You passed this Milestone
21 questions were answered correctly.
1 question was answered incorrectly.
1 question was skipped. These were marked
... [Show More] incorrect.
1
Which of the following is a disadvantage of venture capital?
Venture capital investors may place restrictions on company operations, such
as setting salary caps.
Venture capitalists only receive a return on their investment if the company
is eventually purchased for a large sum.
Receiving venture capital can send a message to other investors that your
company is unlikely to succeed.
Companies that receive venture capital are prohibited from issuing an IPO
once they become successful.
CONCEPT
Venture Capital
2
Determine whether the following description is true of a capital
lease, an operating lease, neither or both.
"A method of financing an asset like equipment without purchasing it
outright with equity"
Capital lease
Operating lease
Both
Neither
CONCEPT
Leasing
3
Which of the following is an example of a market risk for a company
that manufactures automobiles?
A competitor that offers a similar line of cars with comparable quality at
lower prices
Damage to completed cars being transported to a buyer
Being suddenly unable to source a critical component of the automobile
A failure in the company's accounts receivable process
CONCEPT
Risk and Capital Budgeting
4
According to the residual dividend model, what takes priority over
distributing dividends?
Financing planned projects
Establishing a target payout ratio
Paying off debt
Increasing share price
CONCEPT
Setting the Dividend
5Lennon owns 50 shares of stock in Company A that are valued at $10/share.
After Company A splits their stock at 2-for-1, what does Lennon
own?
50 shares valued at $10/share
100 shares valued at $5/share
100 shares valued at $10/share
50 shares valued at $20/share
CONCEPT
Cash Dividend Alternatives
6
What is one advantage of NPV as a capital budget method?
It is flexible, in the sense that the discount rate can be adjusted to account
for factors like risk.
Cash flows and the discount rate are easy to accurately determine.
It is equally accurate whether cash flows are known or estimated.
It accounts fully for opportunity costs.
CONCEPT
Net Present Value
7
Ollie owned stock in a hotel company that announced a dividend, but he did
not receive it.
This is because he sold the stock before the __________ date had
passed.
payment
ex-dividend
in-dividend
record
CONCEPT
Introduction to Dividends
8
A company invests $750,000 in a project with the following net cash flows:
Year 1: $43,000
Year 2: $48,000
Year 3: $55,000
Year 4: $36,000
Year 5: $74,000
Year 6: $65,000
In what year does payback occur?
After Year 6
Year 6
Year 5
Year 4
CONCEPT
The Payback Method
9
Select one disadvantage of IRR as a capital budget method.
Projects of similar durations are not easily compared using IRR.
It involves complex calculations that are not always reliable.
It is only useful with projects that have negative cash flows.
It can obscure the planning of mutually exclusive projects if one project has a
higher IRR and another has a higher NPV.
CONCEPT
Internal Rate of Return
10
To manage cash efficiently, a company should try to collect payment
for delivered products or services __________.
within 60 days
in a way that maximizes float time
as quickly as possible
infrequently
CONCEPT
Cash Management
11
Which of the following types of financing is typical for a business in
its mature stage?
Second-round venture capital
Start-up venture capital
Equity
Bank loans
CONCEPT
Types of Financing
12You skipped this question and it was marked incorrect.
An auto manufacturing company is preparing a capital budget and
considering four long-term investments. The net present value of each
project is as follows:
Project A: 0.25
Project B: 0
Project C: -0.5
Project D: 1.5
In theory, which two projects should the company pursue?
Projects B and C
Projects A and D
Projects B and D
Projects A and B
CONCEPT
Introduction to Capital Budgeting
13
Which of the following describes derivatives, rather than debt
securities or equity securities?
They are often used to offset external risks like changes in commodity
pricing.
They are considered a liquid investment.
They are a fixed-term security.
They are the least risky of the three.
CONCEPT
Securities Management
14Which of the following investors would likely prefer a cash dividend
over a stock dividend?
Zakir wants to be able to purchase more shares so that he owns a larger
stake in the company.
Paul doesn't mind taking on some additional risk if it means a larger reward
down the road.
Karen prefers knowing that the company she invested in has adequate
liquidity.
Vladamir chooses stocks strategically in order to maximize his capital gains.
CONCEPT
Dividend Policy
15
When performing capital budgeting, cash flow analysis can help a
company determine when to execute __________.
taxes
sunk costs
replacement projects
depreciation
CONCEPT
Cash Flow Analysis and Other Factors
16
Place the following steps for developing a credit policy in the
correct order of process:
A: The company decides that it wants to minimize opportunity costs by
having as much cash on hand as possible. B: The company decides that it will send out two notices of late
payments to customers before pursuing other collection methods.
C: The company decides that its payment terms will be Net 15.
C, B, A
A, C, B
C, A, B
A, B, C
CONCEPT
Accounts Receivable
17
What is the benefit to a company from a securities underwriter?
They help companies to reduce the risk associated with an IPO.
They study the market and advise companies on where to set their IPO share
price.
They generate demand for a company's securities by giving them a strong
credit rating.
They help companies to receive a premium on the sale of their securities.
CONCEPT
The Role of Investment Banks in Financing
18
Alyx needs additional short-term financing to modify her children's clothing
business. To generate funds, she sells her accounts receivable to an external
party for slightly less than their book value.
What type of financing resource is Alyx using?
Trade credit
Commercial lending
Peer-to-peer lending
Factoring
CONCEPT
Short-Term Financing
19
Which inventory technique is most useful when a business has
inventory that varies greatly in value?
Average cost
ABC
FIFO
LIFO
CONCEPT
Inventory Management
20
A company has a 70-day operating cycle, with 15 payable days, 25
receivable days and 45 inventory days.
What is their cash conversion cycle?
55
85
35
30
CONCEPT
Cash Conversion Cycle
21
A business that has too little working capital can take what action?
Increase short-term financing
Reduce credit to consumers
Increase inventory
Reduce cash on hand
CONCEPT
Working Capital
22
Which of the following is a goal of working capital management?
To ensure liquidity while reducing opportunity costs
To manage long-term assets in a way that maximizes returns
To generate as much free working capital as possible
To elongate the cash conversion cycle
CONCEPT
Working Capital Financing
23
What is one potential advantage of being a privately-held company?
If managers also own the company, they are strongly incentivized to
succeed.
A private company has access to less expensive sources of capital than a
public company.
If a company is private, it is better positioned to pursue acquisitions.
Risk is spread among a larger pool of investors in a private company.
CONCEPT
Comparing Public and Private Financing [Show Less]