56, Which of the following statements is CORRECT?

Select one:

a. Other things held constant, the higher a firm's debt ratio, the higher its TIE ratio will be.

b. Other things held constant, the more debt a firm uses, the higher its operating margin will be.

57. You are presented with two cash flow options: Option Near, a $5,000 annuity for three years, with the first cash flow one year from today, or Option Far, a $5,000 annuity for six years with the first cash flow ten years from today. Assuming an interest rate of 7.0%, which set of cash flows has a greater present value?

Select one:

a. Option Near has a greater PV of $13,121.58 vs. Option Far PV of $12,963.41.

b. Option Far has a greater PV of $30,000 vs. Option Near PV of $15,000.

58. A firm wants to strengthen its financial position. Which of the following actions would INCREASE its quick ratio?

Select one:

a. Use some of its cash to purchase additional inventories.

b. Issue new common stock and use the proceeds to increase inventories.

c. Issue new common stock and use the proceeds to acquire additional fixed assets.

d. Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable.

e. Speed up the collection of receivables and use the cash generated to increase inventories.

c. Option Far has a greater PV of $13,121.58 vs. Option Near PV of $12,963.41.

d. Option Near and Option Far have the same PV of $12,963.41.

c. Debt management ratios show the extent to which a firm's managers are attempting to magnify returns on owners' capital through the use of financial leverage.

d. Other things held constant, the more debt a firm uses, the higher its profit margin will be.

59 .Morgan, Inc. is considering an eight-year project that has an initial after-tax outlay or after-tax cost of $180,000. The future after-tax cash inflows from its project for years 1 through 8 are the same at $35,000. Morgan uses the net present value method and has a discount rate of 12%. Will Morgan accept the project?

Select one:

a. Morgan rejects the project because the NPV is below -$7,000.

b. Morgan accepts the project because the NPV is about $6,141.

c. Morgan accepts the project because the NPV is over $10,000.

d. Morgan rejects the project because the NPV is about -$6,133.