QUESTION 36

1. Which of the following is TRUE about the threat of substitutes?

   		When threatened by substitutes, existing competitors will increase their prices.
   		Innovation makes an existing product or service more attractive to its customers.
   		If there are numerous substitutes, the firm's profit margins and revenues will decline.
   		If the competitors are strong, existing competitors will not react strongly to the threat of substitutes.

A firm that has an average age of accounts receivable that is significantly lower than the industry average:

		may have higher credit standards and offer credit to only the most highly qualified customers.
		may have credit terms that allow fewer days to pay before beginning to charge interest.
		may offer a larger discount than the industry average to encourage customers to pay early.
		All of the above.

To estimate the after-tax cost of preferred stock you must:

		multiply the cost of preferred by (1 - the tax rate).
		multiply the cost of preferred by (1 + the tax rate).
		multiply the cost of preferred by (the tax rate).
		None of the above because preferred dividend payments are not tax deductible for the firm

LEVERAGE measures such as the current ratio and quick ratio focus on the ability of a firm to meet its short-term obligations.

True

False