Foundations of Finance (9th Edition) (Pearson Series in Finance)
9th Edition
ISBN: 9780134083285
Author: Arthur J. Keown, John D. Martin, J. William Petty
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 15, Problem 5RQ
Explain what is meant by the statement “The use of current liabilities as opposed to long-term debt subjects the firm to a greater risk of illiquidity.”
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
describe and compare alternative ways to estimate the probability of company defaulting on its debt obligations. Explain the difference between real-world and risk-neutral estimates
Why do analysts need to consider different factors when evaluating a company’s ability to repay short-term versus long-term debt?
In deciding the appropriate levelof current assets for the firm,management is confronted with
A. a trade-off between short-term versus long-term borrowing.B. a trade-off between profitability and risk.C. a trade-off between equity and debt.D. a trade-off between liquidity and marketability.
Chapter 15 Solutions
Foundations of Finance (9th Edition) (Pearson Series in Finance)
Ch. 15 - Dell Computer Corporation (DELL) has long been...Ch. 15 - Prob. 2RQCh. 15 - Prob. 3RQCh. 15 - Prob. 4RQCh. 15 - Explain what is meant by the statement The use of...Ch. 15 - Prob. 6RQCh. 15 - Prob. 7RQCh. 15 - How can the formula interest = principle rate ...Ch. 15 - How can we accommodate the effects of compounding...Ch. 15 - Prob. 10RQ
Ch. 15 - Prob. 11RQCh. 15 - Prob. 12RQCh. 15 - Prob. 1SPCh. 15 - Prob. 2SPCh. 15 - Prob. 3SPCh. 15 - (Estimating the cost of bank credit) Paymaster...Ch. 15 - (Cost of short-term financing) The R. Morin...Ch. 15 - (Cost of secured short-term credit) The Marlow...Ch. 15 - (Cost of short-term financing) You plan to borrow...Ch. 15 - Prob. 8SPCh. 15 - (Cost of trade credit) Calculate the effective...Ch. 15 - (Annual percentage yield) Compute the cost of the...Ch. 15 - Prob. 11SPCh. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of accounts receivable) The Michelin...Ch. 15 - (Cost of factoring) MDM, Inc. is considering...Ch. 15 - (Cost of factoring) A factor has agreed to lend...Ch. 15 - Prob. 16SPCh. 15 - Prob. 17SP
Additional Business Textbook Solutions
Find more solutions based on key concepts
The way to evaluate a project’s unlevered cost of capital when the project’s risk varies from that of a firm. I...
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
The exchange rate, potential risk, transfer pricing, tax law differences and strategies are the items affects t...
Principles of Managerial Finance (14th Edition) (Pearson Series in Finance)
Preference for current ratio and quick ratio. Introduction: Current ratio explains the liquidity position of a ...
Gitman: Principl Manageri Finance_15 (15th Edition) (What's New in Finance)
The continuation or terminal value of a project.
Corporate Finance
Trade Notes Payable. On November 1, Barcelona Sales, Inc. purchased inventory costing 589,000 using a 5-month t...
Intermediate Accounting
Discuss the potential effectiveness and limitations of punishment in organizations.
Principles of Management
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Explain what is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become riskier.arrow_forwardShould a firm use debt instruments as a financing option, what are its effects on the firm’s expected return and risk?arrow_forwardBalance Sheet Insolvency occurs when Liabilities are greater than the Assets resulting in negative capital equity. For a Financial Institution, Insolvency Risk can be defined as the risk that there is insufficient capital to offset either a decrease in the market value of assets relative to liabilities or an increase in liabilities relative to the market value of assets. A. Describe a situation where Insolvency Risk could be caused one of the many risks that a Financial Institution may face. B. Describe the best protection against insolvency risk at a Financial Institution.arrow_forward
- Banks use gap analysis to measure interest rate risk in their balance sheets. If firm XYZ is said to have a positive gap, this means: Group of answer choices C. Rate-sensitive assets exceed rate-sensitive liabilities B. Long-term assets are funded with short-term liabilities D. Rate-sensitive assets equal rate-sensitive liabilities A. Liabilities reprice before assetsarrow_forwardCritically discuss over-investment and under-investment problems due to debt usage. What kinds of capital structures could prevent such problems?arrow_forwardThe key benefits associated with refunding debt are the reduction in the firm's debt ratio and the creation of more reserve borrowing capacity. true or false explainarrow_forward
- 2arrow_forwardTrue or false?:1. From a creditor's point of view, the higher the total debt to total assets ratio, the lower the risk that the company may be unable to pay its obligations.arrow_forwardIt is more provident that equity financing is more favored because of the ultimate risks associated within the cost of accumulating debt in terms of paying principal plus interest. Group of answer choices True Falsearrow_forward
- Evaluate the effect of gearing on cost of capital and firm value taking intoconsideration the introduction of gearing or leverage increases cost of debt due to bankruptcy risk or firm’s probability of failure.arrow_forwardWhat is meant by the term ‘financial distress’. If we assume that financial distress exists, explain how and why financial distress would cause a firm’s equity to become more risky.arrow_forwardThe issuance costs of new debt securities can be ignored since those costs will not be reflected in the yield to maturity of the debt in the future. Select one: a. False b. Truearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...AccountingISBN:9781305080577Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:South-Western College Pub
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Auditing: A Risk Based-Approach to Conducting a Q...
Accounting
ISBN:9781305080577
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:South-Western College Pub
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY