Examen 4

Question 1
5 out of 5 points

A lockbox plan is
Selected d.
Answer: A system for speeding up a firm's collections of checks
received.
Question 2
0 out of 5 points

of the following is most consistent with efficient inventory management?

Selected Answer: b.
A low incidence of production schedule disruptions.
Question 3
5 out of 5 points

Yellow Air s common stock is currently priced at $30, and its 8 percent
convertible debentures (issued at par, or $1,000) are priced at $850. Each
debenture can be converted into 25 shares of common stock at any time
before 20010. What is the conversion value of the bond?
Selected Answer: c.
$ 750
Question 4
5 out of 5 points

Which of the following statements is most CORRECT?

Selected c.
Answer: From the issuers point of view, preferred stock is less risky
than bonds.
Question 5
5 out of 5 points

Firms generally choose to finance temporary net operating working capital

with short-term debt because
Selected c.
Answer: Matching the maturities of assets and liabilities reduces
risk.
Question 6
5 out of 5 points

Which of the following statements is most CORRECT?

Selected a.
Answer: A lack of synchronization of cash inflows and outflows will result
in larger cash balances than would be necessary with better
synchronization, but the cash balances can be reduced by
increasing disbursement float and decreasing collections float.
Question 7
5 out of 5 points

Which of the following is typically part of the cash budget?

Selected Answer: e.
All of the statements above are correct.
Question 8
5 out of 5 points

Other things held constant, which of the following will cause an increase in
net working capital?
Selected Answer: c.
Merchandise is sold at a profit, but the sale is on credit.
Question 9
5 out of 5 points

Which of the following statements is most correct?

Selected e.
Answer: The typical actual cash budget will reflect interest on loans and
income from investment of surplus cash. These numbers are
expected values and actual results might vary from budgeted
results.
Question 10
5 out of 5 points

Firms generally choose to finance temporary net operating working capital

with short-term debt because
Selected a.
Answer: Matching the maturities of assets and liabilities reduces
risk.
Question 11
5 out of 5 points

Shearson PLC's stock sells for $42 per share. The company wants to sell
some 20-year, annual interest, $1,000 par value bonds. Each bond will
have attached 75 warrants, each exercisable into one share of stock at an
exercise price of $47. Shearson's straight bonds yield 10 percent. The
warrants will have a market value of $2 each when the stock sells for $42.
What coupon interest rate must the company set on the bonds-with-
warrants if the bonds are to sell at par?
Selected Answer: b.
8.24%
Question 12
5 out of 5 points

A detachable warrant is a warrant that can be detached and traded

separately from the bond with which it was issued. Most traded warrants
are originally attached to bonds or preferred stocks.
Selected Answer: a.
True
Question 13
5 out of 5 points

If a firm fails to take trade credit discounts it may cost the firm some
money, but generally such a policy has a negligible effect on the firm's
income statement and no effect on its balance sheet.
Selected Answer: b.
False
Question 14
5 out of 5 points

Las Piedras Constructions DSO is 50 days (on a 365-day basis), accounts

receivable are $100 million, and its balance sheet shows inventory of $125
million. What is the inventory turnover ratio?
Selected Answer: b.
5.84
Question 15
5 out of 5 points

Analyzing the days sales outstanding (DSO) and the aging schedule are
two common methods for monitoring receivables. However, they can
provide misleading signals when
Selected Answer: d.
sales fluctuate seasonally.
Question 16
5 out of 5 points

Rollincoast Incorporated issued BBB bonds two years ago that provided a
yield to maturity of 11.5 percent. Long-term risk-free government bonds
were yielding 8.7 percent at that time. The current risk premium on BBB
bonds versus government bonds is half what it was two years ago. If the
risk-free long-term governments are currently yielding 7.8 percent, then at
what rate should Rollincoast expect to issue new bonds?
Selected Answer: c.
9.2%
Question 17
5 out of 5 points

Reading Railroad's common stock is currently priced at $30, and its 8

percent convertible debentures (issued at par, or $1,000) are priced at
$850. Each debenture can be converted into 25 shares of common stock
at any time before 2005. What is the conversion price, CP, and the
conversion value of the bond?
Selected Answer: c.
$40.00; $ 750
Question 18
5 out of 5 points

Which of the following statements concerning preferred stock is most

correct?
Selected c.
Answer: From the issuers point of view, preferred stock is less risky
than bonds.
Question 19
5 out of 5 points

Most convertible securities are bonds or preferred stocks that, under

specified terms and conditions, can be exchanged for common stock at
the option of the holder.
Selected Answer: a.
True
Question 20
5 out of 5 points

On average, Braulio Diaz Inc. has sales of $2,000,000 per month. It keeps
inventory equal to 50% of its monthly sales on hand at all times. Based on
using a 365-day year, what is the inventory conversion period?
Selected Answer: c.
15.2
Question 21
5 out of 5 points
Which of the following statements is CORRECT?
Selected b.
Answer: Preferred stock is normally expected to provide steadier, more
reliable income to investors than the same firms common stock,
and as a result, the expected after-tax yield on the preferred is
lower than the after-tax expected return on the common.
Question 22
5 out of 5 points

Jet Ski Inc. is in a highly seasonal business, and the following summary
balance sheet data show its assets and liabilities at peak and off-peak
seasons (in thousands of dollars): From this data we may conclude that

Selected c.
Answer: Jet Ski follows a relatively conservative approach to working
capital financing; that is, some of its short-term needs are met
by permanent capital.
Question 23
5 out of 5 points

The owner of a convertible bond owns, in effect, both a bond and a call
option.
Selected Answer: a.
True