The ________ method of developing a pro forma income statement forecasts sales and values for the cost of goods sold, operating expenses, and interest expense that are expressed as a ratio of projected sales.
percent of sales
The ability of a firm to meet its short-term debt obligations as they come due is indicated by which of the following ratios:
asset utilization ratios
financial leverage ratios
The degree of operating leverage (DOL) can be measured by the percent change in operating income (EBIT) divided by percent change in:
If a firm's fixed financial costs decrease, the firm's operating breakeven point will
change in an undetermined direction
Ratios used to compare different firms at the same point in time belong to a category of analysis called:
time series analysis
industry comparative analysis
Marketable securities are held primarily to meet:
A firmâ€™s excess cash balance during a particular month could be best deployed if it were
financed with short term investments
financed with long term investments
invested in short term investments
invested in long term investments
The objective of managing current assets and liabilities is to
achieve as low a level of current assets as possible.
achieve as low a level of current liabilities as possible.
achieve a balance between profitability and risk that contributes to the firm's value.
achieve as high a level of current liabilities as possible.
The ________ is the time period that elapses from the point when the firm makes the outlay to purchase raw materials on account to the point when payment is made to the supplier of the goods.
cash conversion cycle
average payment period
average age of inventory
average collection period
In the cash budget, the firms final sales forecast us usually a function of
the sales force estimate of demand.
external and internal factors in combination.
accounts payable experience.
A revolving credit agreement is a:
bankers agreement to extend the maturity of a loan
bankers standby agreement to provide a guaranteed line of credit for a specified period of time
large loan supported by a group of banks on an alternating basis
loan arrangement with a bank whereby secured and unsecured loans are alternately used
A short-term promissory note sold by high-credit-quality corporations and is backed solely by the credit quality of the issuer is called:
a line of credit
a revolving credit agreement
a factoring arrangement
Commercial finance companies:
make riskier unsecured business loans but charge higher interest rates
specialize in loans secured by inventories and real estate
concentrate their lending activity to firms pledging the notes receivable of their customers
are primarily interested in loans secured by a business customers accounts receivable and inventories
The purchaser may deduct 2% from the purchase price if payment is made within 10 days; but if not paid within 10 days, the net amount of the purchase is due within 30 days. The sale is made on what terms?
Commercial paper dealers:
lend to small and large businesses on the basis of their receivables outstanding
restrict their paper dealings to negotiable certificates of commercial banks
distribute to investors the promissory notes of successful businesses
distribute to investors the promissory notes of small but rapidly developing businesses
Which one of the following capital-budgeting evaluation techniques is based on finding a discount rate which causes the net present value to be zero?
net present value
internal rate of return
Which one of the following best explains the impact on a firm that accepts a project with a negative NPV?
negative cash flows
decrease in the value of the firm
high marginal cost of capital
low initial returns
The corporate planning tool that develops project plans that fit well with the firms plans is often referred to by the following acronym:
The payback period concept is best explained by which of the following?
marginal cost of capital
point where initial investment has been returned
rate where NPV is equal to zero
accounting rate of return
The stage in the capital budgeting process in which implemented projects are periodically reviewed is called the _____________ stage.
The estimate of how quickly a firm may grow by maintaining a constant mix of debt and equity is called:
the retention growth rate
dividend growth rate
sustainable growth rate
the internal growth rate
What should be the relation between the target capital structure for a firm and the firmâ€™s optimum capital structure?
Target and optimum capital structures should be the same.
Target capital structure is more conservative overall.
Target capital structure contains more debt.
Target capital structure excludes preferred stock.
Other factors being constant, higher fixed operating costs mean:
higher financial leverage
higher operating leverage
lower combined leverage
the degree of financial leverage is equal to 1.0
In calculating the cost of new common stock using the constant dividend growth model, it is important that the __________ are subtracted from the price of the stock.
cost of retained earnings
proceeds of the sale
Which of the following is a correct way to calculate degree of combined leverage?
Answer divide DFL by DOL
multiply DOL by DFL
divide DOL by DFL
add DOL and DFL