Cash break-even analysis Multiple Choice O is important when analyzing long-term profitability. None of the options are true. includes depreciation expense as a fixed cost when calculating the degree of financial leverage. is helpful in analyzing the short-term outlook of the firm, particularly when it is in trouble financially.

Cash break-even analysis Multiple Choice O is important when analyzing long-term profitability. None of the options are true. includes depreciation expense as a fixed cost when calculating the degree of financial leverage. is helpful in analyzing the short-term outlook of the firm, particularly when it is in trouble financially.

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 2QE

See similar textbooks

Similar questions

why is knowledge of the money market important for carrying out value maximizing working capital short term management?why are opportunity cost of not taking account the risk return trade off of the various short term instruments?
A discounted cash flow approach to valuing a firm, using the weighted average cost of capital as a discount rate, makes sense to use when: a. Financial structure and risk of the investment are relatively stable over time. b. The risk of bankruptcy is high. c. A firm is expected to go through a transition that calls for a high use of debt that will be paid down over a few years. d. Non-GAAP accounting is being used. e. All of the above.
Practice : a: The computation of return on average investment ignores one characteristic of the earnings stream, which is considered in discounting cash flows. What is this characteristic? Why is it important? b: What are the disadvantages of evaluating an investment using payback period? Why might a company use this methodology despite these disadvantages?
A disadvantage of using the payback period to compare investment alternatives is that it a. Ignores cash flows beyond the payback period. b. Cannot be used to compare alternatives with different initial investments. c. Cannot be used when cash flows are not uniform. d. Involves the time value of money. e. Cannot be used if a company records depreciation.
Sophisticated capital budgeting techniques do not A. examine the size of the initial outlay. B. use net profits as a measure of return. C. explicitly consider the time value of money. D. take into account an unconventional cash flow pattern.
- How would a reduction in the cash conversion cycle increase profitability? What aresome actions a firm can take to shorten its cash conversion cycle?- Is it possible for a firm’s cash conversion cycle to be negative (or net operating workingcapital to be negative)? Explain why or why not. If there exists a firm with negativeCCC, give an example, what are characteristics of such company.
The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the optimal transaction size would more likely result from Decrease of debt to asset ratio Increase of return on marketable securities None of the choices is correct Increase in the annual demand for cash
Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages. The following statement identifies a possible characteristic of short-term financing. Consider this case: Short-term loans usually have a lower cost than long-term loans. Identify whether the preceding statement is true or false. This statement is true and an advantage of short-term financing. This statement is false and a disadvantage of short-term financing. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source. Description Short-Term Financing Source…
The company’s usage of the Baumol model in cash management involves trade-off. A decrease in the optimal transaction size would more likely result from a. Increase of return on marketable securities b. None of the choices is correct c. Increase in the annual demand for cash d. Decrease of debt to asset ratio
Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of money
A firm that is increasing its capital structure leverage and increasing profitability will likely experience a (an) a. increasing value-to-book ratio b. decreasing return on assets c. volatile price-earnings ratio d. None of these answer choices are correct.
The Payback Method in capital budgeting ignores: a The expected future cash flows of the firm. b None of the above. c The initial outlay of the firm. d The rate of time preference of expected future cash flows.