Corporate Finance

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1. Although short-term interest rates True 10. Under normal conditions, a firm's True
have historically averaged less than expected ROE would probably be
long-term rates, the heavy use of higher if it financed with short-term
short-term debt is considered to be rather than with long-term debt, but
an aggressive strategy because of using short-term debt would
the inherent risks associated with probably increase the firm's risk. T/F
using short-term financing. T/F
11. Which of the following actions Take steps to reduce
2. Commercial paper can be issued by False should Reece Windows take if it the DSO
virtually any firm so long as it is wants to reduce its cash conversion
willing to pay the going interest cycle?
rate. T/F
12. Which of the following actions would Adopt a new
3. Commercial paper is a form of True be likely to shorten the cash manufacturing
short-term financing that is primarily conversion cycle? process that speeds
used by large, strong, financially up the conversion of
stable companies. T/F raw materials to
finished goods from
4. Depreciation expense is not True
20 days to 10 days.
explicitly included, but
depreciation's effects are reflected 13. Which of the following items should Cash proceeds from
in the estimated tax payments. T/F a company report directly in its selling one of its
monthly cash budget? divisions
5. Directly reflected in the cash Cumulative cash
budget of a firm that is in the zero repurchases of 14. Which of the following will cause an Merchandise is sold
tax bracket? common stock increase in net working capital, at a profit, but the
payment for plant other things held constant? sale is on credit.
construction
payments lags
6. Firms generally choose to finance Matching the
temporary current operating assets maturities of assets
with short-term debt because and liabilities reduces
risk under some
circumstances, and
also because short-
term debt is often less
expensive than long-
term capital
7. If a firm wants to generate more True
cash flow from operations in the
next month or two, it could change
its credit policy from 2/10 net 30 to
net 60. T/F
8. Other things held constant, which of Continue to take all
the following would tend to reduce discounts that are
the cash conversion cycle? offered and pay on
the net date.
9. The typical cash budget reflects True
interest paid on loans as well as
income from the investment of
surplus cash. These numbers, as well
as other items on the cash budget,
are expected values; hence, actual
results might vary from the
budgeted amounts. T/F