Which one of the following statements is correct?Seasonal needs are financed with short-term loans when firms adhere toa flexible financing policy.A flexible financing policy tends to increase the risk of encounteringfinancial distress.Long-term interest rates tend to be less volatile than short-term rates.Most firms tend to finance inventory with long-term debt.Short-term interest rates are generally higher than long-term rates.

Introduction: The cost of financing is an important consideration for any business. Long-term and…

Answered: Which one of the following statements…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter18: The Management Of Accounts Receivable And Inventories

Section: Chapter Questions

Problem 12QTD

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How would each of the following factors affectratio analysis? (a) The firm’s sales are highly seasonal. (b) The firm uses some type of windowdressing. (c) The firm issues more debt and usesthe proceeds to repurchase stock. (d) The firmleases more of its fixed assets than most firmsin its industry. (e) In an effort to stimulate sales,the firm eases its credit policy by offering 60-daycredit terms rather than the current 30-day terms.How might one use sensitivity analysis to helpquantify the answers?
Given that a firm is well within its current ratio and debt ratio covenants and that interest rates are expected to decrease, would the firm prefer to use short or long-term financing for its external needs and why?
When estimating cost of debt, the firm should not simply use current short-term rates because these rates do not reflect expectations regarding Group of answer choices long-term inflation expansionary monetary policy contractionary monetary policy short-term inflation
Which of the following concerning short-term financing methods is CORRECT? Group of answer choices: Accruals and accounts payables do not carry explicit interest charges. Firms generally have a good control over the level of accruals. Commercial papers typicall have maturities between nine months to one year. Short-term bank loans typically require assets as collateral. Commercial papers typically carry similar interest rates to prime rates.
Why use short-term financing? 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. A. Consider this case: Short-term credit agreements are more restrictive than long-term credit agreements. Identify whether the preceding statement is true or false. This statement is false. This statement is true. B. 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 Continually recurring…
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 not a factor that a firm's management take into consideration when deciding on its short-term financing policy? Multiple Choice Short-term versus long-term investment opportunities. Maturities of its assets and liabilities. Behaviour of short-term rates versus long-term rates. Product mix demand. Liquidity needs.
Making changes to a firm’s credit policy involves trade-offs. Assuming that all other factors remain constant, which of the following are outcomes expected to result from an increase in a firm’s cash discount? Check all that apply. An increase in the cost of the discounts given An increase in the firm’s bad-debt expenses An increase in the firm’s credit sales, a speeding up of customer payments, and a reduction in the firm’s receivables investment An increase in the creditworthiness of the firm’s customers
Which of the following statement is incorrect about the Peking Order Theory? A.Firms with high ratios of fixed assets tend to have higher debt ratio.The evidence exclusively supports the peking order theory B.When exernal finance is required,firms issue debt first and equity as a last resort C.Most profitable firms borrow less not because they have lower target debt but because they don't need external finance D.Firms prefer internal finance since funds can be raised without sending advers signals
Long-term financing may be riskier than short-term financing during periods of tight credit because the firm may not be able to rollover (renew) its debt. True False
Which of the following-would beconsistent with a more aggressiveapproach to financing workingcapital? A. Financing short-term needs with short-term funds.B. Financing seasonal needs with short-term funds.C. Financing some long-term needs with short-term funds.D. Financing permanent inventory buildup with long-term debt.
Which of the following statements is true? A. The percentage decrease in value when the yield-to-maturity (YTM) increases by a given amount is smaller than the increase in value when the yield-to-maturity (YTM) decreases by the same amount. B. Ratio analysis expands GAP analysis to focus on the sensitivity of bank profits across different interest rate environments. C. The repurchase price is smaller than the selling price and accounts for the interest charged by the buyer, who is lending funds to the seller with the security as collateral. D. The issuers or the firms issuing the bonds are rated on their junior unsecured debt.

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