unit 4

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. An investment bank helps to connect a private company with sources of capital. An investment bank determines if a company can afford to go public. An investment bank responsible for market liquidity quotes a bid price and an ask price for a security.

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

What is one potential advantage of being a publicly-held company? A public company always has a higher share price than a private company. A public company has fewer requirements to meet when it comes to shareholder communication and reporting. A public company may have a more prominent reputation than a private company. A public company may gain from greater investor involvement than a private company.

A public company may have a more prominent reputation than a private company.

When performing capital budgeting and considering replacement projects, one factor that must be considered is the potential __________ of equipment that is no longer needed. sunk costs depreciation taxation salvage value

salvage value

Lennon owns 50 shares of stock in Company A that are valued at $10/share.After Company A splits their stock at 2-for-1, what does Lennon own? 50 shares valued at $20/share 100 shares valued at $5/share 50 shares valued at $10/share 100 shares valued at $10/share

100 shares valued at $5/share

A company has a 70-day operating cycle, with 15 payable days, 25 receivable days and 45 inventory days.What is their cash conversion cycle? 30 55 85 35

55

What is one disadvantage of NPV as a capital budget method? It can be very difficult to calculate, even if inputs like cash flows are quite clear. It can only be used to evaluate bonds. It cannot be used to compare mutually exclusive investments. Although the weighted average cost of capital is commonly used as the discount rate, it is not a perfect input.

Although the weighted average cost of capital is commonly used as the discount rate, it is not a perfect input.

Place the following steps for developing a credit policy in the correct order of process: A: The company decides that it will contact customers by phone if they are late on a payment. B: The company decides that it will not require customers to undergo a credit check. C: The company decides that it will reward loyal customers with a discount for early payment. C, B, A B, C, A B, A, C C, A, B

B, C, 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 A state tax increase that makes buying and registering a car more expensive A national car rental agency backing out of a contract to buy a certain volume of new cars Rising interest rates that affect the terms of car loans, thereby decreasing demand

Damage to completed cars held on a storage lot

Which of the following investors would likely prefer a cash dividend over a stock dividend? Harriett is more focused on long-term outcomes than short-term ones when it comes to investing. Kylie is a high-income earner and prefers to avoid additional taxes this year. Layton prefers when companies let him decide how to benefit from his dividends. Enrique subscribes to the "bird in the hand" theory when it comes to dividends.

Enrique subscribes to the "bird in the hand" theory when it comes to dividends.

Which of the following types of financing is typical for a business in its mature stage? Bank loans Start-up venture capital Second-round venture capital Equity

Equity

What can a business that has too little working capital do to increase it? Decrease inventory Reduce current assets Increase short-term liabilities Increase cash on hand

Increase cash on hand

Select one disadvantage of IRR as a capital budget method. It can only be used with projects that have positive cash flows. It fails to account for the time value of money. It is not useful for comparing projects with different lifespans. It can be difficult to interpret and understand.

It is not useful for comparing projects with different lifespans.

Determine whether the following description is true of a capital lease, an operating lease, neither or both."A way for a company to acquire equipment for a relatively short-term period, after which the equipment returns to the owner" Capital lease Operating lease Neither Both

Operating lease

Jerome needs funding to help start a business selling school supplies. He uses a website that connects him directly with a lender who charges a below-market interest rate.What type of financing resource is Jerome using? Trade credit Commercial lending Factoring Peer-to-peer lending

Peer-to-peer lending

A construction company is preparing a capital budget and considering four long-term investments. The profitability index of each project is as follows: Project A: 0.34 Project B: 1.12 Project C: 1.26 Project D: 0.93 In theory, which two projects should the company pursue? Projects B and D Projects A and C Projects B and C Projects A and D

Projects B and C

In what way are debt securities, equity securities and derivatives similar? They all have fixed terms. They can all be used to hedge against risk. Their value is derived from an underlying asset. They all confer ownership in a business.

They can all be used to hedge against risk.

What does the residual dividend model mean for investors? They should expect dividend distributions that are equal to net income. They should expect a level of uncertainty regarding their dividends. They should expect to consistently receive the same dividend. They should expect to always receive very small dividends.

They should expect a level of uncertainty regarding their dividends.

Which of the following is a goal of working capital management? To balance the cash conversion cycle against maximum revenue To make long-term capital investment decisions To eliminate the risk of customers defaulting on credit To lessen free working capital and maximize opportunity costs

To balance the cash conversion cycle against maximum revenue

Which of the following is a disadvantage of venture capital? Venture capitalists only receive a return on their investment if the company is eventually purchased for a large sum. Receiving venture capital can send a message to other investors that your company is unlikely to succeed. Companies that receive venture capital are prohibited from issuing an IPO once they become successful. Venture capital investors may place restrictions on company operations, such as setting salary caps.

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

What type of inventory does paint that has been colored but not yet put into cans represent for a paint company? Work in process Raw materials Finished goods Class C

Work in process

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 book closure payment ex-dividend

in-dividend

When managing its cash, a company should make use of float to __________. make payments before they come due decrease the length of time for a payment to clear the bank set aside cash for future payments increase the length of the disbursement cycle

increase the length of the disbursement cycle