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If we hold all other factors the same, an increase in interest rates will:
a.
Decrease the present value of a stream of constant payments we expect to receive.
b.
Increase the present value of a stream of constant payments we expect to receive.
c.
Decrease the interest revenue that a company will earn on its funds that it holds in its interest-bearing checking account.
d.
No impact on how much a company should be willing to pay for factory equipment that is expected to significantly reduce the factory electricity costs.
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- Why is the present value of an amount lesser than its value that is to be received (paid) in the future? a.Deflation causes investors to lose purchasing power when their pesos are invested for greater than one year. b.Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. c.Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. d.Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. e.None of the choices is a correct answer.First National Bank has assets that are more rate-sensitive than its liabilities. As interest rates rise, then we should expect the bank profits to: A. Rise B. Fall C. Remain unchangedWhich 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 an example of unsystematic risk? decrease income tax for all company soft tech won a new sales contract increase in inflammation rate deccrease in government bond rateIf the bank decides to cut down on interest expenses by reducing its dependence upon borrowed funds, what policy must the bank follow?The economy is said to be entering a recession but your company needs to borrow money for an immediate need. Should you borrow on a long-term or short-term basis? Why?
- 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 customersPresent value of an amount lesser than its value that is to be received (paid) in the future because of what reason? a.Deflation causes investors to lose purchasing power when their pesos are invested for greater than one year. b.Investors have the opportunity to earn positive rates of return, so any amount invested today should grow to a larger amount in the future. c.Investments generally are not as good as those who sell them suggest, so investors usually are not willing to pay full face value for such investments, thus the price is discounted. d.Because investors are taxed on the income received from investments they never will buy an investment for the amount expected to be received in the future. e.None of the choices is a correct answer.There are claims that the central bank caused the recession, and due to them, production has dropped below the optimum level, and inflation has gone up. What would you say to defend the central bank? Explain in detail.
- What affects the firm’s operating break-even point? Several factors affect a firm’s operating break-even point. Based on the scenarios described in the following table, indicate whether these factors would increase, decrease, or leave unchanged a firm’s break-even quantity—assuming that only the listed factor changes and all other relevant factors remain constant. Increase Decrease No Change The product’s sales price increases. The amount of debt increases, causing the firm’s total interest expense to increase. The firm’s fixed costs increase. When fixed costs are high, a small decline in sales can lead to a decline in return on invested capital (ROI).Suppose you believe that the economy is just entering a recession. Your firm must raise capital immediately, and debt will be used. Should you borrow on a long-term or short-term basis? Why?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?
