Question

QUESTION 1

1. What should be done to maximize shareholder wealth and thus the value of the firm?

   	a.	Raise the free cash flows of the business.
   	b.	Decrease the size of expected cash flow of the company.
   	c.	Slow down the cash receipt of the organization.
   	d.	Increase the risk level of the firm.

1 points   

QUESTION 2

1. Which statement about financial statements is correct?

   	a.	The balance sheet gives us a picture of the firm’s financial position at a point in time.
   	b.	The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits.
   	c.	The statement of cash needs tells us how much cash the firm will require during some future period, generally a month or a year.
   	d.	The income statement gives us a picture of the firm’s financial position at a point in time.

1 points   

QUESTION 3

1. If a bank loan officer were considering a company’s request for a loan, which of the following statements is correct?

   	a.	Other things held constant, the lower the debt ratio, the lower the interest rate the bank would charge the firm.
   	b.	The lower the company’s TIE ratio, other things held constant, the lower the interest rate the bank would charge the firm.
   	c.	Other things held constant, the higher the debt ratio, the lower the interest rate the bank would charge the firm.
   	d.	The lower the company’s EBITDA coverage ratio, other things held constant, the lower the interest rate the bank would charge the firm.

1 points   

QUESTION 4

1. Other things held constant, which of the following alternatives would increase a company’s cash flow for the current year?

   	a.	Reduce the inventory turnover ratio without affecting sales or operating costs.
   	b.	Pay workers more frequently to decrease the accrued wages balance.
   	c.	Reduce the days’ sales outstanding (DSO) without affecting sales or operating costs.
   	d.	Pay down the accounts payables.

1 points   

QUESTION 5

1. Jefferson City Computers has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which factor is most likely to lead to an increase of the additional funds needed?

   	a.	a sharp reduction in its forecasted sales
   	b.	a reduction in its dividend payout ratio
   	c.	a sharp increase in its forecasted sales
   	d.	excess capacity in its fixed assets

1 points   

QUESTION 6

1. A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?

   	a.	The company increases its dividend payout ratio.
   	b.	The company’s profit margin increases.
   	c.	The company decides to stop taking discounts on purchased materials.
   	d.	The company begins to pay employees monthly rather than weekly.

1 points   

QUESTION 7

1. Helena Furnishings wants to reduce its cash conversion cycle sharply. Which action should it take?

   	a.	The company should increase its average inventory without increasing its sales.
   	b.	The company should reduce its DSO.
   	c.	The company should start paying its bills sooner, which reduces its average accounts payable without reducing its sales.
   	d.	The company should increase its DSO.

1 points   

QUESTION 8

1. Which statement best describes cash budgets?

   	a.	Shorter-term cash budgets, in general, are used primarily for planning purposes, while longer-term budgets are used for actual cash control.
   	b.	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.
   	c.	The cash budget and the capital budget are planned separately and although they are both important to the firm, they are independent of each other.
   	d.	Since depreciation is a noncash charge, it does not appear on nor have an effect on the cash budget.

Answer 1

1. The primay objective of the firm is maximisation of shareholders wealth. A firm vaue will maximised if the wealth of the shareholders will increase.

- Increase in level of risk will not help in theis objective rather it will degrade the objective.

- Cash recipts is very important as this decides liquidity and slowing down will affect the ultimate objective.

- If the expected cash flow will decrease then it wil also affect the objective.

- If the cash flow will increase then it will help in maximising the wealth of the shareholders and value of the firm. Thus, option a is correct.