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: Suppose you are a financial analyst and you have to explain the following statements: a) If one firm is growing rapidly and another is not, how might this distort a comparison of their inventory turnover ratios? b) What potential problem might arise when comparing different firms' fixed assets turnover ratios? c) What are three important implications of financial leverage? And How does the use of financial leverage affect stockholders' control position? d) How does the tax structure influence a firm's willingness to finance with debt? e) Why does the use of debt lower the ROA?

Which of the following statements is CORRECT?   a. WACC calculations should be based on the before-tax costs of all the individual capital components.   b. Flotation costs associated with issuing new common stock normally reduce the WACC.   c. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing.   d. A change in a company's target capital structure cannot affect its WACC.   e. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.

What would be a reason a company would want to understate income?A. to help nudge its stock price higherB. to lower its tax billC. to show an increase in overall profitsD. to increase investor confidence

Ignoring possible tax effects and signaling costs, the total value of a firm’s equity remains the same irrespective of how the firm distributes its residual earnings—dividends or stock repurchases. Each distribution method has certain advantages and disadvantages.   Based on your understanding of dividends and stock repurchases, select the best terms to go with the statements. Management is likely to repurchase stock if it believes that the stock is undervalued/overvalued  ; this sends positive signals to investors.   True or False: Based on the company’s earnings in a particular year, repurchases can be made on an ad hoc basis without sending any negative signals to investors. True   False     Repurchases are also used to make significant adjustments to a firm’s liquidity/debt to equity   ratio.   True or False: Repurchases are more dependable than dividends because the investor wealth does not decrease after a repurchase, whereas the stock price decreases…

Which of the following theories is supported by the argument that shareholders can transform a company dividend policy into a different policy by means of investors buying and selling on their own account? a. dividend irrelevance theory b. "bird-in-the-hand" theory C. residual distribution model d. tax preference theory

To what extent do you feel the company’s dividend policies support or hinder their strategies? For example, if the company is attempting to grow, are they retaining and reinvesting their earnings rather than distributing them to investors through dividends? Be sure to substantiate your claims.

Which of the following is false regarding book and market values? Select one: O a. Financial managers should rely on book values, and not market values, when analyzing the firm's tax liability. O b. Book value is an accounting summary of value and is inferior to market value as a source of current information regarding the true value of the firm. c. Market value always exceeds book value. O d. The market value of fixed assets is often difficult to determine.

Which of the following will increase the WACC for a tax-paying company? Decrease the proportion of equity financing Decrease the proportion of debt financing Decrease the market value of the equity Increase the market value of the debt

4. Classify each of the following factors/cases based on whether they favor a low dividend policy or high dividend policy? (explain why) A. The tax on capital gains is deferred until the gain is realized. B. Few, if any, positive net present value projects are available to a firm. C. A majority of the shareholders have a low tax rate. D. A majority of the shareholders have better investment opportunities than the firm. E The presence of an agency conflict with the company's senior managers.

Which of the following statements is CORRECT? * A company can use its retained earnings without incurring a flotation cost. As a O result, while the cost of retained earnings is not zero, it is usually less expensive than the after-tax cost of debt. The capital structure that minimizes a company's weighted average cost of capital often maximizes its stock price. The capital structure that minimizes the firm's weighted average cost of capital often maximizes its earnings per share. If everything else is stable, and corporate tax rates drops, the Modigliani-Miller tax- adjusted tradeoff principle implies that companies should expand their use of debt. When a corporation learns that the cost of debt is less than the cost of equity, rising the debt ratio would lower the WACC.

Indicate whether its TRUE or FALSE. Then provide a complete explanation! Financial risk is reflected in the variability in the returns a company may generate on its assets and is mainly driven by the risks inherent in the industry that the company operates in. Introducing leverage into a firm’s capital structure may increase the expected returns for shareholders but the impact on share price may still be uncertain.

The level of financial risk to which a firm is exposed is dependent on the firm's:(a) tax rate(b) debt-equity ratio(c) return on assets(d) level of earnings before interest and taxes(e) operational level of risk

What would be a reason a company would want to overstate income?A. to help nudge its stock price higherB. to lower its tax billC. to show a decrease in overall profitsD. none of the above

Which of the following best describes the possible result of treasury share transactions?    a. May decrease but not increase net income. b. May increase net income if the cost method is used. c. May increase but not decrease retained earnings. d. May decrease but not increase retained earnings.

Which of the following is a criticism of a policy of maximizing the firm’s return on equity (ROE)? ROE is based on after-tax earnings, not cash flows. ROE does not consider risk. ROE ignores the size of the initial investment as well as future cash flows. All of these are criticisms of ROE as a goal.

Which of the following is NOT related to (or contributes to) business risk? Remember that a company's activities have an effect on its business risk. Sales price variability. The extent to which operating costs are fixed. Demand variability. O Input price variability. O The extent to which interest rates on the firm's debt fluctuate.

Which of the following would reduce a firm's WACC after tax? a. A firm invests in an average-risk project using equity, rather than debt financing. b. A supermarket chain decides to establish hardware stores which increases its systematic risk. c. A firm issues shares and uses the proceeds to pay off a bank loan. d. A firm issues bonds and uses the proceeds to repurchase stock. e. A firm significantly improves its operating cost control to boost profits.

Which of the following statements is correct?   a. Companies may pay too high a price in a large open market repurchase if it takes too long to complete.     b. If a company uses the residual dividend model to determine its dividend payments, dividends payout will tend to increase whenever its profitable investment opportunities increase.     c. An investor's capital gains from selling stock in a repurchase are always taxed at a higher rate than if the distribution were dividends.     d. The tax code encourages companies to pay dividends rather than reinvest earnings.     e. The stronger management thinks the clientele effect is, the more likely the firm is to adopt a strict version of the residual dividend model.