Foundations of Financial Management
16th Edition
ISBN: 9781259277160
Author: Stanley B. Block, Geoffrey A. Hirt, Bartley Danielsen
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 7, Problem 10DQ
Why might a firm keep a safety stock? What effect is it likely to have on carrying cost of inventory? (LO7-5)
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Th e Industry and Business Risk excerpt states that, “Increased competition may lead tolower unit sales and excess production capacity and excess inventory. Th is may result in afurther downward price pressure.” Th e downward price pressure could lead to inventorythat is valued above current market prices or net realizable value. Any write-downs ofinventory are least likely to have a significant eff ect on the inventory valued using:A. weighted average cost.B. first-in, first-out (FIFO).C. last-in, first-out (LIFO).
. Which of the following costs will tend to increase if a firm switches to a restrictive short-term financial policy from a flexible short-term policy?I. lost sales due to out-of-stock itemsII. inventory warehousing costsIII. cash-outsIV. total annual order costs
A.
I and III only
B.
II and IV only
C.
I, III, and IV only
D.
I, II, and IV only
E.
I, II, III, and IV
In an inflationary economy, the use of FIFO maximizes the cost of goods sold and minimizes the cost of ending inventory. True or False
Chapter 7 Solutions
Foundations of Financial Management
Ch. 7 - Prob. 1DQCh. 7 - Prob. 2DQCh. 7 - Why would a financial manager want to slow down...Ch. 7 - Use The Wall Street Journal or some other...Ch. 7 - Why are Treasury bills a favorite place for...Ch. 7 - Explain why the bad debt percentage or any other...Ch. 7 - What are three quantitative measures that can be...Ch. 7 - Prob. 8DQCh. 7 - What does the EOQ formula tell us? What assumption...Ch. 7 - Why might a firm keep a safety stock? What effect...
Ch. 7 - If a firm uses a just-in-time inventory system,...Ch. 7 - City Farm Insurance has collection centers across...Ch. 7 - Prob. 2PCh. 7 - Orbital Communications has operating plants in...Ch. 7 - Postal Express has outlets throughout the world....Ch. 7 - Thompson Wood Products has credit sales of...Ch. 7 - Oral Roberts Dental Supplies has annual sales of...Ch. 7 - Knight Roundtable Co. has annual credit sales of...Ch. 7 - Darla’s Cosmetics has annual credit sales of...Ch. 7 - Barney’s Antique Shop has annual credit sales of...Ch. 7 - Mervyn’s Fine Fashions has an average collection...Ch. 7 - Route Canal Shipping Company has the following...Ch. 7 - Nowlin Pipe & Steel has projected sales of 72,000...Ch. 7 - Fisk Corporation is trying to improve its...Ch. 7 - Prob. 14PCh. 7 - Diagnostic Supplies has expected sales of 84,100...Ch. 7 - Wisconsin Snowmobile Corp. is considering a switch...Ch. 7 - Johnson Electronics is considering extending trade...Ch. 7 - Henderson Office Supply is considering a more...Ch. 7 - Fast Turnstiles Co. is evaluating the extension of...Ch. 7 - Slow Roll Drum Co. is evaluating the extension of...Ch. 7 - Global Services is considering a promotional...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...Ch. 7 - Problems 22-25 are a series and should be...
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- Why is inventory management vital to the financial health of most firms?arrow_forwardIf inventory prices are rising, which inventory costing method should produce the smallest payment for taxes?arrow_forwardWhy is trading volume an important consideration when undertaking technical analysis? O A. Trading volume can be used as a signal to support price and market trends O B. Trading volume represents private information not incorporated in prices OC. Both are correctarrow_forward
- What is the exposure to risk associated with a firm commitment to sell inventory that a fair value hedge is intended to reduce?arrow_forwardPurchasing Power Risk is A) the risk of bad business strategy or management decisions being madeB) the risk that a company will be unable to meet its financial obligationsC) the risk of not being able to close out your position quickly and at a fair priceD) the risk of prices going up or downE) also known as inflation riskarrow_forwardWhy short selling are risky than buying margin?arrow_forward
- Which of the following is not an element of the financial statements? A. future potential sales price of inventory B. assets C. liabilities D. equityarrow_forwardHow would reported income differ if LIFO rather than FIFO were used when purchase prices are rising? When purchase prices are falling?arrow_forwardAnswer true or false to the follwoing statement, and explain “ Purchasing Power Parity (PPP) theory fails to explain the facts.”arrow_forward
- 14. Using fundamental analysis, if intrinsic value is greater than the market price per share (IV>MPPS) what decisions should be made by the following parties? Buyer а. Buy b. Buy c. Do not buy d. Do not buy Seller Sell Hold Hold Sellarrow_forwardHow is book value per share calculated? Explain why book valuesoften deviate from market values.arrow_forwardHow is book value per share calculated? Explain how inflation and R&D programsmight cause book values to deviate from market values.arrow_forward
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