fin moore more - chpt 21

Which of the following items should a company report directly in its monthly cash budget? a. Cash proceeds from selling one of its divisions. b. Accrued interest on zero coupon bonds that it issued. c. New shares issued in a stock split. d. New shares issued in a stock dividend

a. Cash proceeds from selling one of its divisions.

Which of the following statements concerning the cash budget is correct? a. Depreciation expense is not explicitly included, but depreciation effects are implicitly included in estimated tax payments. b. Cash budgets do not include financial expenses such as interest and dividend payments. c. Cash budgets do not include cash inflows from long-term sources such as bond issues. d. Statements a and b are correct. e. Statements a and c are correct

a. Depreciation expense is not explicitly included, but depreciation effects are implicitly included in estimated tax payments.

. Other things held constant, which of the following would tend to reduce the cash conversion cycle? a. Place larger orders for raw materials to take advantage of price breaks. b. Take all discounts that are offered. c. Continue to take all discounts that are offered and pay on the net date. d. Offer longer payment terms to customers

c. Continue to take all discounts that are offered and pay on the net date.

Which of the following statements is CORRECT? a. If a firm that sells on terms of net 30 changes its policy to 2/10 net 30, and if no change in sales volume occurs, then the firm's DSO will probably increase. b. If a firm sells on terms of 2/10 net 30, and its DSO is 30 days, then the firm probably has some past-due accounts. c. If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharp peak in December, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in January than in July. d. If a firm changed the credit terms offered to its customers from 2/10 net 30 to 2/10 net 60, then its sales should increase, and this should lead to an increase in sales per day, and that should lead to a decrease in the DSO

c. If a firm sells on terms of net 60, and if its sales are highly seasonal, with a sharp peak in December, then its DSO as it is typically calculated (with sales per day = Sales for past 12 months/365) would probably be lower in January than in July.

Other things held constant, which of the following will cause an increase in working capital? a. Cash is used to buy marketable securities. b. A cash dividend is declared and paid. c. Merchandise is sold at a profit, but the sale is on credit. d. Long-term bonds are retired with the proceeds of a preferred stock issue. e. Missing inventory is written off against retained earnings

c. Merchandise is sold at a profit, but the sale is on credit.

What is its cost of equity for a firm if the corporate tax rate is 40%? The firm has a debt-toequity ratio of 1.5. If it had no debt, its cost of equity would be 16%. Its current cost of debt is 12%. a. 17.4% b. 18.4% c. 19.6% d. 21.4% e. None of the above.

d. 21.4% rs = .16 + 1.5(1 - .4)(.16 - .10) = .214 = 21.4%

Other things held constant, which of the following would tend to reduce the cash conversion cycle? a. Maintain the same level of receivables as sales decline. b. Place larger orders for raw materials to take advantage of price breaks. c. Take all discounts that are offered. d. Not take all discounts that are offered to get more trade credit. e. Offer longer payment terms to customers

d. Not take all discounts that are offered to get more trade credit.

Which of the following items should a company explicitly include in its monthly cash budget? a. Its monthly depreciation expense. b. Its cash proceeds from selling one of its divisions. c. Interest paid on its bank loans. d. Statements b and c are correct. e. All of the statements above are correct

d. Statements b and c are correct.

Which of the following is typically part of the cash budget? a. Payments lag. b. Payment for plant construction. c. Cumulative cash. d. Statements a and c are correct. e. all

e. all