CORPORATE FINANCE--CONNECT ACCESS CARD
12th Edition
ISBN: 9781264331062
Author: Ross
Publisher: MCG CUSTOM
expand_more
expand_more
format_list_bulleted
Question
Chapter 26, Problem 1CQ
Summary Introduction
To explain: The characteristics of the firm having long operating cycle.
Operating Cycle:
Operating cycle is a time period between the sale of a product and the recovery of cash from the customer. Operating cycle is also known as the business cycle, it involves every quantitative business activity of the company.
Expert Solution & Answer
Answer to Problem 1CQ
The following are the characteristics of the firm having long operating cycle.
- Store more inventory
- Pay supplier dues quickly.
- Accounts receivables are high.
Explanation of Solution
- The firm having long operating cycle always maintains a high storage of inventory. By keeping high storage of inventory the inventory turnover of such companies are very low.
- These companies pay cash to accounts payable quickly. As they maintain high storage of inventory, so they are able to sell product to customer every time and this is the reason they easily pay cash to suppliers.
- These companies believe to sell products on credit basis; by this strategy, they have more customer retention and loyalty. As by selling of product on credit basis the accounts receivable account automatically increases the long operating cycle of the company.
Conclusion
Thus, the long operating cycle companies are making a strong planning on the working capital components.
Want to see more full solutions like this?
Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Students have asked these similar questions
What is an amortized loan?
What is the difference between stakeholders and stockholders?
What are the three general forms of business organization?
Chapter 26 Solutions
CORPORATE FINANCE--CONNECT ACCESS CARD
Knowledge Booster
Similar questions
- Why should we care about the difference between book value and market value?arrow_forward1. A bond currently has a price of $1,050. The yield on the bond is 5%. If the yield increases 30 basis points, the price of the bond will go down to $1,035. The duration of this bond is closest to: Group of answer choices None of the above 6.0 5 4.5 5.5 2. A callable corporate bond can be purchased by the bond issuer before maturity for a price specified at the time the bond is issued. Corporation X issues two bonds (bond A and bond B) at the same time with thesame maturity, par value, and coupons. However, bond A is callable and bond B is not. Which bond will sell for a higher price and why? Group of answer choices Bond B; bond B should have the value of bond A minus the value of the call option Bond A; bond A should have the value of bond B plus the value of the call option Not enough information Bond A; bond A should have the value of bond B minus the value of the call option Bond B; bond B should have the value of bond A plus the value of the call optionarrow_forwardIn plain English, what is the Agency problem?arrow_forward
- HW Question 29: what is the difference between accounting and finance?arrow_forward1. You are assessing the average performance of two mutual fund managers with the Fama-French 3-factor model. The fund managers and the Fama-French factors had the following performance over this periodof time: Manager 1 Manager 2 Rm − rf smb hmlAvg. (total) Ret 27% 13% 8% 2% 6%βmkt 2 1 1 0 0s 1 -0.5 0 1 0h 1 0.5 0 0 1 The risk-free rate is 2%. What kinds of stocks does Manager 1 invest in? Group of answer choices Small-cap value stocks Large-cap value stocks Large-cap growth stocks Not enough information…arrow_forward1. A hedge fund currently invests in $100 million of mortgage-backed securities (MBS) that have a duration of 15 and convexity of -500 (negative five hundred). Which of the following is closest to how much money the fund would gain or lose if interest rates decreased by 1%, using the duration+convexity approximation? Group of answer choices Lose $12 million Lose $10 million Lose $12.5 million Gain $11 million Gain $12 million 2. A hedge fund currently invests in $100 million of mortgage-backed securities (MBS) that have a duration of 15 and convexity of -500 (negative five hundred). Suppose the Hedge fund financed their $100 million of MBS by using seven-day repurchase agreements in addition to their investors’ capital. Assuming they borrow the maximum amount, the required haircut is 10%, and the interest rate is 2% per year, which of the following is closest to how much interest they will owe at the end of the first seven-day term? Group of answer choices $35,000 $40,000 $30,000…arrow_forward
- 1. A 5-year Treasury bond with a coupon rate of 5% per year (semiannual coupons) currently has a quoted price of $100 in the Wall Street Journal. Assuming the last coupon was 60 days ago and there are 364 days per year, which of the following is closest to what you would pay to buy this bond? Group of answer choices $101.000 $100.750 $101.500 $101.250 $100.500 2. Which TWO of the following are correct reasons that could explain why most CFOs still rely on the CAPM to estimate the cost of capital in spite of the fact that it fails to explain the returns on all stocks? Group of answer choices None of the above More investors still only care about the risks captured by the CAPM, and therefore the cost-of-capital given by the CAPM, than any other model The CAPM estimates always underestimate the cost-of-capital, so CFOs can use the CAPM to deceive shareholders into believing their companies are worth more than is actually true There is not necessarily a reliably better/generally…arrow_forwardWhile attending a SUNY Brockport international finance class, Kerry feels inspired to venture into global investments. She's intrigued by a Russian bond promising $110 per year in interest and maturing in 5 years, at which point it will return her initial $1,000 investment. Given an interest rate of 12%, how much does Kerry, the astute Brockport student, lay out for the bond today? -$1,110 -$900 -$963.95 -$1,000arrow_forward1. Ace Ventures, Incorporated, has expected earnings of $5 per share for next year. The firm’s ROE is 15%, and its earnings retention ratio is 40%. If the firm’s market capitalization rate is 10%, which of the following is closest to the present value of its growth opportunities? Group of answer choices $25 None of the above $75 $50 $100 2. Which of the following is an important reason to know the economic theory behind patterns in returns you trade on or recommend to clients? MARK ALL THAT APPLY Group of answer choices Determining appropriate weights and rebalancing your portfolio's asset allocation Impressing your friends with your knowledge Understanding whether your trading strategy will persist into the future Identifying whether the economic conditions are right for your strategy to succeed Knowing the theory increases the statistical significance of your alphaarrow_forward
- 1. A private equity firm XYZ performs a leveraged buyout in which they purchase all equity and debt of company ABC for $5 billion. XYZ finances this purchase with $1 billion of its own capital and borrows the remaining $4 billion at 20% interest. In one year (unusually short for LBO), XYZ pays off the debt and sells ABC for $7.5 billion. Which of the following is closest to XYZ’s return on their invested capital (the $1 billion)? Hint: draw a balance sheet. Group of answer choices 300% 350% 200% 250% None of the above 2. A firm is planning on paying its first dividend of $2 three years from today. After that, dividends are expected to grow at 6% per year indefinitely. The stock’s required return is 14%. Which of the following is closest to the intrinsic value of a share today? Group of answer choices $17.00 $21.00 $19.00 $18.00 $20.00arrow_forwardLinden deposits $100 into the Brockport Student Credit Union at the start of the school year. This ritual continues for the next 50 years, with an annual compounding interest of 2%. How much will Linden have saved up by the end of her 20th reunion at SUNY Brockport? 2,000 2,750 3,100.25 2,578.33arrow_forwardWhile looking around your grandfather's attic for an upcoming ugly sweater party, you discover a historical treasure: the solid gold Brockport Golden Eagle statue, a relic from the founding days of the College! Recognizing its worth, you sell it to the shop on Main Street. With the windfall, you put the funds into a perpetuity trust, supplying Mortimer Hall freshmen with $400 worth of pizzas every year, forever. with a 5% interest rate for the trust, what was the payday you received from the pawnshop for the Golden Eagle? a- $8,000 b- $10,000 c- $5,000 d- $6,000 e- Intermediatearrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Principles of Cost AccountingAccountingISBN:9781305087408Author:Edward J. Vanderbeck, Maria R. MitchellPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
Managerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning
Principles of Cost Accounting
Accounting
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Managerial Accounting
Accounting
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:South-Western College Pub