FIN 302 quiz

The Harvester collects 55 percent of sales in the month of sale, 40 percent of sales in the month following the month of sale, and 5 percent of sales in the second month following the month of sale. During the month of April, they will collect:

40% of March

What is a prospectus?

A document that describes the details of a proposed security offering along with relevant information about the issuer

Which one of the following actions represents a source of cash? Granting credit to a customer Purchasing new machinery Making a payment on a bank loan Purchasing inventory Accepting credit from a supplier

Accepting credit from a supplier

Which one of the following actions represents a source of cash? Granting credit to a customer Purchasing new machinery Making a payment on a bank loan Purchasing inventory Accepting credit from a supplier

Accepting credit from a supplier

________ risk is the type of equity risk that is most related to the daily operations of a firm.

Business

Which one of these activities represents a source of cash? increasing accounts receivable Decreasing inventory Increasing fixed assets Decreasing accounts payable Decreasing common stock

Decreasing inventory

Which one of the following statements appears to be supported by the current dividend policies of U.S. industrial firms?

Dividends are still viewed by shareholders as a signal of a company's future outlook.

A firm has an accounts receivable period of 22 days. Which one of the following actions will tend to increase the accounts receivable period? Tightening the standards for granting credit to customers Refusing to grant additional credit to any customer who pays late Increasing the finance charges applied to all customer balances outstanding over 30 days Granting discounts for cash sales Eliminating the discount for early payment by credit customers

Eliminating the discount for early payment by credit customers

Which one of the following is a direct cost of bankruptcy? Bypassing a positive NPV project to avoid additional debt Investing in cash reserves Maintaining a debt-equity ratio that is lower than the optimal ratio Losing a key company employee Paying an outside accountant to prepare bankruptcy reports

Paying an outside accountant to prepare bankruptcy reports

The pecking order theory implications include all of the following, except:

Profitable firms use more debt.

All of the following are supporting arguments in favor of IPO underpricing except which one? Helps prevent the "winner's curse" Rewards institutional investors who share their market value opinions Reduces potential lawsuits against underwriters Diminishes underwriting risk Provides better returns to issuing firms

Provides better returns to issuing firms

The following supporting arguments in favor of IPO underpricing, except which one? Helps prevent the "winner's curse" Rewards institutional investors who share their market value opinions Reduces potential lawsuits against underwriters Diminishes underwriting risk Provides better returns to issuing firms

Provides better returns to issuing firms

What is a seasoned equity offering?

Sale of newly issued equity shares by a publicly owned company

Trinh Corporation has excess cash and has opted to buy some of its outstanding shares. What is this process of buying called?

Stock repurchase

A key element in the pecking order theory is that firms prefer to:

Use internal financing whenever possible.

Underwriters generally:

accept the risk of selling the new securities in exchange for the gross spread.

All else held constant, the cash cycle will decrease when the:

accounts receivable turnover rate increases.

Individual investors might avoid requesting 100 shares in an upcoming IPO because they:

are more apt to receive shares if the IPO is under allocated.

Money deposited by a borrower with a bank in a low or non-interest-bearing account as a condition of a loan agreement is called a:

compensating balance.

If you ignore taxes and costs, a stock repurchase will:

increase the earnings per share.

If you ignore taxes and costs, a stock repurchase will: increase the total assets of the firm. increase the earnings per share. increase the total equity of the firm. reduce the PE ratio more than an equivalent stock dividend. not affect the company's total assets.

increase the earnings per share.

Solanki Partners has been extremely successful during its three years of existence. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

initial public offering

By increasing its interest expense by $2,500 last year, Bishara Foods was able to reduce its taxes by $525. This $525 amount is called the:

interest tax shield.

According to the pecking-order theory, firms prefer to use ________ before any other form of financing.

internal funds

An investor is more likely to prefer a high dividend payout if that investor:

is a corporation.

According to ________, a company borrows up to the point where the marginal benefit of the interest tax shield derived from increased debt is just equal to the marginal expense of the resulting increase in financial distress costs.

the static theory of capital structure

The value of a firm is maximized when the:

weighted average cost of capital is minimized.

Based upon the Static Theory of Capital Structure, a firm borrows up to the point where the tax benefit from an extra dollar in debt is ____________ _________ the cost that comes from the increased probability of financial distress.

Equal to

At higher levels of debt, the benefit from the debt far outweighs any risk of bankruptcy or financial distress.

False

Managers should view the concept of the Optimal Capital Structure as all of the following, except: The static model is not capable of identifying a precise optimal capital structure. The tax benefit from leverage is more important to firms that are in a tax-paying position. Firms with less risk of experiencing financial distress will borrow less. Firms that have substantial tax shields from other sources, such as depreciation, will get less benefit from leverage. The higher the tax rate, the greater the incentive to borrow.

Firms with less risk of experiencing financial distress will borrow less.

Solanki Partners has been extremely successful during its three years of existence. The owners have decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

Initial public offering

Which one of the following statements is correct? Companies prefer to cut dividend payments rather than borrow money to fund a short-term cash need. Share repurchases tend to increase agency costs. Maintaining a steady dividend is a key goal of most dividend-paying companies. Short-term fluctuations in cash flows are the key factor in determining a company's dividend policy. Stock prices tend to ignore unexpected changes in dividend payments.

Maintaining a steady dividend is a key goal of most dividend-paying companies.

Assume each month has 30 days and a company has a 30-day accounts receivable period. During the second calendar quarter of the year, that company will collect payment for the sales it made during which of the following months?

March, April, and May

Which one of the following statements concerning dilution is correct? Dilution of percentage ownership occurs whenever an investor fully participates in a rights offer. Market value dilution increases as the net present value of a project increases. Market value dilution occurs when the net present value of a project is negative. Neither book value dilution nor market value dilution directly affects individual shareholders. Book value dilution is the cause of market value dilution.

Market value dilution occurs when the net present value of a project is negative.

Which one of the following does not affect the total equity of a company but does increase the number of shares outstanding?

Stock split

Which one of the following does not affect the total equity of a company but does increase the number of shares outstanding? Special dividend Stock split Share repurchase Rights offer Liquidating dividend

Stock split

Which one of the following statements is accurate? Capital structure has no effect on shareholder value. The optimal capital structure occurs when the cost of equity is minimized. The optimal capital structure maximizes shareholder value. Shareholder value is maximized when WACC is also maximized. Unlevered firms have more value than levered firms when firms are profitable.

The optimal capital structure maximizes shareholder value.

Indirect bankruptcy costs include all of the following, except: The costs of departing employees. The shareholders taking over management of the firm. High value projects are put on hold. Profitable investments are postponed. Management is distracted from operating the business.

The shareholders taking over management of the firm.

Which one of the following favors a low dividend policy? The tax on capital gains is deferred until the gain is realized. Few, if any, positive net present value projects are available to a firm. A majority of the shareholders have a low tax rate. A majority of the shareholders have better investment opportunities than the firm. The presence of an agency conflict with the company's senior managers.

The tax on capital gains is deferred until the gain is realized.

The raising of small amounts of capital from a large number of people is known as:

crowdfunding

When a firm announces an upcoming seasoned stock offering, the market price of the firm's existing shares tends to:

decrease

A reverse stock split is defined as a(n):

decrease in the number of shares outstanding without affecting total owners' equity.

Financial risk is:

dependent upon a company's capital structure.

All else equal, on the ________, the market value of a stock will tend to decrease by roughly the aftertax value of the dividend.

ex-dividend date

________ risk is the type of equity risk related to a firm's capital structure policy.

financial

Taylor Supply has made an agreement with its bank that allows it to borrow up to $10,000 at any time over the next year. This arrangement is called a(n

line of credit.

A company that has a(n) ________ would be most likely to have a high percentage of debt in its optimal capital structure.

low probability of financial distress

Financing of new, nonpublic companies is broadly referred to as ________ financing.

private equity

All else held constant, the operating cycle will increase when the:

receivables turnover rate decreases.