Solution Manual for Principles of Corporate Finance , 13th
Edition by Richard Brealey, 9781260013900, Covering
Chapters 1-34 | Includes Rationales
Short-term financial decisions
A. involve short-lived assets.
B. involve short-lived liabilities.
C. are easily reversed.
D. involve short-lived assets, involve short-lived liabilities, and are easily
reversed. - ANSWER: D. involve short-lived assets, involve short-lived liabilities, and are easily
reversed.
The main difference between short-term and long-term finance is that
A. the risk of long-term cash flows is more important than short-term risks.
B. long-term cash flows have greater present values than short-term cash flows.
C. short-term cash flows occur within a year or less.
D. All of these answers are correct. - ANSWER: C. short-term cash flows occur within a year or less.
A firm can meet its cumulative capital requirement via
A. long-term financing.
B. short-term financing.
C. long-term financing and short-term financing.
D. None of these answers are correct. - ANSWER: C. long-term financing and short-term financing.
A firm that chooses Strategy A should plan to
A. maintain a high ratio of current assets to sales.
B. use high levels of short-term debt and low levels of long-term financing.
C. decrease its dividend soon.
D. have surplus cash that can be invested in short-term securities. - ANSWER: D. have surplus cash
that can be invested in short-term securities.
A firm that chooses Strategy B should plan to
A. maintain a high ratio of current assets to sales.
B. use low or no short-term debt and more long-term financing.
C. repurchase a substantial number of shares.
D. be a short-term lender during a part of the year and a borrower during the rest. - ANSWER: D. be a
short-term lender during a part of the year and a borrower during the rest.
A firm that chooses Strategy C should plan to
A. have a permanent need for short-term borrowing.
B. have high current cash holdings.
C. use low or no short-term debt and more long-term financing.
D. increase its dividend soon. - ANSWER: A. have a permanent need for short-term borrowing.
Which of the following assets is the least liquid?
A. Equipment and machinery
B. Finished goods inventory
C. Accounts receivable
D. Marketable securities - ANSWER: A. Equipment and machinery
Arrange the following assets in decreasing order of liquidity (i.e., the most liquid should be listed first).
A. Equipment and machinery, inventories, accounts receivable, and marketable securities
B. Inventories, accounts receivable, marketable securities, and equipment and machinery
C. Accounts receivable, marketable securities, inventories, and equipment and machinery
, D. Marketable securities, accounts receivable, inventories, and equipment and machinery - ANSWER:
D. Marketable securities, accounts receivable, inventories, and equipment and machinery
Assume the following data: Total current assets = $852; Total current liabilities = $406; Long-term
debt = $442.
Calculate net working capital.
A. $446
B. $852
C. $410
D. $4 - ANSWER: A. $446
Net working capital is defined as
A. the current assets in a business.
B. the difference between current assets and current liabilities.
C. the present value of all short-term cash flows.
D. the difference between total assets and total liabilities. - ANSWER: B. the difference between
current assets and current liabilities.
The cash cycle occurs in the following sequence:
A. cash, raw materials, finished goods, receivables, and cash.
B. cash, receivables, finished goods, raw materials, and cash.
C. cash, raw materials, receivables, finished goods, and cash.
D. cash, finished goods, receivables, raw materials, and cash. - ANSWER: A. cash, raw materials,
finished goods, receivables, and cash.
The cash budget is the primary short-term financial planning tool. The key reason(s) that a treasurer
creates
a cash budget is (are)
A. to estimate the firm's investment in assets.
B. to estimate the size and timing of the firm's new cash flows and to prepare for potential financing
needs.
C. to estimate the size and timing of the firm's new cash flows.
D. to prepare for potential financing needs. - ANSWER: B. to estimate the size and timing of the firm's
new cash flows and to prepare for potential financing needs.
A cash-flow statement categorizes cash flows into which three general categories?
A. Working capital, short-term cash flows, and long-term cash flows
B. Operating activities, investing activities, and financing activities
C. Cash accounts, bank accounts, and transfer accounts
D. Inventory, accounts receivable, and accounts payable - ANSWER: B. Operating activities, investing
activities, and financing activities
A company has forecast sales in the first three months of the year as follows (figures in millions):
January, $60;
February, $80; March, $100. Sixty percent of sales are usually paid for in the month that they take
place and 40
percent in the following month. Receivables at the end of December were $24 million. What are the
forecasted
collections on accounts receivable in March?
A. $88 million
B. $92 million
C. $100 million
D. $140 million - ANSWER: B. $92 million
15. A company has forecast sales in the first three months of the year as follows (figures in millions):
January,
Edition by Richard Brealey, 9781260013900, Covering
Chapters 1-34 | Includes Rationales
Short-term financial decisions
A. involve short-lived assets.
B. involve short-lived liabilities.
C. are easily reversed.
D. involve short-lived assets, involve short-lived liabilities, and are easily
reversed. - ANSWER: D. involve short-lived assets, involve short-lived liabilities, and are easily
reversed.
The main difference between short-term and long-term finance is that
A. the risk of long-term cash flows is more important than short-term risks.
B. long-term cash flows have greater present values than short-term cash flows.
C. short-term cash flows occur within a year or less.
D. All of these answers are correct. - ANSWER: C. short-term cash flows occur within a year or less.
A firm can meet its cumulative capital requirement via
A. long-term financing.
B. short-term financing.
C. long-term financing and short-term financing.
D. None of these answers are correct. - ANSWER: C. long-term financing and short-term financing.
A firm that chooses Strategy A should plan to
A. maintain a high ratio of current assets to sales.
B. use high levels of short-term debt and low levels of long-term financing.
C. decrease its dividend soon.
D. have surplus cash that can be invested in short-term securities. - ANSWER: D. have surplus cash
that can be invested in short-term securities.
A firm that chooses Strategy B should plan to
A. maintain a high ratio of current assets to sales.
B. use low or no short-term debt and more long-term financing.
C. repurchase a substantial number of shares.
D. be a short-term lender during a part of the year and a borrower during the rest. - ANSWER: D. be a
short-term lender during a part of the year and a borrower during the rest.
A firm that chooses Strategy C should plan to
A. have a permanent need for short-term borrowing.
B. have high current cash holdings.
C. use low or no short-term debt and more long-term financing.
D. increase its dividend soon. - ANSWER: A. have a permanent need for short-term borrowing.
Which of the following assets is the least liquid?
A. Equipment and machinery
B. Finished goods inventory
C. Accounts receivable
D. Marketable securities - ANSWER: A. Equipment and machinery
Arrange the following assets in decreasing order of liquidity (i.e., the most liquid should be listed first).
A. Equipment and machinery, inventories, accounts receivable, and marketable securities
B. Inventories, accounts receivable, marketable securities, and equipment and machinery
C. Accounts receivable, marketable securities, inventories, and equipment and machinery
, D. Marketable securities, accounts receivable, inventories, and equipment and machinery - ANSWER:
D. Marketable securities, accounts receivable, inventories, and equipment and machinery
Assume the following data: Total current assets = $852; Total current liabilities = $406; Long-term
debt = $442.
Calculate net working capital.
A. $446
B. $852
C. $410
D. $4 - ANSWER: A. $446
Net working capital is defined as
A. the current assets in a business.
B. the difference between current assets and current liabilities.
C. the present value of all short-term cash flows.
D. the difference between total assets and total liabilities. - ANSWER: B. the difference between
current assets and current liabilities.
The cash cycle occurs in the following sequence:
A. cash, raw materials, finished goods, receivables, and cash.
B. cash, receivables, finished goods, raw materials, and cash.
C. cash, raw materials, receivables, finished goods, and cash.
D. cash, finished goods, receivables, raw materials, and cash. - ANSWER: A. cash, raw materials,
finished goods, receivables, and cash.
The cash budget is the primary short-term financial planning tool. The key reason(s) that a treasurer
creates
a cash budget is (are)
A. to estimate the firm's investment in assets.
B. to estimate the size and timing of the firm's new cash flows and to prepare for potential financing
needs.
C. to estimate the size and timing of the firm's new cash flows.
D. to prepare for potential financing needs. - ANSWER: B. to estimate the size and timing of the firm's
new cash flows and to prepare for potential financing needs.
A cash-flow statement categorizes cash flows into which three general categories?
A. Working capital, short-term cash flows, and long-term cash flows
B. Operating activities, investing activities, and financing activities
C. Cash accounts, bank accounts, and transfer accounts
D. Inventory, accounts receivable, and accounts payable - ANSWER: B. Operating activities, investing
activities, and financing activities
A company has forecast sales in the first three months of the year as follows (figures in millions):
January, $60;
February, $80; March, $100. Sixty percent of sales are usually paid for in the month that they take
place and 40
percent in the following month. Receivables at the end of December were $24 million. What are the
forecasted
collections on accounts receivable in March?
A. $88 million
B. $92 million
C. $100 million
D. $140 million - ANSWER: B. $92 million
15. A company has forecast sales in the first three months of the year as follows (figures in millions):
January,
