10. Which of the following statements is true regarding the cost of capital? Select all that apply:
the cost of capital should consider the flotation costs.
all other things being equal, it is preferable to use market value weights than book value weights
the WACC is the most appropriate discount rate for all projects.
should include the cost of retained earnings.
depends primarily on the source of the funds, not the use.
11. Which of the following decreases the cash account? Select all that apply:
A payment due is received from a client
Dividends are paid to shareholders
Raw materials are purchased and paid for with credit
The electric bill is paid
A new machine is purchased and paid for with the business line of credit
Inventory is bought cash
Taxes due are paid
Funds from common stock sold are received
An old machine is sold for cash
12. Which of the following statements is true?
Firms should avoid offering credit at all cost.
An increase in a firm's average collection period generally indicates that an increased number of customers are taking advantage of the cash discount.
The costs of the credit application process and the costs expended in the collection process are carrying costs of granting credit.
Character, refers to the ability of a firm to meet its credit obligations out its operating cash flows.
The optimal credit policy, is the policy that produces the largest amount of sales for a firm.
13. All else constant, a decrease in the accounts receivable period will:
lengthen the accounts payable period.
shorten the inventory period.
lengthen the operating cycle.
shorten the cash cycle.
shorten the accounts payable period.
14. Highland, Inc. has the following estimated quarterly sales for next year. The accounts receivable period is 30 days. How much does the firm expect to collect in the fourth quarter? Assume that each month has 30 days.
15. Which one of the following actions best matches the primary goal of financial management?
increasing the net, working capital while lowering the long-term asset requirements
improving the operating efficiency, thereby increasing the market value of the stock
increasing the firm’s market share
reducing fixed costs and increasing variable costs
increasing the liquidity of the firm by transferring short-term debt into long-term debt
This question was asked on Oct 19, 2010 and answered on Oct 21, 2010.
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