Which of the following statements is CORRECT? а. Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase. b. Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets. c. If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth. d. Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non- spontaneous in the sense that they require explicit financing decisions to obtain them. e. If a firm has a positive free cash flow, then it must have either a zero or a negative AFN.

Which of the following statements is CORRECT? а. Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase. b. Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets. c. If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth. d. Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non- spontaneous in the sense that they require explicit financing decisions to obtain them. e. If a firm has a positive free cash flow, then it must have either a zero or a negative AFN.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Which of the following statements is correct? A. a. Since accounts payable and accruals must eventually be paid, as these accounts increase, AFN also increases. B. b. Suppose a firm is operating its fixed assets below 100 percent capacity but is at 100 percent with respect to current assets. If sales grow, the firm can offset the needed increase in current assets with its idle fixed assets capacity. C. c. If a firm retains all of its earnings, then it will not need any additional funds to support sales growth. D. d. Additional funds needed are typically raised from some combination of notes payable, long-term bonds, and common stock. These accounts are nonspontaneous in that they require an explicit financing decision to increase them. E. e. All of the statements above are false.
NEED ASAP. THANK YOU!! 1. Which of the following statements is correct? Group of answer choices - Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio. - If a firm’s assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm’s AFN to be negative. - Dividend policy does not affect the requirement for external funds based on the AFN equation. - AFN is not always positive. - If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm’s actual AFN must, mathematically, exceed the previously calculated AFN.2. When we use the AFN equation to forecast the additional funds needed (AFN), we are implicitly assuming that all financial ratios are constant. Group of answer choices - True…
5. A firm has an asset turnover ratio of 2.0. Its plowback ratio is 40%, and it is all equity-financed. What must its profit margin be if it wishes to finance 11% growth using only internally generated funds? if the profit margin of the firm is now found to be 6%, what is the maximum payout ratio that will allow it to grow at 8% without resorting to external financing?
29. Which one of the following statements is correct regarding capital Investment appraisal methods?a) The Payback period takes into account all the cash flows accruing to the projectb) The Net Present value method does not take the time value of money into accountc) The Accounting Rate of Return takes the time value of cash flows into consideration and is the one most often used in practice by business organisationsd) The Internal Rate of Return is the discount rate at which the net present value is zero
13. Which of the following statements is true? a.The tangible capital asset turnover ratio assists managers in determining the estimated future capital expenditures that are needed. b.The average age of the tangible capital assets is computed by dividing accumulated depreciation by depreciation expense. c.If net sales increases, the tangible capital asset turnover ratio will decrease. d.A relatively low tangible capital asset turnover ratio signals that a company is efficiently using its assets.
1. (Without loss of generality assume that the expected/maximal exposures mentioned here correspond to a single time point in future, T.) Bank A uses for economic capital (EC) a measure equal to: 1.4 * EPE. Bank B, instead, uses the weighted average: 70% * EPE + 30% * ME. How small (or, indeed, how big?) does the ME (maximal exposure) need to be, relative to the EPE, for Bank A to end up putting aside (for this specific EC aspect) more EC than Bank B?
17. Regarding capital rationing decisions for capital assets, which of the following is true?⦁ Companies should always choose the investment with the shortest payback period.⦁ Companies should always choose the investment with the highest NPV.⦁ Companies should always choose the investment with the highest ARR.⦁ None of the above are true.
2. Does the company have enough cash and liquidity to survive an economic slowdown? Enhance the answer with a clear conclusion Ans. The financials of WeWork doesn't seem to be much profitable, we can assume that is because of the pandemic. In the year 2022, the revenue of the first quarter was $765 million which is an increase of 6-7% in a quarter. Net loss was $504 million. Because of the increase in interest rates, it is hard for WeWork to get more loans to finish off its debt and the investors are not much interested as they can interpret the future outcomes by looking at the current balances of the company. The revenue in the third quarter was $817 million which is an increase of 24% year-over-year. The company has $500 million in undrawn debt commitments from SoftBank and has said it expects to end 2022 with $300 million in cash, less than one-third of what it had at the end of 2021. Its debt contracts allow it to borrow another $500 million. As the cash and liquidity of WeWork…
8. Which of the following statements is FALSE? When a firm faces financial distress, it may choose not to finance new, positive-NPV projects. An under-investment problem occurs when shareholders choose to not invest in a positive-NPV project. Agency costs represent another cost of increasing the firm's leverage that will affect the firm's optimal capital structure choice. The agency costs of debt can arise only if there is no chance the firm will default and impose losses on its debt holders.
Which of the following is correct when the company is deciding if it will undertake an additional funds needed? a. When he company is operating at full capacity, fixed assets are excluded in the computation of the amount of external funds needed b. Additions to retained earnings varies upon on the profit margin ratio and retention ratio of the firm c. Growth rate is irrelevant because it seem to be fluctuating every year d. Additional financing needed only pertains to debt financing
1. All projects with positive NPVs should be accepted and those with negative NPVs should be rejected. Comment2. Economic value of a company's assets corresponds to present value of asset cash flows and present value of terminal value. Comment3. When valuing companies it is necessary at valuation date to take as disbursement investment in Net Operating Working Capital (known as NOWC). Latter is estimated as product between annual sales of current period and CTON ratio (known as NOWCR). Comment.
Suppose the profitable company, Hermes, Inc., previously calculated its external financing needs (EFN) to be $18,200,000. What will happen to the EFN if management now decides to decrease the dividend payout ratio from 35.00% to 25.00%? (1) It will increase to some value greater than $18,200,000. (2) It will fall to some value lower than $18,200,000. (3) It will remain at $18,200,000. (4) The answer depends on Hermes, Inc.’s growth rate in sales. (5) The answer depends on Hermes, Inc.’s profit margin.

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