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