FIN 100 Milestone 4 Sophia,100% CORRECT

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. 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 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 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 5 Lennon 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 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. 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 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 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. 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 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 12 You 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 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. 14 Which 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. 15 When performing capital budgeting, cash flow analysis can help a company determine when to execute __________. • taxes • sunk costs • replacement projects • depreciation 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 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. 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 19 Which inventory technique is most useful when a business has inventory that varies greatly in value? • Average cost • ABC • FIFO • LIFO 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 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 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 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.