MGMT 200 Purdue Final Exam with 100% accurate solutions || || || || || || || ||
One can obtain a clear picture of a company's liquidity
|| || || || || || || || ||
by referring to its
|| || ||
A. Balance Sheet.
|| ||
B. Income Statement - ✔✔A. Balance Sheet
|| || || || || ||
(liquidity refers to assets / cash, while income statement only deals with revenues,
|| || || || || || || || || || || || ||
expenses, and profits) || ||
The advantages of obtaining funds by issuing debt,
|| || || || || || ||
rather than issuing additional common stock, include
|| || || || || ||
which of the following?
|| || ||
A. Funds are obtained without surrendering
|| || || || ||
ownership control. ||
B. Funds are obtained without surrendering
|| || || || ||
ownership control, as well as, interest expense || || || || || ||
is tax‐deductible.
||
C. The company's default risk decreases.
|| || || || ||
D. Interest expense is tax‐deductible. - ✔✔B. Funds are obtained without surrendering
|| || || || || || || || || || ||
ownership control, as well as, interest expense is tax-deductible.
|| || || || || || || || ||
(but mostly the fact that it is done without surrendering ownership of the company)
|| || || || || || || || || || || || ||
Banks will charge a very profitable company a higher
|| || || || || || || ||
,interest rate as compared to a company with minimal
|| || || || || || || ||
income since the high‐income business will be better
|| || || || || || ||
able to pay the extra interest cost.
|| || || || || ||
A. True
||
B. False - ✔✔B. Absorutery not
|| || || || ||
Banks do the opposite; they charge lower interest rates to profitable companies to
|| || || || || || || || || || || || ||
attract their business because there is less risk involved with profitable companies.
|| || || || || || || || || || ||
The lower the debt to equity ratio, the greater the
|| || || || || || || || ||
financial risk the company is taking. || || || || ||
A. True
||
B. False - ✔✔B. Nuh uh
|| || || || ||
||
This makes sense because a LOWER debt to equity ratio means (debt/equity) is small
|| || || || || || || || || || || || || ||
which means debt is small compared to equity, so therefore a LOWER debt to equity
|| || || || || || || || || || || || || || ||
ratio would imply the opposite; the company would be more financially stable.
|| || || || || || || || || || ||
Cash flow generally limits the amount of debt a
|| || || || || || || ||
business can finance. || ||
A. True
||
B. False - ✔✔A. True
|| || || ||
Borrowing levels can INCREASE with *stable* and *predictive* cash flows
|| || || || || || || || ||
Think about credit score; the better credit score (more stable and predictive your
|| || || || || || || || || || || || ||
credit is) then the higher loans you can take out.
|| || || || || || || || ||
,A debt to equity ratio of approximately .34 means that
|| || || || || || || || ||
one‐fourth of the company's assets are financed by || || || || || || ||
creditors.
A. True
||
B. False - ✔✔A. Thomas the tank engine says tru tru
|| || || || || || || || || ||
indicates creditors are financing 25% || || || ||
of the company's assets
|| || ||
.34 is approximately .33 or 1/3
|| || || || ||
This means you have "1" debt for every "3" equity so for example:
|| || || || || || || || || || || ||
Asset (200) = Debt (50) + Equity (150)
|| || || || || || ||
Debt/equity = 1/3 || ||
A callable bond allows the *holder* to repay the bonds
|| || || || || || || || ||
before their scheduled maturity date at a specified call
|| || || || || || || ||
price.
A. True
||
B. False - ✔✔B. Mmmmm no, not quite
|| || || || || || ||
, Holder means the person who issued the bond while *borrower* means the person
|| || || || || || || || || || || || ||
who bought the bond. Callable bonds allow the person who HAS the bond to cash it in
|| || || || || || || || || || || || || || || ||
early.
||
Convertible bonds allow the borrower to convert each || || || || || || ||
bond into a specified number of shares of common
|| || || || || || || ||
stock
A. True
||
B. False - ✔✔B. B as in Bee as in Bfalse
|| || || || || || || || || ||
Convertible bonds allow the bond HOLDER (the person who issued the bond) to
|| || || || || || || || || || || || ||
convert each bond into common stock.
|| || || || || ||
This makes sense as only the company has the right to issue common stock
|| || || || || || || || || || || || ||
The term used for bonds that are unsecured as
|| || || || || || || ||
to principal is
|| ||
A. series bonds.
|| ||
B. indenture bonds.
|| ||
C. debenture bonds.
|| ||
D.callable bonds. - ✔✔C. Debenture bonds || || || || ||
Unsecured Bond definition: Bonds (*debentures*) are not backed by collateral
|| || || || || || || || ||
The amount at a present time that is equivalent to a
|| || || || || || || || || ||
series of payments and interest in the future.
|| || || || || || ||
One can obtain a clear picture of a company's liquidity
|| || || || || || || || ||
by referring to its
|| || ||
A. Balance Sheet.
|| ||
B. Income Statement - ✔✔A. Balance Sheet
|| || || || || ||
(liquidity refers to assets / cash, while income statement only deals with revenues,
|| || || || || || || || || || || || ||
expenses, and profits) || ||
The advantages of obtaining funds by issuing debt,
|| || || || || || ||
rather than issuing additional common stock, include
|| || || || || ||
which of the following?
|| || ||
A. Funds are obtained without surrendering
|| || || || ||
ownership control. ||
B. Funds are obtained without surrendering
|| || || || ||
ownership control, as well as, interest expense || || || || || ||
is tax‐deductible.
||
C. The company's default risk decreases.
|| || || || ||
D. Interest expense is tax‐deductible. - ✔✔B. Funds are obtained without surrendering
|| || || || || || || || || || ||
ownership control, as well as, interest expense is tax-deductible.
|| || || || || || || || ||
(but mostly the fact that it is done without surrendering ownership of the company)
|| || || || || || || || || || || || ||
Banks will charge a very profitable company a higher
|| || || || || || || ||
,interest rate as compared to a company with minimal
|| || || || || || || ||
income since the high‐income business will be better
|| || || || || || ||
able to pay the extra interest cost.
|| || || || || ||
A. True
||
B. False - ✔✔B. Absorutery not
|| || || || ||
Banks do the opposite; they charge lower interest rates to profitable companies to
|| || || || || || || || || || || || ||
attract their business because there is less risk involved with profitable companies.
|| || || || || || || || || || ||
The lower the debt to equity ratio, the greater the
|| || || || || || || || ||
financial risk the company is taking. || || || || ||
A. True
||
B. False - ✔✔B. Nuh uh
|| || || || ||
||
This makes sense because a LOWER debt to equity ratio means (debt/equity) is small
|| || || || || || || || || || || || || ||
which means debt is small compared to equity, so therefore a LOWER debt to equity
|| || || || || || || || || || || || || || ||
ratio would imply the opposite; the company would be more financially stable.
|| || || || || || || || || || ||
Cash flow generally limits the amount of debt a
|| || || || || || || ||
business can finance. || ||
A. True
||
B. False - ✔✔A. True
|| || || ||
Borrowing levels can INCREASE with *stable* and *predictive* cash flows
|| || || || || || || || ||
Think about credit score; the better credit score (more stable and predictive your
|| || || || || || || || || || || || ||
credit is) then the higher loans you can take out.
|| || || || || || || || ||
,A debt to equity ratio of approximately .34 means that
|| || || || || || || || ||
one‐fourth of the company's assets are financed by || || || || || || ||
creditors.
A. True
||
B. False - ✔✔A. Thomas the tank engine says tru tru
|| || || || || || || || || ||
indicates creditors are financing 25% || || || ||
of the company's assets
|| || ||
.34 is approximately .33 or 1/3
|| || || || ||
This means you have "1" debt for every "3" equity so for example:
|| || || || || || || || || || || ||
Asset (200) = Debt (50) + Equity (150)
|| || || || || || ||
Debt/equity = 1/3 || ||
A callable bond allows the *holder* to repay the bonds
|| || || || || || || || ||
before their scheduled maturity date at a specified call
|| || || || || || || ||
price.
A. True
||
B. False - ✔✔B. Mmmmm no, not quite
|| || || || || || ||
, Holder means the person who issued the bond while *borrower* means the person
|| || || || || || || || || || || || ||
who bought the bond. Callable bonds allow the person who HAS the bond to cash it in
|| || || || || || || || || || || || || || || ||
early.
||
Convertible bonds allow the borrower to convert each || || || || || || ||
bond into a specified number of shares of common
|| || || || || || || ||
stock
A. True
||
B. False - ✔✔B. B as in Bee as in Bfalse
|| || || || || || || || || ||
Convertible bonds allow the bond HOLDER (the person who issued the bond) to
|| || || || || || || || || || || || ||
convert each bond into common stock.
|| || || || || ||
This makes sense as only the company has the right to issue common stock
|| || || || || || || || || || || || ||
The term used for bonds that are unsecured as
|| || || || || || || ||
to principal is
|| ||
A. series bonds.
|| ||
B. indenture bonds.
|| ||
C. debenture bonds.
|| ||
D.callable bonds. - ✔✔C. Debenture bonds || || || || ||
Unsecured Bond definition: Bonds (*debentures*) are not backed by collateral
|| || || || || || || || ||
The amount at a present time that is equivalent to a
|| || || || || || || || || ||
series of payments and interest in the future.
|| || || || || || ||
