Exam 2 Chap 16-19

Which one of these affects the length of the cash cycle but not the operating cycle?

Accounts payable period

Which one of the following statements is correct concerning the relationship between a levered and an unlevered capital structure? Ignore taxes.

At the break-even point, there is no advantage to debt.

Which one of the following is the equity risk that is most related to the daily operations of a firm?

Business risk

Which one of the following factors tends to increase cash dividends?

Corporate investors

Which one of these activities represents a source of cash?

Decreasing inventory

Which one of these actions will increase the operating cycle? Assume all else held constant.

Decreasing the receivables turnover rate

Which one of the following statements related to dividend policy is correct?

Dividend policy focuses on the timing of dividend payments

Money market securities generally have which of the following characteristics?

High liquidity, low risk, low return

Which form of financing do companies prefer to use first according to the pecking-order theory?

Internal funds

Kate purchased 500 shares of Fast Deliveries stock on Wednesday, July 7. Ted purchased 100 shares of Fast Deliveries stock on Thursday, July 8. Fast Deliveries declared a dividend on June 20 to shareholders of record on July 12 and payable on August 1. Which one of the following statements concerning the dividend paid on August 1 is correct given this information?

Kate is entitled to the dividend but Ted is not.

Which two of the following are key reasons why companies temporarily accumulate large cash surpluses?

Large planned expenditures and cyclical activities

GT Motors regularly issues short-term debt to finance its daily operations. However, the credit markets suddenly tightened and GT is unable to sell debt at this time. Fortunately, they have some cash reserves that they can use to fund operations until additional credit becomes available. The need to retain cash for situations such as this represents which one of the following motives for holding cash?

Precautionary

Which one of the following will increase collection time?

Requiring all nationwide payments be mailed to the home office rather than to lockboxes

Which one of the following actions will increase net working capital? Assume the current ratio is greater than 1.0.

Selling inventory at a profit on credit

Which type of dividend is considered to be a one-time event that will not be repeated?

Special dividend

Which one of the following involves a payment in shares that increases the number of shares a shareholder owns but also decreases the value per share?

Stock dividend

Which one of the following statements related to stock repurchases is correct?

Stock repurchases can be a relatively tax-efficient method of distributing cash to shareholders.

Which one of the following statements is correct concerning the cash cycle?

The longer the cash cycle, the more likely a company will need external financing.

Which one of the following favors a low dividend policy?

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

United Foods declared a dividend of $.62 a share on Thursday, October 16. The dividend will be paid on Monday, November 10, to shareholders of record on Friday, October 31. Which one of the following is the ex-dividend date?

Wednesday, October 29

The dividend market is in equilibrium when:

all clienteles are satisfied.

With a compromise financial policy companies will:

borrow short-term funds and also invest in marketable securities.

Costs that increase as a firm acquires additional current assets are called ________ costs.

carrying

The Research Center has branch operations in three states. Each branch deals with a local bank. However, all excess funds in these branch bank accounts are transferred on a daily basis to the company's primary bank located near the home office. This routine of transferring cash to the primary bank on a regular basis is referred to as:

cash concentration.

Central Supply paid off an accounts payable for a toboggan it had purchased on credit three weeks ago. The time period between today and the day Central Supply will receive cash from the sale of this toboggan is called the:

cash cycle.

An account into which a company transfers funds in an amount sufficient to just cover the daily demands for payment is called a ________ account.

controlled disbursement

Jessica invested in QRT stock when the company was unlevered. Since then, QRT has changed its capital structure and now has a debt-equity ratio of .36. To unlever her position, Jessica needs to:

create a personal debt-equity ratio of .36.

The optimal capital structure has been achieved when the:

debt-equity ratio results in the lowest possible weighted average cost of capital.

A $.45 quarterly cash payment paid by Jones & Co. to its shareholders in the normal course of business becomes a liability of the company on the:

declaration date.

Metal Designs historically produced products for inventory. Now, they only produce a product when an actual order is received from a customer. All else equal, this change will:

decrease the cash cycle.

Financial risk is:

dependent upon a company's capital structure.

Float is defined as the:

difference between book cash and bank cash.

The explicit costs, such as legal and administrative expenses, associated with corporate default are classified as ________ costs.

direct bankruptcy

The trade-off theory of capital structure advocates that the optimal capital structure for a company:

equates marginal tax savings from additional debt to the marginal increased bankruptcy costs of that debt.

The costs incurred by a business in an effort to avoid bankruptcy are classified as ________ costs.

indirect bankruptcy

A firm with a flexible short-term financial policy will:

invest heavily in inventory.

A zero-balance account:

is funded on an as-needed basis only.

A firm should select the capital structure that:

maximizes the value of the firm.

The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called the:

operating cycle.

Cash management primarily involves:

optimizing the collections and disbursements of cash.

The optimal investment in current assets for an active company occurs at the point where:

shortage costs and carrying costs are equal.

Cash concentration accounts:

tend to increase the funds available for short-term investing.

M&M Proposition I with taxes is based on the concept that:

the value of a taxable company increases as the level of debt increases.