24. If a firm adheres to a restrictive short-term financial policy, then the firm will generally have: a. Liberal credit terms for customers. b. Few, if any, stockouts. c. Low inventory turnover rates. d. High cash balances. e. Little, if any, investment in marketable securities.

24. If a firm adheres to a restrictive short-term financial policy, then the firm will generally have: a. Liberal credit terms for customers. b. Few, if any, stockouts. c. Low inventory turnover rates. d. High cash balances. e. Little, if any, investment in marketable securities.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 9QE

See similar textbooks

Related questions

Q: RiverRocks (whose WACC is 11.4%) is considering an acquisition of Raft Adventures (whose WACC is…

A: WACC is the weighted cost of all sources of capital used by the Company. It is the sum of (Weights*…

Q: Peter Gunderson bought 2,000 shares of stock in a transportation company at $45.10 per share. Ten…

A: Number of shares = n = 2000 Purchase Price per share = pp = $45.10 Selling price per share = sp =…

Q: How would you explain what Employee Stock Options are? What are their benefits for a company and its…

A: We often hear about ‘employee stock options’ when we read about or discuss about employee…

Q: The Nolan Corporation finds it is necessary to determine its marginal cost of capital. Nolan’s…

A: The weighted average cost of capital refers to an amount that is paid on average for financing the…

Q: An insurance company must make payments to a customer of $10 million in one year and $4 million in…

A: a. Calculation of duration of zero-coupon bond: Time Payment PV Factor @10% PV of payment Weight…

Q: Allied Food Products is considering expanding into the fruit juice business with a new fresh lemon…

A: After tax salvage value is calculated as shown below. After tax salvage value=Market value-Tax…

Q: The Platinum Company is a national mattress manufacturer. Its Marion plant will become idle on…

A: Net present value is caclulated by deducting present value of cash outflows from present value of…

Q: Write the equation of the Security Market Line (SML). Compute and draw the SML when the expected…

A: The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model…

Q: 1. Consider the returns of two shares, A and B, under three possible scenarios: Scenario I II III 6%…

A: Scenario Probability Stock A Stock B I 0.08 50 19 II…

Q: A new furniture set costs $ 3200. If you make a down payment of $ 400 and finance the rest at a rate…

A: We need to use PMT formula below PMT = P*r1-1(1+r)n PMT = monthly payment P= loan r = interest rate…

Q: The following table shows betas for several companies. Calculate each stock's expected rate of…

A: The expected rate of return using CAPM is calculated using following equation Expected rate of…

Q: What is the weighted average cost of capital for Amazon?

A: A company's average after-tax cost of capital from all sources, including common stock, preferred…

Q: Tristan Sandino is selling his motorcycle. He has been offered $500 cash plus monthly payments of…

A: The problem requires the calculation of net present value so that the actual amount given for the…

Q: Vital Enterprises is considering two mutually exclusive projects, X and Y. The initial cost for X is…

A: Incremental Internal Rate of Return (IRR) is a capital budgeting technique used to evaluate the…

Q: A 11-year annuity pays $1,400 per month, and payments are made at the end of each month. The…

A: The idea of the time value of money (TVM) holds that a quantity of income is valued sooner than it…

Q: The company incurs costs of $18.42 million regardless of the output level. It sells 7.29 million…

A: Combined leverage The type of leverage that helps the company to measure its financial strength is…

Q: Write the equation of the Security Market Line (SML). Compute and draw the SML when the expected…

A: The Security Market Line (SML) is a graphical representation of the Capital Asset Pricing Model…

Q: What is the cost of equity, the cost of preferred stock, and the cost of debt for Walmart?

A: Calculating the cost of capital is an essential part of financial analysis, as it helps companies…

Q: You are considering investing in a start-up company. The founder asked you for $80,000 today and you…

A: Internal rate of return is the modern method of capital budgeting that is used to determine the…

Q: A project under consideration has an internal rate of return of 13% and a beta of 0.6. The risk-free…

A: The CAPM model refers to the relationship between the expected return and the risk associated with…

Q: Suppose you are considering investing $1,000 in a load fund that charges a fee of 7%, and you expect…

A: Investment amount=$1,000 Load fund fee=7% Expected earning rate=13% No-Load fund redemption fee=1%…

Q: Compute (a) the expected returns of the stocks A and B; (b) the standard deviation of the returns of…

A: Expected return = summation of ( probability* return of the security) Scenario Probability Stock…

Q: An asset used in a four-year project falls in the five-year MACRS class (MACRS Table) for tax…

A: Depreciation is a concept that recognizes the decrease in value of an asset over time as it is used…

Q: Heavy Metal Corporation is expected to generate the following free cash flows over the next five…

A: 1. value of enterprise = value of debt + value of equity. 2 . terminal value at the end of year 5 =…

Q: A project has annual cash flows of $3,000 for the next 10 years and then $5,500 each year for the…

A: 1.Net present value is computed by deducting initial investment from present value of cash inflows.…

Q: A couple buys a $190,000home, making a down payment of 16%. The couple finances the purchase with a…

A: When the lender lends a loan to the borrower, he charges a rate of interest on the borrowed amount.…

Q: Approximately what interest rate would be needed in order to grow and investment of $1400 to $2500…

A: The interest rate that will grow a given investment into a target value over the length of…

Q: boost its stock price. The company currently has 20 million shares outstanding with a market price…

A: A company which has leverage means it is using debt in the capital structure and the total earning…

Q: Mike borrows X from a bank that charges an effective rate of 10 % a year. He repays the loan with…

A: An unknown amount of borrowing (X) is being repaid through an unknown semi annual level payment,…

Q: Given the desire to cut carbon emissions, Ford is considering introducing a new production line of…

A: Introduction of new policy result into positive cash slow for the business and incremental gas…

Q: There is a project with the following cash flows : Year Cash Flow 0 −$ 23,350 1 6,300 2 7,400 3…

A: Capital budgeting is one of the important technique of project selection. Payback period is time…

Q: You purchase an n-year 1,000 par value bond with 9.6 percent annual coupons to yield an annual…

A: A bond refers to an instrument that is designed to raise debt capital from investors. The ownership…

Q: Mike Mulligan Excavation Inc. has one Caterpillar 345DL Hydraulic Excavator. It was purchased at the…

A: Present value refers to the method of capital budgeting which describes the value of the current…

Q: If a firm is considering investing $100,000 at the end of 2021 for employee training (operating…

A: The incremental after-tax operating profit approach focuses on the impact of the investment on the…

Q: Assume commercial bank A has excess reserves of $80 and makes a loan of $80 and the monetary (money)…

A: Loan = $80 Multiplier = 5

Q: Mom's Cookies, Inc., is considering the purchase of a new cookie oven. The original cost of the old…

A: Mom's Cookies Inc is considering purchase of new oven , the original cost of the old oven was…

Q: The Paulson Company's year-end balance sheet is shown below. Its cost of common equity is 16%, its…

A: WACC = rd×1-tax rate×Value of debtTotal capital+re×Value of common equityTotal capital Where, rd…

Q: The cooked-up Spread Trade. You are bullish on Ford motor company (F). You are bullish on F, and…

A: When you short a call option, you receive the premium for it which is the ask price shown in the…

Q: An engineer started a home service air-conditioning business. This small business costs Php 3 250…

A: Fixed and variable costs associated with a business are known. The break-even number of service is…

Q: Why is it important to check your bank statement? What should you look for? Explain your answer.

A: The bank statement is prepared in order to record the transaction that is related to the banking…

Q: Pharoah Corp. is thinking about opening a soccer camp in southern California. To start the camp,…

A: Net Present Value: The Net Present Value (NPV) method is frequently employed in financial research…

Q: In a recent closely contested lawsuit, Apex sued Bpex for patent infringement. The jury came back…

A: The regression analysis isn't important part which help in the analysis interpretation and other…

Q: You choose to invest your $3,060 income tax refund check (rather than spend it!) in an account…

A: A financial formula known as future value (FV) uses the original investment amount, the interest…

Q: Travis Industries plans to issue perpetual preferred stock with an $11.00 dividend. The stock is…

A: Cost of preferred stock = Dividend Net proceeds where , Net proceeds = market price - flotation…

Q: (a) the expected returns of the stocks A and B;

A: Portfolio is the combination of securities and stock being held by the business. Expected return of…

Q: You purchase 8 put option contracts on HSB Industries. The strike price was $45 and the option…

A: An option is a type of financial derivative that is used for hedging. In an option contract, the…

Q: The Platinum Company is a national mattress manufacturer. Its Marion plant will become idle on…

A: Net present value is caclulated by deducting present value of cash outflows from present value of…

Q: Motto, Corp, issued a 10-year bond with a face value of $1,000, coupon rate of 8.6% and a required…

A: Time = t = 10 years Face value = fv = $1000 Coupon rate = 8.6% Required rate of return = r = 7.6%…

Q: Answer all parts of this question. (a) What is the forward rate? What is the relationship between…

A: You have specifically asked help with part (a) only. Hence, the solution focuses on part (a). A…

Question

Please try to give type solution fast i will rate for sure

24. If a firm adheres to a
restrictive short-term financial
policy, then the firm will generally
have: a. Liberal credit terms for
customers. b. Few, if any,
stockouts. c. Low inventory
turnover rates. d. High cash
balances. e. Little, if any,
investment in marketable
securities.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1: Introduction

VIEW

Step 2: Explanation

VIEW

Solution

VIEW

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Which of the following statements is correct?(a) The quickest way to determine whether the firmhas too much debt is to calculate the Timesinterest-earned ratio.(b) The best rule of thumb for determining the firm’sliquidity is to calculate the current ratio.(c) From an investor’s point of view, the price-toearnings ratio is a good indicator of whether ornot a firm is generating an acceptable return tothe investor.(d) The operating margin is determined by subtracting all operating and non-operating expensesfrom the gross margin.
Which of the following statements is NOT CORRECT? A. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks associated with using short-term financing B. A company may hold a relatively large amount of cash and marketable securities if it is uncertain about its volume of sales, profits, and cash flows during the coming year C. The cash budget is useful to help estimate future financing needs, especially the need for short-term working capital loans. D. If a firm wants to generate more cash flow from operations in the next month or two, it could change its credit policy from 2/10, net 30 to net 60.
Financial slack is the amount of unused access to debt markets or bank financing. Which theory of capital structure would place the highest value on maintaining financial slack for a firm that is not in financial distress? Question 10 options: a) Trade-off theory b) Debt financing as a managerial constraint c) Pecking order theory d) Modigliani & Miller irrelevance theory
Consider the comprehensive example involving Burlington Resources (Table 16.5). In this example, it was assumed that forecasted sales and expected EBIT, as well as the interest rates on short-term and long-term debt, were independent of the firm’s working capital investment and financing policies. However, these assumptions are not always completely realistic in practice. Sales and EBIT are generally a function of the firm’s inventory and receivables policies. Both of these policies, in turn, affect the firm’s level of investment in working capital. Likewise, the interest rates on short-term and long-term debt are normally a function of the riskiness of the firm’s debt as perceived by lenders and, hence, are affected by the firm’s working capital investment and financing decisions. Forecasted Sales Expected EBIT (in Millions (in Millions Interest Rate Policy of Dollars) of Dollars) STD (%) LTD (%) Aggressive $98 $9.8 9.1 10.1 Moderate 99…
In general, as a company increases the amount of short-term financing relative to long-term financing, the A)Greater the risk that it will be unable to meet principal and interest payments. B)Leverage of the firm increases. C)Likelihood of having idle liquid assets increases. D)Current ratio increases.
_______ DOES NOT affect a firm's business risk. Question 9 options: A ) Revenue variability B) Input price variability C) Demand variability D) The extent to which interest rates on the firm's debt fluctuate E) The extent to which operating costs are fixed
Which of the following statements is false?(a) The quickest way to determine whether a firm has too much debt is to calculate the debt-to-equity ratio.(b) The best guideline to determine the firm's liquidity is to calculate the current ratio.(c) From the investor's point of view, the rate of return on common equity is a good indicator of whether the firm is generating an acceptable return to the investor.( d) We can determine the operating margin by expressing net income as a percentage of total sales.
Which of the following statements about the current ratio is FALSE? A. The higher the current ratio, the higher the level of cash must be for the firm. B. This ratio is a meaningful measure of liquidity because the book value of the assets and liabilities used in the calculation tend to deviate only slightly from market values. C. It will always be greater than the quick ratio in companies that carry inventory. D. This ratio is intended to indicate the short-run liquidity position of the firm. E. This ratio is calculated by dividing current assets by current liabilities.
Which one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.
Which of the following is a valid reason for a firm not to use as much debt as it can raise? Group of answer choices The use of more debt is expected to result in an increase in the firmʹs cost of capital when everything is considered More debt will increase the firmʹs riskiness All of them are valid reasons for a firm to use less debt than might be available The use of more debt is expected to result in a lower price/earnings ratio
Which of the following statements is usually correct? A low receivables turnover is good for the business The lower the total debt-to-equity ratio, the lower the financial risk for a firm The higher the tax rate for a firm, the lower the interest coverage ratio An increase in net profit margin with no change in sales or assets means a poor ROI
(1) Why do analysts need to consider different factorswhen evaluating a company’s ability to repay shortterm versus long-term debt? (2) Would the currentamount of the owners’ equity be a reasonable price topay for a company? Why or why not?