Assume Nike had a Current Ratio of 3.4 and its competitor has a Current Ratio of 1.3. Which of the following statements is true? Competitors can easily raise capital through a bank loan as compared to Nike O Competitor has better liquidity Nike needs to borrow cash immediately Nike has better liquidity
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- Assume two banks are equal to each other in size in terms of total assets. The bank which has more liquidity will have a lower return on equity Select one: O True O FalseWhich of the following statements is most correct? (Hint: Work Problem 4-16 before answering 4-17, and consider the solution setup for 4-16, as you think about 4-17.) a. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will raise the firm' expected return on common equity (ROE). b. The higher its tax rate, the lower a firm's BEP ratio will be, other things held constant. c. The higher the interest rate on its debt, the lower a firm's BEP ratio will be, other things held constant. d. The higher its debt ratio, the lower a firm's BEP ratio will be, other things held constant. e. If a firm's expected basic earning power (BEP) is constant for all of its assets and exceeds the interest rate on its debt, then adding assets and financing them with debt will decrease the firm's expected return on common equity (ROE).What does a firm need to do to improve liquidity? O A. Stock up on inventory in order to never run out of stock O B. Extend credit terms to customers in order to gain more sales O C. Pay all bills and payables when due O D. Speed up collection of accounts receivable from customers
- 5. Consider the following two potential transactions: (i) borrow from a bank; and (ii) use the proceeds from borrowing to pay out dividend. Assume this is an NFA firm. The combination of two financial transactions will A. reduce the financial leverage (FLEV) and the firm will continue to be an NFA firm.B. reduce the financial leverage (FLEV) and the firm will switch to an NFO firm.C. increase the financial leverage (FLEV) and the firm may become be an NFO firm.D. increase the financial leverage (FLEV) and the firm cannot be an NFA firm anymore.1. Opportunity cost of capital (S2.1) Which of the following statements are true? The opportunity cost of capital: a. Equals the interest rate at which the company can borrow. b. Depends on the risk of the cash flows to be valued. c. Depends on the rates of return that shareholders can expect to earn by investing on their own. d. Equals zero if the firm has excess cash in its bank account and the bank account pays no interest.13. A short-term creditor would be interested in A. profitability ratio. B. efficiency ratio. C. liquidity ratio. D. leverage ratio. The quick ratio of a firm would be unaffected by which of the following? 14. A. Land held for investment is sold for cash. B. Equipment is purchased, financed by a long-term debt issue. C. Inventories are sold for cash D. Inventories are sold on a credit basis.
- Manny Delgado is interviewing with the Bank of MF for a financial analyst position. The interviewer is interested in knowing whether he understands the EV-to-EBITDA multiple. Delgado explains that the enterprise value is determined by the market value of equity and total debt. He also points out an alternative measure of the enterprise value which considers the free cash flow to the firm. Delgado suggests that we need to subtract the investments on working capital and PPE when calculating the free cash flow to the firm. He further explains the reason we do so is due to the interest tax shield that the investments on working capital and PPE would create. Therefore, by excluding the investments on working capital and PPE, the EV[1]to-EBITDA ratio is not affected by the interest tax shield and is a consistently-defined ratio. Q: Is Delgado’s suggestion on the reason that the investment on working capital and PPE are excluded justifiable? Why?When a profitable business has no mandated loan capital but there are non-mandated liabilities a. the return on equity always exceeds the return on total capitalb. the return on equity always equals the return on total capitalc. the return on equity may be equal to the return on total capitald. the return on equity always lags behind the return on total capital choose one1. Which firm is more likely to borrowing money in the future, a rapidly growing firm that is expanding its markets before the competition "copies" its product or service or a mature company like Procter and Gamble with established mature brands? Explain. 2. Are cash flows constant over time for most firms or do they vary across the life cycle of the typical firm? Explain.
- When we compute the EV/EBITDA multiple, i.e. the ratio of Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization, we estimate the enterprise value of a firm by adding the values of debt and equity and netting out cash. Could you provide a reason for netting out cash? O a. Cash can be used to pay down debt. O b. Cash is easy to value. O c. None of the given answers is correct. The income from cash is not part of EBITDA. Cash is liquid. O d. O e.A. Determine the decision nature of each of the following issues: What are the least expensive sources of funds for the firm? A large retailer such as LuLu Hypermarket, deciding whether to open another store? Will we purchase on credit or will we borrow in the short term and pay cash? The decision to develop and market a new software by a company such as Microsoft. Choosing among lenders and among loan types?Three metrics of liquidity your book talks about are: wo9rking capital, current ratio, and quick ratio, Why is quick ratio deemed a better measure of liquidity? 6) Because: a. Quick Ratio only has quick assets b. Quick Ratio only has fixed assets C. Current Ratio includes cash d. Quick Ratio has only prepaid expenses None of the above