A conservative financing approach to working capital will result in all permanent net operating working capital being financed using long-term securities. T/F

GE is a manufacturing firm that sells on credit, whereas Amazon is an Internet retailer that sells goods manufactured by others and collects (via credit cards) at about the same time it ships goods. Which firm would you expect to have longer cash conversion cycle, Amazon or GE? a. Amazon b. GE

When a firm improves (lowers) its average collection period it generally:

a. Requires additional cash investment in inventory b. Releases cash locked up in accounts receivables c. Does not alter its cash position d. A firm cannot reduce its inventories

In capital budgeting and cost of capital analyses, the firm should always consider retained earnings as the first source of capital, since this is a free source of funding to the firm. T/F

You are considering the purchase of an investment that would pay you $5,000 per year for Years 1-5, $3,000 per year for Years 6-8, and $2,000 per year for Years 9 and 10. If you require a 14 percent rate of return, and the cash flows occur at the end of each year, then how much should you be willing to pay for this investment?

a. $15,819.27 b. $21,937.26 c. $32,415.85 d. $38,000.00 e. $52,815.71

Macy Pharmacy's bonds have a 12 percent coupon, paid semiannually, a current maturity of 20 years, and sell for $1,000. Macy Pharmacy's beta is 1.2, the risk-free rate is 10%, and the market risk premium is 5%. Macy is a constant-growth firm which just paid a dividend of $2.00, sells for $27.00 per share, and has a growth rate of 8%. The firm's policy is to use a risk premium of 4 percentage points when using the bond-yield-plus-risk-premium method to find the cost of equity. The firm's marginal tax rate is 40 percent. What is the component cost of debt?

a. 10.0% b. 9.1% c. 8.6% d. 8.0% e. 7.2%

If a project's NPV exceeds the project's IRR, then the project should be accepted. T/F