Exam 1 retake review

When compiling a pro forma statement, which policy most directly affects the projection of the retained earnings account balance? Capital budgeting policy Net working capital policy Dividend policy Capacity utilization policy Capital structure policy

Dividend policy

Valerie, the sales manager for TL Products, wants to sponsor a one-week "Customer Appreciation Sale" where the firm offers to sell additional units of a product at the lowest price possible without negatively affecting the firm's profits. Which one of the following represents the price that should be charged for the additional units during this sale? Average total cost Marginal cost Average total revenue Average variable cost Marginal revenue

Marginal cost

Sensitivity analysis determines the: ideal ratio of variable costs to fixed costs for profit maximization. range of possible outcomes given that most variables are reliable only within a stated range. degree to which the net present value reacts to changes in a single variable. degree to which a project relies on its initial costs. net present value range that can be realized from a proposed project.

degree to which the net present value reacts to changes in a single variable.

PC Enterprises wants to commence a new project but is unable to obtain the financing under any circumstances. This firm is facing: capital allocation. financial deferral. marginal rationing. hard rationing. financial allocation.

hard rationing.

The absolute priority rule determines: which parties receive payment first in a bankruptcy proceeding. which judge is assigned to a particular bankruptcy case. how a distressed firm is reorganized. when a firm must be declared officially bankrupt. how long a reorganized firm is allowed to remain under bankruptcy protection.

which parties receive payment first in a bankruptcy proceeding.

When you assign the lowest anticipated sales price and the highest anticipated costs to a project, you are analyzing the project under the condition known as: worst-case sensitivity analysis. best-case scenario analysis. best-case sensitivity analysis. base-case scenario analysis. worst-case scenario analysis.

worst-case scenario analysis.

It is common for venture capitalists to receive at least ___ percent of a start-up company's equity in exchange for the venture capital. 40 15 30 20 10

40

Which one of the following statements concerning venture capitalists is correct? Most venture capitalists are long-term investors in the companies they finance. Venture capitalists limit their services to providing money to start-up firms. Venture capitalists always assume management responsibility for the companies they finance. Exit strategy is a key consideration when selecting a venture capitalist. A venture capitalist normally invests in a new idea from conception through the IPO.

Exit strategy is a key consideration when selecting a venture capitalist.

Which one of the following will best reduce the risk of a project by lowering the degree of operating leverage? Subcontracting portions of the project rather than purchasing new equipment to do all the work in-house Lowering the projected selling price per unit Changing the proposed labor-intensive production method to a more capital intensive method Buying equipment rather than leasing it short-term Hiring additional employees rather than using temporary outside contractors

Subcontracting portions of the project rather than purchasing new equipment to do all the work in-house

When selecting a venture capitalist, which one of the following characteristics is probably the least important? Level of involvement Exit strategy Contacts Underwriting experience Financial strength

Underwriting experience

BK & Co. offered 15,000 shares in a rights offer. T.L. Moore & Co. was the underwriter that by prior agreement purchased the 639 unsold shares. For its participation in this rights offer, T.L. Moore & Co. is most likely entitled to: a standby fee. the optional spread. the gross margin. an oversubscription fee. the subscription price.

a standby fee.

The maximum rate of growth a corporation can achieve can be increased by: increasing the sales forecast. increasing the corporate tax rate. increasing the dividend payout ratio. avoiding new external equity financing. increasing the retention ratio

increasing the retention ratio

A company is technically insolvent when: it is unable to meet its financial obligations. it files for bankruptcy protection. the market value of its stock is less than its book value. it has a negative book value. its total debt exceeds its total equity.

it is unable to meet its financial obligations.

The value of a right depends upon the number of rights required for each new share as well as the: market price, book value, and subscription price. subscription price and book value per share. difference between the market and book values per share. market and book values per share. market and subscription prices.

market and subscription prices.

Edwards Farm Products was unable to meet its financial obligations and was forced into using legal proceedings to restructure itself so that it could continue as a viable business. The process this company underwent is known as a: merger. Liquidation. reorganization. divestiture. repurchase program.

reorganization.

Financial plans generally tend to ignore: risks associated with cash flows. operating capacity levels. dividend policy. manager's goals and objectives. capital structure policy.

risks associated with cash flows.

A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a(n) _____ underwriting. firm commitment direct fee standby oversubscription best efforts

standby

Simulation analysis is based on assigning a _____ and analyzing the results. wide range of values to a single variable narrow range of values to multiple variables simultaneously wide range of values to multiple variables simultaneously single value to each of the variables narrow range of values to a single variable

wide range of values to multiple variables simultaneously

The external financing need: is unaffected by the dividend payout ratio. will limit growth if unfunded. considers only the required increase in fixed assets. ignores any changes in retained earnings. must be funded by long-term debt.

will limit growth if unfunded.