| | D. The firm's sales unit volume at which EBIT < $0 Management can create shareholder wealth by employing which of the following elements? | | A. Improving profit margins | | | B. Increasing sales volumes | | | C. Decreasing the Cash Conversion Cycle. | | | D. Increasing the firm's overall WACC. | | | F. Answers B and D Financial managers monitor market interest rates in order to estimate investor's return expectations and to establish appropriate investment rates of returns for the company. Which of the following statements is most accurate? | | A. Long term interest rates are generally lower than short term rates. | | | B. During recessions, both the demand for money and inflation tend to increase, while money supply is decreased. | | | C. During periods of high inflation, the general tendency is towards flat interest rates. | | | D. Observed market rates of return can be utilized in the Capital Asset Pricing Model ("CAPM") to estimate the expected return (or discount rate to value financial assets. | | | | F. Answers A, B and C Which of the following statements is (are) true? | | A. Bond prices are inversely related to market interest rate changes, so if market interest rates move higher, then bond prices will likely move lower. | | | B. Company ABC issues an 8%, 10 year bond to investors. Cash flows paid to these bond investors will vary depending on the profitability of the company. | | | C. If the company's management makes a public announcement that changes their prior earnings and dividend forecasts to higher levels (i.e, more cash flow to owners), the value of the stock would likely stay the same. | | | D. Bond holders have the most to lose and the most to gain from the company's financial performance. | | | E. A and C. Managers must establish a policy regarding the firm's capital structure. Specifically how much debt financing and how much equity financing the company requires. Which of the following statements is (are) true? | | A. Financial risk is added to operating risk to arrive at the total risk exposure of the common shareholders. | | | B. Financing with debt and preferred stock creates more financing risk due to their fixed periodic payments. | | | C. Debt financing is considered cheaper than equity financing because of the tax deductibility of interest payments, and lower fees and other expenses (floatation costs). | | | E. All are true statements Which of the following statements are true? | | A. Positive net working capital (NWC) is a use of cash that may require a short term financing arrangement, like a bank line of credit. | | | B. Retained earnings are not a source of funding for capital projects. | | | C. The Additional Funds Needed (AFN) amount is estimated based on assumptions about the increase in total assets (increase in working capital and capital investment) less the forecasted increases in liabilities (vendor financing) and the amount of current earnings retained in business (not paid out as dividends). | | | D. The Cash Conversion Cycle is impacted by management's policy decisions regarding credit terms for customers, optimal inventory levels and relationships (credit) with suppliers/vendors. | | | | |
