question archive The lower the fixed payment coverage ratio, the lower the firm’s financial leverage
The lower the fixed payment coverage ratio, the lower the firm’s financial leverage
Subject:FinancePrice: Bought3
The lower the fixed payment coverage ratio, the lower the firm’s financial leverage. Agree or Disagree and whyThe graph that shows the relationship between a security’s yield and its time to maturity is called the term structure of interest rates. Agree or Disagree and whyA firm has a current ratio of 1. In order to improve its liquidity ratios, this firm might:A. Improve its collection practices, thereby increasing cash and increasing its current and quick ratiosB. Improve its collection practices and pay accounts payable, thereby decreasing current liabilities and increasing the current and quick ratiosC. Decrease current liabilities by utilising more long-term debt, thereby increasing the current and quick ratiosD. Increase inventory, thereby increasing current assets and the current and quick ratiosIn a period of rising sales, utilising past cost and expense ratios (percent-of-sales method) when preparing pro forma financial statements and planning financing, will tend to:A. Understate retained earnings and understate the additional financing neededB. Overstate retained earnings and overstate the additional financing neededC. Understate retained earnings and overstate the additional financing neededD. Overstate retained earnings and understate the additional financing neededYou have an investment with the following cash flows:Year01234Cash flow$3,000$2,000$5,000$6,000$1,000Which of the following statements is correct and why?A. The present value of these cash flows discounted at a positive discount rate is $17,000.B. The present value of $3,000 at a discount rate greater than 0% and at time zero is less than $3,000.C. The present value of all cash flows is greater if they occur at the beginning of the year rather than at the end of the year at a discount rate greater than 0%.D. The future value of all the cash flows at the end of year 4 with an interest rate greater than 0% is $17,000.Two mutually exclusive projects, X and Y, are being considered. The annual cash inflows of both projects are the same, and are therefore ignored in their evaluation. Their initial outlays are different, but their expected lives are the same. The variable costs per year are $30,000 and $80,000 respectively. The present values of the total cash outlays are –$102,000 for X and –$110,000 for Y. Which of the following should we do?A. Accept X.B. Accept Y.C. Investigate more thoroughly the nature of their operating risks.D. Include their net cash inflows for evaluation purposes.E. Both C and D are correct.
