All Matches

Solution Library

Expert Answer

Textbooks

Search Textbook questions, tutors and Books

Oops, something went wrong!

Change your search query and then try again

Result Not Found

Books FREE
Tutors
Study Help
Hire a Tutor
AI Study Help New

Search
Sign In
Register

study help
business
financial management

Questions and Answers of Financial Management

Since not-for-profit businesses are expected to provide a social value in addition to an economic benefit, project analysis must consider social value along with expected cash flows. The summation of
Since most not-for-profit firms have a myriad of different products or services, a new project's contribution to the riskiness of the overall firm's portfolio of projects, or its corporate risk, is
No. If perfect information existed, then all potential buyers and bond insurance companies would have the same full knowledge of the risks inherent in the not-for-profit firm's bond. Accordingly, an
Only cash can be spent or reinvested, and since accounting profits do not represent cash, they are of less fundamental importance than cash flows for investment analysis. Recall that in the stock
Since the cost of capital includes a premium for expected inflation, failure to adjust cash flows means that the denominator, but not the numerator, rises with inflation, and this lowers the
Capital budgeting analysis should only include those cash flows which will be affected by the decision. Sunk costs are unrecoverable and cannot be changed, so they have no bearing on the capital
When a firm takes on a new capital budgeting project, it typically must increase its investment in receivables and inventories, over and above the increase in payables and accruals, thus increasing
Simulation analysis involves working with continuous probability distributions, and the output of a simulation analysis is a distribution of net present values or rates of return. Scenario analysis
a. Real options occur when managers can influence the size and risk of a project's cash flows by taking different actions during the project's life. They are referred to as real options because they
Postponing the project means that cash flows come later rather than sooner; however, waiting may allow you to take advantage of changing conditions. It might make sense, however, to proceed today if
Timing options make it less likely that a project will be accepted today. Often, if a firm can delay a decision, it can increase the expected NPV of a project.
Having the option to abandon a project makes it more likely that the project will be accepted today.
The emphasis of the various types of analysts is by no means uniform nor should it be. Management is interested in all types of ratios for two reasons. First, the ratios point out weaknesses that
Given that sales have not changed, a decrease in the total assets turnover means that the company's assets have increased. Also, the fact that the fixed assets turnover ratio remained constant
Differences in the amounts of assets necessary to generate a dollar of sales cause asset turnover ratios to vary among industries. For example, a steel company needs a greater number of dollars in
a. Cash, receivables, and inventories, as well as current liabilities, vary over the year for firms with seasonal sales patterns. Therefore, those ratios that examine balance sheet figures will vary
Firms within the same industry may employ different accounting techniques, which make it difficult to compare financial ratios. More fundamentally, comparisons may be misleading if firms in the same
Accounts payable, accrued wages, and accrued taxes increase spontaneously and proportionately with sales. Retained earnings increase, but not proportionately.
The equation gives good forecasts of financial requirements if the ratios \(A^{*} / \mathrm{S}\) and \(\mathrm{L}^{*} / \mathrm{S}\), as well as \(\mathrm{M}\) andd, are stable. Otherwise, another
a. + .b. +. It reduces spontaneous funds; however, it may eventually increase retained earnings.c. + .d. + .
The first step is to find the value of operations by discounting all expected future free cash flows at the weighted average cost of capital. The second step is to find the total corporate value by
A company can be profitable and yet have an ROIC that is less than the WACC if the company has large capital requirements. If ROIC is less than the WACC, then the company is not earning enough on its
Entrenched managers consume to many perquisites, such as lavish offices, excessive staffs, country club memberships, and corporate jets. They also invest in projects or acquisitions that make the
Stock options in compensation plans usually are issued with an exercise price equal to the current stock price. As long as the stock price increases, the option will become valuable, even if the
Business risk refers to the uncertainty inherent in projections of future \(\mathrm{ROE}_{\mathrm{U}}\).
Firms with relatively high nonfinancial fixed costs are said to have a high degree of operating leverage.
Operating leverage affects EBIT and, through EBIT, EPS. Financial leverage has no effect on EBIT--it only affects EPS, given EBIT.
If sales tend to fluctuate widely, then cash flows and the ability to service fixed charges will also vary. Such a firm is said to have high business risk. Consequently, there is a relatively large
Public utilities place greater emphasis on long-term debt because they have more stable sales and profits as well as more fixed assets. Also, utilities have fixed assets which can be pledged as
EBIT depends on sales and operating costs. Interest is deducted from EBIT. At high debt levels, firms lose business, employees worry, and operations are not continuous because of financing
The tax benefits from debt increase linearly, which causes a continuous increase in the firm's value and stock price. However, financial distress costs get higher and higher as more and more debt is
Modigliani and Miller show that the value of a leveraged firm must be equal to the value of an unleveraged firm. If this is not the case, investors in the leveraged firm will sell their shares
MM without taxes would support AT\&T, although if AT\&T really believed MM, they should not object to Gordon's 50 percent debt ratio. MM with taxes would lead ultimately to 100 percent debt, which
The value of a growing tax shield is greater than the value of a constant tax shield. This means that for a given initial level of debt a growing firm will have more value from the debt tax shield
If equity is viewed as an option on the total value of the firm with a strike price equal to the face value of debt then the equity value should be affected by risk in the same way that an option is
a. From the stockholders' point of view, an increase in the personal income tax rate would make it more desirable for a firm to retain and reinvest earnings. Consequently, an increase in personal tax
The difference is largely one of accounting. In the case of a split, the firm simply increases the number of shares and simultaneously reduces the par or stated value per share. In the case of a
a. The residual distribution policy is based on the premise that, since new common stock is more costly than retained earnings, a firm should use all the retained earnings it can to satisfy its
a. True. When investors sell their stock they are subject to capital gains taxes.b. True. If a company's stock splits 2 for 1 , and you own 100 shares, then after the split you will own 200 shares.c.
No. The role of the investment banker is more important if the stock demand curve has a steep slope and the negative signaling effect is substantial. Under such conditions, the investment banker will
No. The real value of a security is determined by the equilibrium forces of an efficient market. Assuming that the information provided on newly issued securities is accurate, the market will
a. Going public would tend to make attracting capital easier and to decrease flotation costs.b. The increasing institutionalization of the "buy side" of the stock and bond markets should increase a
Investment bankers must investigate the firms whose securities they sell, simply because, if an issue is overvalued and suffers marked price declines after the issue, the banker will find it
An operating lease is usually cancelable and includes maintenance. Operating leases are, frequently, for a period significantly shorter than the economic life of the asset, so the lessor often does
You would expect to find that lessees, in general, are in relatively low income-tax brackets, while lessors tend to be in high tax brackets. The reason for this is that owning tends to provide tax
The banks, when they initially went into leasing, were paying relatively high tax rates. However, since municipal bonds are tax-exempt, their heavy investments in municipals lowered the banks'
Lease payments, like depreciation, are deductible for tax purposes. If a 20 -year asset were depreciated over a 20 -year life, depreciation charges would be \(1 / 20\) per year (more if MACRS were
In fact, Congress did this in 1981. Depreciable lives were shorter than before; corporate tax rates were essentially unchanged (they were lowered very slightly on income below \(\$ 50,000\) ); and
A cancellation clause would reduce the risk to the lessee since the firm would be allowed to terminate the lease at any point. Since the lease is less risky than a standard financial lease, and less
a. Pros:- The use of the leased premises or equipment is actually an exclusive right, and the payment for the premises is a liability that often must be met. Therefore, leases should be treated as
Preferred stock is best thought of as being somewhere between debt (bonds) and equity (common stock). Like debt, preferred stock imposes a fixed charge on the firm, affords its holders no voting
The trend in stock prices subsequent to an issue influences whether or not a convertible issue will be converted, but conversion itself typically does not provide a firm with additional funds.
Either warrants or convertibles could be used by a firm that expects to need additional financing in the future--warrants, because when they are exercised, additional funds will be brought into the
a. The value of a warrant depends primarily on the expected growth of the underlying stock's price. This growth, in turn, depends in a major way on the plowback of earnings; the higher the dividend
The statement is made often. It is not really true, as a convertible's issue price reflects the underlying stock's present price. Further, when the bond or preferred stock is converted, the holder
If rights are used, they generally apply to voting securities. Although convertibles do not have voting rights, they are convertible into securities that do have the right to vote.
The convertible bond has an expected return which consists of an interest yield (10 percent) plus an expected capital gain. We know the expected capital gain must be at least 4 percent, because the
The two principal reasons for holding cash are for transactions and compensating balances. The target cash balance is not equal to the sum of the holdings for each reason because the same money can
False. Both accounts will record the same transaction amount.
The four elements in a firm's credit policy are (1) credit standards, (2) credit period, (3) discount policy, and (4) collection policy. The firm is not required to accept the credit policies
If an asset's life and returns can be positively determined, the maturity of the asset can be matched to the maturity of the liability incurred to finance the asset. This matching will ensure that
From the standpoint of the borrower, short-term credit is riskier because short-term interest rates fluctuate more than long-term rates, and the firm may be unable to repay the debt. If the lender
This statement is false. A firm cannot ordinarily control its accruals since payrolls and the timing of wage payments are set by economic forces and by industry custom, while tax payment dates are
Yes. If a firm is able to buy on credit at all, if the credit terms include a discount for early payment, and if the firm pays during the discount period, it has obtained "free" trade credit.
Commercial paper refers to promissory notes of large, strong corporations. These notes have maturities that generally vary from one day to 9 months, and the return is usually \(1 \frac{1}{2}\) to \(3
If the elimination of volatile cash flows through risk management techniques does not significantly change a firm's expected future cash flows and WACC, investors will be indifferent to holding a
The six reasons why risk management might increase the value of a firm is that it allows corporations to (1) increase their use of debt; (2) maintain their capital budget over time; (3) avoid costs
There are several ways to reduce a firm's risk exposure. First, a firm can transfer its risk to an insurance company, which requires periodic premium payments established by the insurance company
The futures market can be used to guard against interest rate and input price risk through the use of hedging. If the firm were concerned that interest rates will rise, it would use a short hedge, or
Swaps allow firms to reduce their financial risk by exchanging their debt for another party's debt, usually because the parties prefer the other's debt contract terms. There are several ways in which
The rehabilitation plan may be accepted because of the following:}- Expenses of liquidation may consume a large proportion of the assets.- The going-concern value of a firm is always substantially
Not necessarily. The going-concern value of a firm is a function of its outlook--it might be improved by changing the management or otherwise improving operations. The firm may be temporarily
Liquidations usually result in losses for the following reasons:- Assets typically have characteristics which make their value in existing uses greater than when resold.- The organizational value of
Because public utilities and railroads often involve essential services, reorganizations and mergers rather than liquidations are likely to take place. This is less true for industrial companies.
Horizontal and vertical mergers are most likely to result in governmental intervention, but mergers of this type are also most likely to result in operating synergy. Conglomerate and congeneric
A tender offer might be used. Although many tender offers are made by surprise and over the opposition of the target firm's management, tender offers can and often are made on a "friendly" basis. In
An operating merger involves integrating the company's operations in hopes of obtaining synergistic benefits, while a pure financial merger generally does not involve integrating the merged company's
a. The probability distribution for complete certainty is a vertical line.b. The probability distribution for total uncertainty is the \(\mathrm{X}\) axis from \(-\infty\) to \(+\infty\).
Security A is less risky if held in a diversified portfolio because of its lower beta and negative correlation with other stocks. In a single-asset portfolio, Security A would be more risky because
a. No, it is not riskless. The portfolio would be free of default risk and liquidity risk, but inflation could erode the portfolio's purchasing power. If the actual inflation rate is greater than
The risk premium on a high beta stock would increase more.\[ \mathrm{RP}_{\mathrm{j}}=\text { Risk Premium for Stock } \mathrm{j}=\left(\mathrm{r}_{\mathrm{M}}-\mathrm{r}_{\mathrm{RF}}\right)
According to the Security Market Line (SML) equation, an increase in beta will increase a company's expected return by an amount equal to the market risk premium times the change in beta. For
Yes, if the portfolio's beta is equal to zero. In practice, however, it may be impossible to find individual stocks that have a nonpositive beta. In this case it would also be impossible to have a
False. Short-term bond prices are less sensitive than long-term bond prices to interest rate changes because funds invested in short-term bonds can be reinvested at the new interest rate sooner than
The price of the bond will fall and its YTM will rise if interest rates rise. If the bond still has a long term to maturity, its YTM will reflect long-term rates. Of course, the bond's price will be
If interest rates decline significantly, the values of callable bonds will not rise by as much as those of bonds without the call provision. It is likely that the bonds would be called by the issuer
From the corporation's viewpoint, one important factor in establishing a sinking fund is that its own bonds generally have a higher yield than do government bonds; hence, the company saves more
True. The value of a share of stock is the PV of its expected future dividends. If the two investors expect the same future dividend stream, and they agree on the stock's riskiness, then they should
A perpetual bond is similar to a no-growth stock and to a share of preferred stock in the following ways:1. All three derive their values from a series of cash inflows--coupon payments from the
a. An option is a contract which gives its holder the right to buy or sell an asset at some predetermined price within a specified period of time. A call option allows the holder to buy the asset,
The market value of an option is typically higher than its exercise value due to the speculative nature of the investment. Options allow investors to gain a high degree of personal leverage when
(1) An increase in stock price causes an increase in the value of a call option. (2) An increase in exercise price causes a decrease in the value of a call option. (3) An increase in the time to
The WACC is an average cost because it is a weighted average of the firm's component costs of capital. However, each component cost is a marginal cost; that is, the cost of new capital. Thus, the
WACCa. The corporate tax rate is lowered.b. The Federal Reserve tightens credit. \(\qquad\)c. The firm uses more debt; that is, it increases its debt/assets ratio. \(\qquad\)d. The firm doubles the
Stand-alone risk views a project's risk in isolation, hence without regard to portfolio effects; within-firm risk, also called corporate risk, views project risk within the context of the firm's
If a company's composite WACC estimate were 10 percent, its managers might use 10 percent to evaluate average-risk projects, 12 percent for those with high-risk, and 8 percent for low-risk projects.
Project classification schemes can be used to indicate how much analysis is required to evaluate a given project, the level of the executive who must approve the project, and the cost of capital that
The NPV is obtained by discounting future cash flows, and the discounting process actually compounds the interest rate over time. Thus, an increase in the discount rate has a much greater impact on a
This question is related to Question 10-3 and the same rationale applies. With regard to the second part of the question, the answer is no; the IRR rankings are constant and independent of the firm's
The NPV and IRR methods both involve compound interest, and the mathematics of discounting requires an assumption about reinvestment rates. The NPV method assumes reinvestment at the cost of capital,

Showing 1000 - 1100 of 2327

First
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Last

Services

Sitemap
Fun
Definitions
Become Tutor
Study Help Categories
Recent Questions
Expert Questions

Company Info

Security
Copyrights
Privacy Policy
Terms & Conditions
SolutionInn Fee
Scholarship

Get In Touch

About Us
Contact Us
Career
Jobs
FAQ
Campus Ambassador

Secure Payment

Download Our App

© 2024 SolutionInn. All Rights Reserved