting the results
(1) "dress up" (2) judgment
14.5 - The percentage cost of credit per period, r(per) is based on both the dollar cost associated with the credit and the amount of the borrowed funds that is available for use. Accruals and a portion of trade credit are considered (1) "____" in the sense that specific (2) i_______ is not paid for using these types of credit. Some form of interest (cost) is associated with other forms of short-term credit.
(1) "free" (2) interest (is not paid)
10.1 - In capital budgeting analysis, (1) "________"____ _____ include only those cash flows that are affected by the decision to (2) p_____ t__ p______. If a cash flow does not change, it is not relevant.
(1) "relevant" cash flows (2) purchase the project
3.4 - (1) _________ _____________, which include banks, credit unions, pension funds, and so forth, are important "players' in the financial markets. Such intermediaries generally take deposits and create loans (perhaps through investments) that are needed by individuals and businesses. If financial intermediaries did not exist, our standard of living would be much lower because bringing together (2) ________ & _______ would be more difficult and more costly than is possible when such markets exist.
(1) Financial intermediaries (2) borrowers & lenders
11.3 - (1) I________ who participate in the financial markets determine firms' WACCs. Investors only provide funds to firms if they expect to earn sufficient returns on their investments; thus, firms must pay investors' (2) d_______ to (3) a_______ f____.
(1) Investors (2) demands (3) attract funds
16.2a - A firm evaluates its (1) b________ points and degrees of (2) l_______ to assess the risk associated with its forecasts. A firm with a higher degree of leverage is considered (3) r______ than a similar firm that has a lower degree of leverage. A firm uses the concept of leverage to estimate how bixed costs, both operating and financial, affect its ·bottom line" (net) income.
(1) breakeven (2) leverage (3) riskier
15.2 - Firms prefer not to hold cash because cash does not earn interest. However, normally firms must hold some (1) ____ to support day-to-day operations. Cash budgets are used to forecast cash flows so that surplus funds can be (2) i_______, and arrangements can be made to (3) b _____ when cash deficiencies are expected. In general, a firm should try to collect funds it is owed as (4) q______ as possible and try to (5) d____ payments of funds for as long as possible.
(1) cash (2) invested (3) borrow (4) quickly (5) delay (payments)
15.6 - Firms carry inventory to ensure that demand is met when it arrives. If inventory is not available when a customer arrives, a sale cannot be made, which might mean business is lost to competitors. Because carrying inventory is (1) c_____, firms do not want to have too much inventory on hand at any one time. A firm determines how much inventory to hold by examining the (2)d_____ for its product, the (3) c____ associated with not having enough inventory, and the costs of (4) c_______ sufficient inventory to satisfy demand. The (5) e_______ o_______ q______ (___) model generally is used to determine the optimal amount of inventory a firm should carry.
(1) costly (2) demand (3) costs (4) carrying (5) economic ordering quantity (EOQ)
15.4 - Firms sell on credit because competitors sell on credit. A firm's (1) c_____ p_____ should specify how customers (2) q______ for credit, the (3) m______ amount of credit customers are allowed, the (4) t____ of credit sales, and what actions will be taken if payments are not made on time. The credit policy must be (5) m_________ to ensure it is achieving the desire objective. When customers; payment patterns change significantly, the firm should consider changing its credit policy; proposed changes should be evaluated using (6) n__ p______ v____ (___) to ensure the firm's value is maximized.
(1) credit policy (2)qualify (for credit) (3) maximum (amount) (4) terms (of credit sales) (5) monitored (6) net present value (NPV)
6.4 - The market rate of interest, r •• which represents the return that investors earn when buying and holding a bond to its maturity (called the yield to maturity, or YTM), is comprised of a return that is associated with (1) the annual interest payment. which is called the _______ yield, and (2) the annual change in the market value of the bond, which is called the _______ _____ yield.
(1) current yield (2) capital gains
13.3 Factors influencing (1) d_______ p______ decisions include constraints on dividend payments, investment opportunities, ownership dilution, and the effect on the firm's cost of capital. In some instances, these factors might prevent the (2) o______ dividend policy or the policy it prefers.
(1) dividend policy decisions (2) optimal (dividend policy)
13.1b - When a firm pays (1) d________, it (2) d________ the amount of earnings that can be used to invest in acceptable (3) c______ b________ projects.
(1) dividends (2) decreases (the amount of earnings) (3) capital budgeting (projects).
11.4 - When investing in capital budgeting projects. a firm should follow the (1) e_______ p________ that asserts/products should continue to be manufactured until (2) m_______ c___ equal m_______ r______. That is, the firm should invest until the marginal cost of capital (marginal costs) equals the internal rate of return on the (4) l___ p_____ that is purchased (marginal revenues).
(1) economic principle (2) marginal costs equal marginal revenues (3) last project
12.3 - Even though scientific models have not been developed to determine the optimal capital structure of a firm. it is important for a company to evaluate the (1)e______ of l_______ on its value to establish a (2) t_____ c______ s________ that can be followed when (3) r______ f____.
(1) effects of leverage (2) target capital structure (3) raising funds
14.2 - The cash conversion cycle represents the length of time funds are "tied up," or invested, in current assets. Often a firm has to pay for the materials and labor that are needed to manufacture and sell its products before customers pay for their purchases. During the period from when the firm invests in the product until it receives cash payment from the sale of the product, e_______ f________ is needed to support operations. If a firm reduces its (2) ____ __________ _____, it reduces its need for external financing.
(1) external financing (2) cash conversation cycle
13.1d - Firms with (1) f_ acceptable capital budgeting projects generally pay out (2) ____ of their earnings as dividends because not as much internal financing is needed.
(1) few (acceptable capital budgeting) (2)most (of earnings)
12.4 - Firms that maintain (1) f________ f__________, or the ability to raise capital on reasonable terms under adverse conditions, are less risky and find it (2) e_____ to raise funds when money is tight than firms that don't have financial flexibility.
(1) financial flexibility (2) easier (to raise funds)
16.3 - Inadequate (1) f________ p_______ is the principal reason businesses fail. (3) W___-r__ companies base their operating plans on a set of well-designed (4) f_________ financial statements.
(1) financial planning (2) fail (3)well-run (4) forecasted
• 12.2 - Leverage, which is the presence of (1) f____ c____ (both operating and financial), magnifies the effects of changes in sales on operating income and net income. (2) M____ l______ generally indicates (3) m___ r___. Thus, leverage should be considered when making capital structure decisions.
(1) fixed costs (2) More leverage (3) more risk
16.2b - A firm uses the concept of leverage to estimate how fixed costs, both operating and financial, affect its ·bottom line" (net) income. Everything else equal, a firm can decrease its risk by decreasing its relative (1) f____ c____ , by increasing (2) s____, or by performing both actions. Remember from our discussions in previous chapters that, everything else equal, when a firm (3)r______ its risk, its (4) c___ of c______ decreases, and thus its (5) v____increases.
(1) fixed costs (decrease) (2) sales (increase) (3) reduces (its risk) (4) cost of capital (decreases) (5) value (increases)
16.1 - Financial planning requires the firm to (1) f_______ future operations. A firm forecasts its (2) f________ s_________ (proformas) so that expected changes in production and future financing needs can be accommodated. A financial plan represents a "road map" for the firm to follow to attain future goals. The process of (3) f________p_______ doesn't stop when financial forecasts are completed because the firm needs to (4) m______ operations as the financial plan is implemented to determine whether modifications are needed.
(1) forecast (2) financial statements (3) financial planning (4) monitor (operations)
10.4 - If the risk associated with a capital budgeting project differs substantially from the "average" risk of the firm's existing assets, some adjustment should be made to the firm's required rate of return when evaluating the project. If the project has substantially h_____ r___, a higher-than-average required rate of return should be used in the capital budgeting evaluation. If the project's risk is lower than average, a lower required rate of return should be used.
(1) higher risk (2) rate of return
15.3 - Marketable securities are short-term, (1) h_____ l_____ investments that have (2) l_____ risk and thus produce fairly (3) l__ returns. Marketable securities provide a safe place to invest idle cash that will be needed in the near term.
(1) highly liquid (investments) (2) little (risk) (3) low (returns)
13.4 - Both a stock split and a stock dividend (1) ________ the number of shares of outstanding stock. Neither action requires stockholders to invest any additional funds. Thus, although both actions (2) ______ the per share value of the firm's stock, neither action by itself results in (3) __ ______ to the total market value of the firm's stock.
(1) increase the number of shares (2) reduce (per share value) (3) no change (to the total market value)
10.2 - The relevant, or incremental, cash flows can be categorized as (1) the i______ i_________o_____, which includes cash flows that occur only at the beginning of the project's life; (2)s_________ o________ c___ f___, which include changes in the day-to-day operating cash flows during the life of the project; and (3) the t_______ c___ f___, which includes cash flows that occur only at the end of the project's life.
(1) initial investment outlay, (2) supplemental operating cash flows (3) terminal cash flow
13.1c - Firms that have (1) m___ acceptable capital budgeting projects generally pay (2) f__ or n_dividends because earnings are retained to (3) r_______ in assets.
(1) many (capital budgeting projects) (2) few or no (dividends) (3) reinvest (in assets)
13.1a - Because the firm's goal is to (1) m_______ shareholders' wealth, the (2) o_____ dividend policy is the one that (3) m________ the v_____ of the firm.
(1) maximize (shareholders' wealth) (2) optimal (dividend policy) (3)maximizes the value
13.2b - To (1) m_______ v____ value, it might be better for a firm to follow the (2) r_______ dividend policy so that (3) c______ funds (retained earnings rather than new equity) can be used to finance capital budgeting needs.
(1) maximize value (2) residual (dividend policy) (3) cheaper (funds - retained earnings)
10.5 Although the same basic principles should be applied when conducting capital budgeting analysis for multinational operations, application of these principles often is ____ ___________ when dealing with _______ ____________.
(1) more complicated (2) foreign subsidiaries
6.3 Whenever the going market rate of interest, r., equals the coupon rate. a bond will sell at its (1) _____; whenever r• is greater than the coupon rate, a bond's price will fall below its par value (a (2) _______ bond); whenever r• is less than the coupon rate.a bond's price will rise above its par value (a (3) _______ bond).
(1) par value (2) discount (3) premium
15.1 - Firms with (1)p_________ operations are able to (2) m_______ the amounts of current assets they hold, whereas firms with less predictable operations must carry larger amounts of current assets.
(1) predictable (operations) 2) minimize (amounts of current assets)
2.3 - Although (1) _____ _______ is used to determine the current financial position of a firm, it is primarily used to indicate the (2) _________ the firm's operations are headed in the future.
(1) ratio analysis (2) direction
10.3 - Identifying the (1) r_______ c___ f____ for a replacement project is somewhat more complicated than for an expansion project, because the cash flows that will be generated if the new project (the replacement asset) is (2) ________, as well as the cash flows that will be generated if the old project (the replaced asset) is (3) ________, must be considered.
(1) relevant cash flows (2) purchased (3) retained
11.2 - To determine its (1) required r___ of r_____, the firm must compute the cost of each source of funds or capital that investors provide-that is, the firm must compute the (2) cost of d___, the (3) cost of p________ s____ , the (4) cost of c______ e_______, and the cost of (5) new c_____ e______ . These costs are then combined by weighting each component by the proportion that it contributes to the total capital of the firm. This results in the (6) w_______ a______ c___ of c______ (____), which is the required rate of return, r, that the firm should use when making capital budgeting decisions.
(1) required rate of return (2) cost of debt (3) preferred stock (4) retained earnings (5) new common equity (6) weighted average cost of capital (WACC)
14.3 - Short-term financing generally is (1) r_____, but cheaper, than (2) ____-____ financing. Firms that are able to take on substantial amounts of financial risk are more likely to finance with more short-term debt (the (3) a_________ approach) than firms that are not able to handle as much financial risk (the ( c___________ approach). Most firms follow the (5) m_______ m_______ approach, a more moderate approach.
(1) riskier (2) long-term (3) aggressive (4) conservative (5) maturity matching
14.4 - A variety of sources of (1) _____-____ credit exist, including (2) a_______, which arise because firms do not pay salaries to employees daily; trade credit, which represents purchases from suppliers; short-term bank loans, which include lines of credit; commercial paper, which is unsecured debt issued by large, financially strong companies, and secured loans, which are generally secured by (3) r_________ and i__________.
(1) short-term (2) accruals (3) receivables and inventories
13.2a - Most firms follow the (1) s_____, p__________ dividend policy. Everything else the same, it is believed that a stable, predictable pattern of dividend payments provides investors with a perception that there is (2) l___ risk associated with the firm, and a perception of less risk often leads to a (3) l____cost of capital.
(1) stable, predictable (dividend policy) (2) less (risk) (3) lower (cost of capital)
13.5 - Firms use (1) s____ r________ as an alternative to temporary changes in annual dividends when (2) d___________ e_______ to stockholders. Recently, the use of repurchases has increased while the proportion of dividend-paying companies has decreased
(1) stock repurchases (2) distributing earnings
8.3b - (1)____________ risk is not important to informed investors, because they will eliminate its effects through (2)_______________. Thus, the relevant risk is nondiversifiable risk, because it cannot be eliminated, even in a perfectly diversified portfolio.
(1)Diversifiable (2) diversification
Suppose a firm purchases on credit terms of 2/15, net 30, and the firm always takes advantage of discounts. The cost of using the funds for 10 days is:
0%.
1.3 - The managers of a firm are the 1) ________-______ ______ of its owners (stockholders in a corporation). When managers do not make decisions that are in the best interests of the owners 2)_____________ problems exist. These problems can be mitigated by rewarding managers for making decisions that help maximize the firm's value.
1)decision-making agency 2)agency
A firm has forecasted sales of $2,100 million and a variable cost of $1,425 million. The firm also has a fixed cost of $325 million. What is its degree of operating leverage?
1.93 times
The closing inventory of Big Corporation is $12,000, and its total cost of goods sold during the year is $420,000. Assuming there are 360 days in a year, the company's inventory conversion period is:
10.29 days.
Details regarding Chovita Corp.'s inventory are given below. The firm's economic order quantity (EOQ) is _____. (Round off the answer to the nearest whole number.)
103 units
Zync Technologies is planning to get a 210-day $550,000 simple interest loan from its bank. The quoted interest rate on the loan is 10 percent. What is the annual percentage rate (APR) of the loan if the bank has a 15 percent compensating balance requirement and Zync Technologies currently holds no funds at the lending bank? Assume that there are 360 days in a year. (Round your answer to two decimal places.)
11.76%
Maxwell Corporation recently issued 270-day commercial paper with a face value of $150,000 and a simple interest rate of 13 percent annually. What is the commercial paper's annual percentage rate (APR) assuming there are 360 days in a year? (Round your answer to two decimal places.)
14.40%
Aura Plastics collects 40 percent of its accounts receivables on Day 10, 40 percent on Day 20, and 20 percent on Day 25. The days sales outstanding (DSO) of Aura is _____.
17 days
If a firm changes its credit terms from 1/20, net 40 days, to 2/10, net 45 days, then the firm will give a:
2% discount to customers who pay the bills on or before Day 10.
Stonehall Inc. recently borrowed $685,000 from its bank at a simple interest rate of 10 percent. The loan is for eight months and, according to the loan agreement, the interest should be added to the amount borrowed and the total amount will be repaid in monthly installments. The loan's annual percentage rate (APR) is:
20.00%
The following information relates to Zync Corporation. Based on this information, the inventory conversion period is:
22.86 days.
Based on the following information, the cash conversion cycle is:
24 days.
The following information relates to MARS Corporation Assuming there are 360 days in a year, the receivables collection period for the company is:
3.60 days.
The following information relates to Triblaze Corporation Assuming there are 360 days in a year, the payables deferral period for the company is:
32.14 days.
Blackwell Corporation purchases its raw materials on credit terms of 2.5/20, net 40. What is the annual percentage rate of the non-free trade credit if the firm did not take discounts but did pay on the due date?
55.62%
The full-capacity sales of Beige Inc. is $12,000 million, whereas the existing sales level is $9,000 million. What is the percent of capacity used to generate the existing sales level?
75 percent
Knight Corporation recently issued 210-day commercial paper with a face value of $325,000 and a simple interest rate of 9 percent. The company paid a transaction fee equal to 0.4 percent of the issue, which was taken out of the issue amount before the company received any funds. What is the commercial paper's effective annual rate (EAR) assuming there are 360 days in a year?
9.73%
Which of the following statements is true about general and revolving lines of credit?
A bank makes a formal commitment to honor a revolving line of credit, but there is no such commitment for a general line of credit.
Other things held constant, which of the following statements is true about a firm's credit policy?
A firm will provide cash discounts to speed up the collection process of its accounts receivable.
Which of the following types of short-term credits is considered free in the sense that no explicit interest is paid on funds raised through this type of short-term credit?
Accruals
Which of the following is a useful tool for evaluating customers' payment patterns?
Aging schedule
Which of the following steps is taken by a firm to turn over products more often to improve its financial conditions?
Better managing the inventory
Which of the following statements is true about the effective annual rate (EAR) and the annual percentage rate (APR)?
EAR incorporates interest compounding in the computation, but APR does not.
Which of the following statements is true of U.S. banks and financial institutions and their European counterparts?
European banks often have very close relationships with the firms that borrow from them, which generally results in a greater willingness to provide more short-term, risky debt than is observed in U.S. banking organizations.
Which of the following deals with the feedback and adjustment process required to ensure adherence to plans?
Financial control
3.1 - __________ __________ represent the system, or mechanism, by which borrowers and lenders are brought together.
Financial markets
Which of the following can help multinational firms in managing default risks associated with the political and legal environment of a foreign country?
Hedging
Which of the following is the correct expression for the cash conversion cycle?
Inventory conversion period + Receivables collection period - Payables deferral period
Which of the following is true about cash budgets?
Lockboxes are used to accelerate cash receipts.
Which of the following assets requires a large financial commitment?
Lumpy assets
Which of the following approaches minimizes the risk that a firm will be unable to pay off its maturing obligations if the liquidations of the assets can be controlled to occur on or before the maturities of the obligations?
Moderate approach
6.2 When interest rates change, the values of bonds change in an ________ direction - that is, when rates increase, bond prices decrease, and vice versa.
Opposite
Which of the following inventory control systems is related to the "make or buy" decision?
Out-sourcing
7.5 - Investors often use _/_ ______ to estimate the _________ ____ of stocks. The value of a stock can be estimated by multiplying a "normal" P/E ratio by the firm's existing earnings per share (EPS).
P/E ratios intrinsic value
Which of the following is considered by a firm to form its sales forecast?
Projections of economic activity
_____ restrict the quantities of products that multinational firms can bring into a country.
Quotas
Which of the following is also referred to as days sales outstanding (DSO)?
Receivables collection period
Which of the following current asset investment policies will have the lowest risk?
Relaxed current asset investment policy
Which of the following current asset investment policies will lead to a relatively short cash conversion cycle?
Restricted current asset investment policy
Which of the following statements is true about short-term assets?
Short-term assets earn lower returns than long-term assets.
Which of the following is explored in operating breakeven analysis?
The relationship between sales volume and operating profitability
Which of the following statements is true about lumpy assets?
They are obtained in large, discrete amounts.
Which of the following will lead to a situation wherein if a firm does not meet its forecasted sales level the plans for the additional external funds needed to support the firm's operations will become inadequate?
Too great an expansion in production facilities
3.5 - Even though foreign financial markets have increased their prominence during the past couple of decades, _._. _________ _______ continue to dominate financial markets around the world.
U.S. financial markets
Which of the following accounts provides a firm with funds that are considered spontaneously generated?
Wages payable
Which of the following refers to inventory that is at various stages of a production flow?
Work-in process
Which of the following statements is true of working capital management?
Working capital management of multinational corporations is far more complex than working capital management of purely domestic corporations.
_____ are useful in disbursement control.
Zero-balance accounts
A promissory note is:
a document specifying the terms and conditions of a loan, including the amount, interest rate, and repayment schedule.
Trade credit is also referred to as:
accounts payable.
Funds that a firm must raise externally through new borrowing or by selling new stock are called _____.
additional funds needed (AFN)
In the aggressive approach to current asset financing:
all of the fixed assets of a firm are financed with long-term capital, but some of the firm's permanent current assets are financed with short-term nonspontaneous sources of funds.
Commercial paper is:
an unsecured, short-term promissory note issued by large, financially sound firms to raise funds.
9.4 - A project's internal rate of return (IRR) represents the _______ ____ of ______that a company will earn if the project is purchased and held until the end of its useful life. The IRR is the same for all companies that purchase a particular project. A project should be purchased if its IRR is _______ than the firm's required rate of return (r).
average rate of return greater
Float is defined as the difference between the balance shown in the firm's checkbook and the:
balance shown on the bank's records.
8.4a - The effects of nondiversifiable risk, which is also called systematic risk or market risk, can be determined by computing the ____ __________ of an investment.
beta coefficient
8.1 - In finance, we define risk as the chance that you will not receive the return that you expect, regardless of whether the actual outcome is ______ than expected or _____ than expected.
better worse
3.2 - Financial markets permit companies and individuals to "move' income from one time period to another-income is moved from future periods to the current period through _________, whereas income is moved from the present period to future periods through _________ (saving).
borrowing, investing
8.5 - According to the _______ _______ ______ _____ (CAPM), an investment's required rate of return can be computed as r, = risk free +(risk free - market return) times Beta
capital asset pricing model
Marketable securities serve as a substitute for _____.
cash
The length of time from the payment for the purchase of raw materials to manufacture a product until the collection of accounts receivable associated with the sale of the product is called the:
cash conversion cycle.
1.1 - Financial decisions deal with ___________ _________, both inflows and outflows. To make sound financial decisions, financial managers understand three general, yet reasonable, concepts.
cash flows
9.3a- When making capital budgeting decisions, we generally compute an asset's net present value (NPV). NPV equals the present value of the ____ ____ the asset is expected to generate during its useful life minus the cost of the asset. Thus, the NPV indicates by how much the firm's value will change if the capital budgeting project is purchased.
cash flows
With a revolving (guaranteed) credit agreement, banks generally:
charge a commitment fee on the unused balance of the credit line.
In considering the net present value analysis (NPV) of credit policies, firms should:
choose the credit policy that increases the value of the firm.
All of the fixed assets, all of the permanent current assets, and some of the temporary current assets of a firm are financed with long-term capital under the:
conservative approach.
7.4 - Everything else equal, when investors demand higher rates of return-that is, when market rates increase-stock prices ________. In other words, to earn higher rates of return, investors lower the prices they are willing to pay for their investments (stocks in this case).
decrease
The percentage change in earnings per share that results from a given percentage change in net operating income is known as the _____.
degree of financial leverage
8.3a - The total risk of any investment can be divided into two components: _______________ risk and ________________risk.
diversifiable nondiversifiable
8.4b - The beta coefficient measures the volatility of an investment relative to the volatility of the market, which is considered to be nearly perfectly ___________, and thus is affected only by __________ risk.
diversified systematic
7.1 The current value of a stock is based on the stream of _________ investors expect the firm to pay during its life (generally considered to be infinite).
dividends
A compensating balance that is maintained by a firm in a bank:
does not earn interest.
Assume that a firm has a degree of total leverage (DTL) equal to 2.0x. If the firm's sales are 5 percent higher than expected, its _____ will be at least 10 percent higher than expected.
earnings per share (EPS)
The takeover of a multinational firm's assets by a foreign government is referred to as:
expropriation.
2.1 - The information provided in f_________ r_________ is used by the firm's managers, its creditors and stockholders, potential creditors and stockholders, and other stakeholders and interested parties.
financial reports
The effects on the income statement and balance sheet of actions taken to finance forecasted increases in assets are known as _____.
financing feedbacks
To compute the _____, the existing sales level is divided by the percent of capacity used to generate the existing sales level.
full capacity sales
4.2 - An amount that is invested at a higher rate or for a longer time period will grow to a greater ______ ______ because a greater amount of interest is earned.
future amount
9.2b - Compare the present value of cash flows to price (cost). If the present value of the project's cash flows is _______ than its cost, the asset should be purchased.
greater
9.5 - If a project has a positive NPV (i.e., NPV > 0), its IRR must be _______ than the firm's required rate of return (i.e, IRR > r).
greater
4.4 - Everything else equal, the _______ the number of compounding periods per year, the greater the effective rate of return that is earned on an investment. In other words, the total dollar amount of interest that is earned on an investment is greater when interest is compounded ____ _____ during the year.
greater more often
8.2 - Riskier investments must have ______ ________ ______ than less-risky investments; otherwise, people will not purchase investments with higher risks.
higher expected returns
6.1 Other things held constant, the ______ ___ ______ ____ the higher the market price of a bond.
higher the coupon rate
7.3 - Everything else equal, if the dividends that are expected to bepaid in the future ________ , the value of a stock also increases.
increase
If financial leverage exists in a firm, then the firm must have _____.
interest payments
3.3 - Corporations generally use the services of __________ _______ houses when raising funds through issues of stocks and bonds. These services provide advice and help firms issue securities to raise needed funds.
investment banking
If a firm does not meets its forecasted sales level, then:
leverage will result in a magnified loss in income.
9.1 - Capital budgeting decisions are important because they involve ____-____ ______; thus, the firm loses some financial flexibility when such assets are purchased.
long-term assets
4.3 - The further in the future an amount is received (paid) or the higher the opportunity cost rate, the _____ the present value of the future amount-that is, the less money that must be invested today to accumulate the future amount. Based on this TVM rule, we know that, everything else equal, the current value of an investment is _____ the higher the interest rate it earns in the future.
lower lower
Concentration banking helps in:
managing cash receipts.
Treasury bills are an example of _____.
marketable securities
6.5 - The market value of a bond will always approach its par value as its ________ date approaches. provided that the firm does not go bankrupt.
maturity
1.2 - The primary goal of the financial manager should be to _________________________.
maximize the value of the firm
The self-liquidating approach of current assets financing is also known as the:
moderate approach.
9.6 - A ranking conflict might occur when evaluating two or more mutually exclusive projects using the NPV technique and the IRR technique-that is, the NPV technique might favor one project whereas the IRR technique might favor the other project. This conflict, which results from the reinvestment assumptions associated with each of these capital budgeting techniques, generally can be resolved by using the ________ _______ ____ of ______ ( ) rather that the traditional IRR technique.
modified internal rate of return (MIRR)
At the operating breakeven point, the _____ is exactly equal to the total operating costs.
net operating income (NOI)
Short-term credit is any liability:
originally scheduled for repayment within one year.
"1.4 - Firms that are ethical and have good governance policies generally ______ ______ than firms that are less ethical and have poor governance policies."
perform better
The annual percentage rate (APR) is calculated as the:
periodic rate times the number of borrowing (interest) periods in one year.
9.3b - A project should be purchased if its NPV is ________.
positive
7.2 The current value of a stock is computed as the_______ _____ of the dividends the stock is expected to generate during the remainder of its life. If a company's dividends grow at a constant rate, its stock can be valued using a simple equation - present value = [dividend times [1+growth rate]] divided by [expected rate minus growth]. P0 = [D.(1 + g))/(r, - g)..
present value
9.2a -The process of valuing a capital budgeting project (investment) to determine whether it should be purchased is the same process that is used to value financial assets, such as stocks and bonds: 1 - compute the _______ ______ of ____ _____ the asset is expected to generate during its useful life.
present value of cash flows
A firm makes assumptions about the operating cost ratio, tax rate, interest charges, and dividends paid during the preparation of the _____.
pro forma income statement
An initial estimate of the amount of retained earnings a company expects to generate during the coming year is determined by preparing the _____.
pro forma income statement
Pro forma financial statements represent the _____ financial statements of a firm.
projected
A relaxed current asset investment policy:
provides liberal financing to customers.
An arrangement in which a bank formally commits to lend up to a specified maximum amount of funds during a designated period is known as:
revolving credit.
Assume that Firm A has a higher degree of operating leverage (DOL) than Firm B. Everything else equal, we can conclude that Firm A has:
riskier operations than Firm B.
The first, and most important, step in constructing pro forma financial statements for the next year is forecasting the next year's _____.
sales
9.7 All capital budgeting techniques that consider the time value of money will provide the ____ _____/______ decisions-that is, for a particular project, if NPV > 0, then we know that IRR > r, MIRR > r, and DPB < Project's useful life, all of which indicate that the project is acceptable.
same accept/reject
Cash balances that are held in the cash budget to enable a firm to take advantage of bargain purchases that might arise are called _____ balances.
speculative
2.2 - If a financial analyst were permitted to use only one of the financial statements mentioned in this chapter, he or she probably would choose the ________ __ ____ _____ because it provides information about how a firm generated funds during the year and how those funds were used.
statement of cash flows
If the amount of internally generated funds is more than sufficient to support the forecasted increase in sales, then _____.
the additional funds needed will be negative
A firm's net float is the difference between:
the disbursement float and the collections float.
A firm needs to change its elements of forecast when _____.
the financial statements do not meet the targets
If the sales projections of a firm are overly optimistic, then:
the firm will end up with too much plant and equipment.
Leverage results in a magnified loss in income compared to what is expected when:
the forecasted sales level is not met.
In a discount interest loan:
the interest due is deducted up front.
The level of production and sales at which the earnings before interest and tax is zero is known as _____.
the operating breakeven point
The point at which sales just covers operating costs is known as _____.
the operating breakeven point
A firm reformulate its plans and develop targets that are more reasonable for the coming year when:
the projected operating results are unsatisfactory.
4.1 - Before making financial decisions, dollars from different time periods must be stated in the same "time value; which means that all dollars must be valued at the same ____ ______ before they can be compared.
time period
A stockout occurs:
when a firm runs out of inventory and customers arrive to purchase the product.
14.1 - Working capital refers to the short-term, or current, assets of a firm. Liquidation of _______ _______ accounts produces the cash that is needed to pay current bills. If a firm cannot pay its current bills, it will not survive to see the long term.
working capital
If a firm is operating at its financial breakeven point, its earnings per share (EPS) will be equal to _____.
zero