Principles of Finance Unit 4 milestone 4

A company with a 120-day operating cycle determines its cash conversion cycle using the following data: Receivable days: 35 Inventory days: 95 Payable days: 45 What is the company's cash conversion cycle?

85

Which of the following describes the securities underwriting process?

A company sells its securities to an investment bank, who then sells the securities to market participants.

When performing capital budgeting, cash flow analysis can help a company determine when to execute __________.

replacement projects

Farrah owns 500 shares of stock valued at $30/share in Company A. After the company issues a 3% stock dividend, what does Farrah own?

515 shares valued at $29.13/share

Which of the following investors would likely prefer a stock dividend over a cash dividend?

Bayne wants to delay paying taxes on his investments for as long as possible.

Determine whether the following description is true of a capital lease, an operating lease, neither or both. "A method of financing an asset like equipment without purchasing it outright with equity"

Both

Place the following steps for developing a credit policy in the correct order of process: A: The company hopes that few customers will miss payments, so it decides to take no action to collect bad debts. B: The company decides that payments must be made within 45 days. C: The company decides that it's willing to lose sales in exchange for less bad debt risk.

C, B, A

Which of the following is an example of an operational risk for a company that manufactures automobiles?

Damage to completed cars held on a storage lot

Which of the following types of financing is typical for a business in its mature stage?

Equity

Alyx needs additional short-term financing to modify her children's clothing business. To generate funds, she sells her accounts receivable to an external party for slightly less than their book value. What type of financing resource is Alyx using?

Factoring

A business that has too little working capital can take what action?

Increase inventory

What is one advantage of NPV as a capital budget method?

It is flexible, in the sense that the discount rate can be adjusted to account for factors like risk.

Select one disadvantage of IRR as a capital budget method.

It is not useful for comparing projects with different lifespans.

Which inventory technique assumes that the most recently purchased inventory is sold first?

LIFO

An electronics company is preparing a capital budget and considering four long-term investments. The payback period of each project is as follows: Project A: 4 years Project B: 5.2 years Project C: 2.4 years Project D: 3 years In theory, which two projects should the company pursue?

Projects C and D

Which of the following describes equity securities, rather than debt securities or derivatives?

They carry more risk than debt securities, but less than derivatives.

What does the residual dividend model mean for investors?

They should expect a level of uncertainty regarding their dividends.

Which of the following is a goal of working capital management?

To balance adequate cash flow against maximal returns

Select a reason why a company would want to go public.

To have access to cheaper capital than a private company would

Which of the following is a disadvantage of venture capital?

Venture capital investors may place restrictions on company operations, such as setting salary caps.

A company invests $600,000 in a project with the following net cash flows: Year 1: $130,000 Year 2: $113,000 Year 3: $98,000 Year 4: $92,000 Year 5: $89,000 Year 6: $95,000 In what year does payback occur?

Year 6

To manage cash efficiently, a company should try to collect payment for delivered products or services __________.

as quickly as possible

Ollie owned stock in a hotel company that announced a dividend, but he did not receive it. This is because he sold the stock before the __________ date had passed.

in-dividend