Which one of these is a correct definition?
Current assets are assets with short lives, such as inventory.
Long-term debt is defined as a residual claim on a firm’s assets.
Current liabilities are debts that must be repaid in 18 months or less.
Tangible assets are fixed assets such as patents.
Net working capital equals current assets plus current liabilities.
All else held constant, interest rate risk will increase when the time to maturity:
Increases or the coupon rate decreases.
Increases or the coupon rate increases.
Decreases or the coupon rate increases.
Decreases and the coupon rate equals zero.
The market price of a bond increases when the:
Face value decreases.
Coupon rate decreases.
Par value decreases.
Coupon is paid annually rather than semiannually.
Discount rate decreases.
Generally tends to exceed market value when fixed assets are included.
Is adjusted to market value whenever the market value exceeds the stated book value.
Is more of a financial than an accounting valuation.
Is equivalent to market value for firms with fixed assets.
Is based on historical cost.
The cash flow resulting from a firm’s ongoing, normal business activities is referred to as the:
Cash flow to investors.
Additions to net working capital.
Net capital spending.
Cash flow to retained earnings.
Operating cash flow.
An efficient capital market is one in which:
Taxes are irrelevant.
Security prices reflect all available information.
Brokerage commissions are zero.
Securities always offer a positive NPV.
All investments earn the market rate of return
All else equal, the contribution margin must increase as:
Sales price per unit declines.
The fixed cost per unit declines.
The sales price minus the fixed cost per unit increases.
The variable cost per unit declines.
Both the sales price and variable cost per unit increase
Which one of the following statements about preferred stock is true?
Dividends on preferred stock payable during the next twelve months are considered to be a corporate liability.
There is no significant difference in the voting rights granted to preferred and common shareholders.
Preferred stock usually has a stated liquidating value of $100 per share.
Unlike dividends paid on common stock, dividends paid on preferred stock are a tax-deductible expense.
If preferred dividends are non-cumulative, then preferred dividends not paid in a particular year will be carried forward to the next year
Which one of these statements is correct concerning the cash cycle?
Adopting a more liberal accounts receivable policy will tend to decrease the cash cycle.
Increasing the accounts payable period increases the cash cycle.
A positive cash cycle is preferable to a negative cash cycle.
The longer the cash cycle, the more likely a firm will need external financing.
The cash cycle can exceed the operating cycle if the payables period is equal to zero.
Which one of the following statements is false?
Aging schedules are used to monitor accounts receivable.
If sales are seasonal, the percentages shown on an aging schedule will vary during the year.
Collection efforts may involve legal action.
An aging schedule includes only overdue accounts.
Investments in accounts receivable equal average daily sales times average collection period.
A firm has a debt-equity ratio of .64, a pretax cost of debt of 8.5 percent, and a required return on assets of 12.6 percent. What is the cost of equity if you ignore taxes?