Holding everything else constant, an increase in cash will decrease Omay increase or decrease O will increase I will have no impact on a firm's net debt.

Q: he MM model, as the proportion of debt in the capital structure increases, the cost of equity

A: Modigliani-Miller theorem is based on the value of the firm, with the assumption of no taxes,…

Q: Suppose a firm occasionally faces demand for short-term credit but usually has an excess of…

A: Generally Accepted Accounting Principles that GAAP is a set of accounting standards that are set…

Q: A company that earns a higher return with borrowed funds than it pays in interest on those funds is…

A: Financial leverage is the strategic use of borrowed funds to augment the return on investment. In…

Q: Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the…

A: Yes. Negative free cash flow is not necessarily bad. Most rapidly growing companies have negative…

Q: How does added debt potentially decrease the value of a firm?

A: Debt can be positive as well as negative, firms prefer to use debt in their capital structure to…

Q: Which of the following methods can NOT be used to improve the firm’s cash conversion cycle?…

A: Cash conversion cycle (CCC) expresses the length of time, in days, that it takes for a company to…

Q: 1.Financial distress is least apt to lead to A. Increase dividends B.financial restructuring…

A: Financial distress may result in asset restructuring, stock issuance, liquidation, and financial…

Q: Explain how capital adequacy requirements may affect a commercial bank’s dividend payout and growth…

A: Capital adequacy requirement refers to the amount of capital a bank must have as per the requirement…

Q: If a company lowers its cash dividend payment, does that always send a bad signal? If not, provide…

A: Every company receives their capital in the form of equity or debt. Equity is from the shareholders…

Q: Can free cash flow continue to grow, even if ROIC falls? Explain.

A: If the working capital of the company can be managed free cash flow can grow at a better rate even…

Q: 1. Can a firm with positive net income run cash? Explain.

A: Cash is very important in the business and there is need of cash in business and no business can…

Q: Firms manage a variety of current assets. Permanent current assets are needed for the firm to…

A: Maturity matching approach is strategy governing the working capital financing where the short term…

Q: If the firm borrows money at a significantly lower rate, this factor affects the firm's MARR. How?

A: If the firm borrows money at a lower rate then, MARR will also be lower.

Q: m valuation, earnings and cash flows, re the cost of equity is the appropriate d y is the cost of…

A: The Cost of Equity is generally higher than the Cost of Debt since equity investors take on more…

Q: Financial slack is the amount of unused access to debt markets or bank financing. Which theory of…

A: Without a doubt! The Pecking Order Theory, which was first developed by Myers and Majluf, two…

Q: According to MM propositions, which of the following statements best describes the consequence of…

A: The M&M Theorem, or the Modigliani-Miller Theorem is a capital structure theory developed by…

Q: If you want to value a firm, you would discount the projected free cash flows to all debt and equity…

A: When valuing a firm, typically use the concept of discounted cash flows (DCF) to estimate its…

Q: 4. Other things held constant, the more debt a firm uses, the lower its profit margin will be.

A: A ratio that helps to evaluate how much portions of the sales revenue of a company turns in the…

Q: Why does the WACC decrease as a firm begins to take on debt and then increase after a certain point?

A: WACC: It is also known as Weighted Average Cost of Capital. It is the mixture of weighted cost of…

Q: A declining trend in the capital outlay ratio could be an indicator of deferred replacement of…

A: Capital Outlay Ratio:/The capital outlay ratio is a financial metric used to assess the efficiency…

Q: Select all of the following that will have a negative effect on the firm" flows? (Assume other…

A: When expenditures exceed income, a negative cash flow arises, potentially leading to financial…

Q: Minimizing liquidity is an excellent way to meet a company's short-term financial obligations. 1)…

A: Liquidity means ability of the company in paying its short term obligations or liabilities.…

Q: Which is the quickest way to determine whether a firm has too much debt?

A: A business is supposed to be overleveraged when it is conveying an excessive amount of debt when…

Q: key benefits associated with refunding debt are the reduction in the firm's debt ratio and the…

A: The debt ratio is ratio that dictates that how much company has taken the debt out of its total…