WK7 HW

Rank the following in order of riskiest to least risky: Treasury Bonds, Treasury Bills, Corporate Bonds.

1. Corporate Bonds 2. Treasury Bonds 3. Treasury Bills

What is the correct order of steps to follow for determining credit for a customer?

1. Fix the terms of sale 2. Determine whether to sell on open account or have customer sign an IOU 3. Use credit analysis to determine probability that customer will pay 4. Determine credit policy

The top tax rate on both dividends and capital gains is ______.

23.8%

If Nuka-Cola Inc declared a stock dividend of 20%, John-Caleb would receive ------------new shares if he currently owned 20,000 shares.

4000

Which of the following are important money market instruments?

Commercial paper Certificates of deposit Treasury bills

Which of the following represent the two main sources of a company's accounts receivable?

Consumer credit Trade credit

Match the form of payment on the left with the appropriate definition. Instructions

Credit card A line of credit to make purchases up to a stated limit. Debit card Immediate electronic payment for a purchase. Credit transfer A regular payment to a supplier via a standing order. Direct payment A direct debit. Charge card A balance that must be paid in full at the end of the month

Which of the following statements is true? A. The total annual dollar amount of dividends has steadily decreased since 1980. B. The total dollar amount of dividends has remained fairly constant since 1980. C. Repurchases were very popular before 1980, but have lost popularity since then. D. Repurchases have grown in popularity since 1980.

D. Repurchases have grown in popularity since 1980.

Besides checks, which of the following are methods of paying bills?

Debit card Credit card Direct payment

True or false: A firm will increase its value by increasing its dividends.

False

True or false: If a 3 month money market investment sells at a discount from face value of 5% annualized, this means that the return to the investor will be 5%.

False This is false. The return will always be higher than the discount because you pay less than face value when you buy the bond. Therefore, the return in this case will be higher than 5%.

Which of the following are restrictions that state law may place on the payment of dividends?

Firms may not pay dividends if doing so would make them insolvent. Firms may not pay dividends if doing so would cut into legal capital.

It makes more sense for young firms to have a ____________(high/low) earnings reinvestment rate.

High

Which of the following statements is/are correct?

In a maturing company that is not paying out cash to shareholders, the stock price will begin to stagnate. Accumulation of cash by a mature firm can lead to problems like overinvestment and excessive perks. Shareholders' taxes can be affected by the firm's decision to payout cash or retain it.

Which of the following are costs imposed on the firm by customers who are slow to pay off their accounts receivable?

Increase in collection costs. Increase in working capital.

Which of the following are characteristic of money market funds?

Low risk. Maturities less than 1 year. Liquid.

Which of the following can be used to carry out a credit analysis?

Moody's rating for the customer's bonds Credit agencies The company's bank

An agreement whereby sales are made with no formal debt contract.

Open account

Inventory consists of which of the following?

Raw materials Finished goods Work in process

Some investors have preference for high dividend payout stocks. Which of the following are reasons why investors may prefer high dividend stocks?

Some financial institutions are legally restricted from holding stocks lacking established dividend records. Some investors use dividends for a steady source of cash income to live on.

Which of the following represent the two main sources of a company's accounts receivable?

Trade credit Consumer credit

Corporate money market investments offer higher yields than U.S. government securities because:

Treasury bills are highly liquid the risk of default is higher for corporations

Current assets include which of the following?

marketable securities inventory accounts receivable cash

One of the advantages of capital gains over dividends is that taxes on dividends must be paid immediately, while taxes on capital gains

may be deferred until the stock is sold

A market for short-term financial assets in the U.S. is known as a ____________ market.

money

A company supplying goods to a wide variety of irregular customers may require payment of the goods

on delivery.

When a firm repurchases stock by purchasing it in the secondary market like any other shareholder, this is called a(n) _________.

open-market repurchase

Firms generally have ______ net working capital.

positive

If investors pay a higher tax rate on dividends than on capital gains, then investors should prefer firms that _____ over firms that _____

repurchase shares; pay dividends

A loan made to cover a seasonal increase in inventories that is then repaid as goods are sold is referred to as a __________ loan.

self-liquidating

The financial manager should hold cash balances up until the point that:

the marginal value of liquidity equals the value of interest foregone

Bills awaiting payment from one company to another are known as

trade credit

Which of the following is the safest and most liquid money market instrument?

treasury bills

If a firm pays for a dividend by issuing additional shares of stock, it's total firm value will be

unchanged or constant

If a firm pays for a dividend by issuing additional shares of stock, its total firm value will be ______ and its price per share will _______

unchanged; decrease

Current assets and liabilities are known as:

working capital

Which of the following are forms of electronic payment?

debit cards direct deposits credit cards wire transfers direct payments

Following the 2007-2008 financial crisis, the market for commercial paper has:

declined dramatically

When a firm pays a dividend, their price per share _________ by the amount of the dividend.

decreases

Annie's employer pays her electronically through _________. Annie pays her recurring bills such as her utility bills and credit card through an electronic ___________ system

direct deposit, direct payment

When a firm repurchases stock by negotiating the repurchase of a block of shares from a major shareholder, this is a(n)

direct negotiation

In order to accommodate share repurchases by a dividend paying firm, the Dividend Discount Model must use ________ for its cash flows.

dividends per share

Major international banks in London lend dollars to one another at the ___________

dollar LIBOR

A U.S. firm deposits dollars into a bank account in France. This deposit is known as a:

eurodollar deposit

The date after which a purchaser of stock is not eligible to receive the declared dividend is the _______

ex-dividend date

The date after which a purchaser of stock is not eligible to receive the declared dividend is the _______.

ex-dividend date

Checks that have been mailed but not yet cleared are known as

float

With a money market investment, returns are always ______ than the discount because you pay ______ than face value when purchasing the bond.

higher, less

If the firm chooses a payout policy that results in less taxes paid by investors on their returns, then its stock price should

increase

The announcement of a dividend increase prompts a(n) _______ in stock price and a dividend decrease prompts a(n) ________ in stock price.

increase; decrease

When a firm repurchases some of its shares, their price per share _______ by the amount of the repurchase.

is not affected

Standards set to determine the amount and nature of credit to extend to customers is known as:

credit policy

inventory is a

current asset

Net working capital is equal to:

current assets minus current liabilities

Short-term bank loans are usually made at __________

a fixed rate of interest

Current assets include which of the following?

accounts receivable inventory cash marketable securities

Most firms in the U.S. have the largest portion of current assets in:

accounts receivable and inventory

A company extending credit to customers and other companies requires payment of the goods

after delivery.

A time draft in which the bank guarantees the customer's debt is known as a(n)

banker's acceptance

When a company produces goods to a customer's specifications or incurs heavy delivery costs, the company may require payment of the goods

before delivery.

The asset with the most liquidity is:

cash

The dividend discount model works if the firm offers distributions in the form of

cash dividends share repurchases

The cost of processing checks has been reduced by a technological innovation known as

check conversion.

Procedures to collect and monitor receivables are known as a firm's

collection policy.

Short-term unsecured notes issued by firms are known as:

commercial paper

To shareholders, an increase in the dividend payment sends a signal of managers'

confidence in the future prospects of the firm

A procedure to determine the likelihood a customer will pay its bills is known as

credit analysis.