1-Which one of the following statements concerning net working capital is correct?
An increase in net working capital must also increase current assets.
The lower the value of net working capital the greater the ability of a firm to meet its current obligations.
Firms with equal amounts of net working capital are also equally liquid.
Net working capital increases when inventory is sold for cash at a profit.
Net working capital is a part of the operating cash flow
2- Callico Catco will issue $50 million in 10-year 4% coupon bonds to pay off $50 million in accounts payable. Based on this information alone, you would most likely conclude that Callico Catco’s
long-term solvency improved.
asset management had improved.
overall financial leverage improved.
short-term solvency and liquidity improved.
3- After a meeting with the firm's banker's Jefferson Inc.'s Treasurer concludes the firm should decrease financial leverage. Which of the following actions would definitely affect balance sheet measures of financial leverage in the desired direction?
foregoing dividend payments and using the funds instead to repurchase some of the firm's common stock.
negotiating a lower interest rate on an existing loan.
selling new common stock and using the proceeds to repurchase outstanding bonds.
taking out a new loan with a lower interest rate than existing loans.
4- American Classics is considering an investment. The cash flows from the investment will allow the company to increase its dividends by 4% per year. The investment will also increase the firm's beta by .04. The result of these changes on American Classic’s stock price
is indeterminate.
should be positive
should be negative
should be zero
5- Which one of the following transactions occurs in the primary market?
a purchase of newly issued stock from AT&T
IBM's purchase of GE stock
gift of 100 shares of stock to a charitable organization
purchase of 500 shares of GE stock from a current shareholder
6- If a firm's cost of capital for investment projects increases, other things the same
The net present value (NPV) of proposed investment projects would increase.
The internal rate of return (IRR) on proposed investment projects would also increase.
The internal rate of return (IRR) on proposed investment projects would decrease.
The net present Value (NPV) of proposed investment projects would decrease.
7- Which one of the following will decrease the net present value of a project?
increasing the amount of the final cash inflow
increasing the value of each of the project's discounted cash inflows
decreasing the required discount rate
increasing the project's initial cost at time zero