e
The correct answer is e. A firm can show a large amount of retained earnings on its balance sheet, yet need to borrow cash to make required payments. …

Which of the following statements is correct a firm can use retained earnings without paying a flotation cost?

A – Firm can use retained earnings without paying a flotation cost. Therefore, while the cost of retained earnings is not zero, the cost of retained earnings is generally lower than the after-tax cost of debt financing.

Which of the following statements is correct a firm’s use of debt will have no effect on its profit margin?

A firm’s use of debt will have no effect on its profit margin on sales. The debt ratio as it is generally calculated makes an adjustment for the use of assets leased under operating leases, so the debt ratios of firms that lease different percentages of their assets are still comparable.

Which of the following statements is correct one way to increase EVA?

One way to increase EVA is to achieve the same level of operating income but with more total invested capital obtained at a higher cost of capital. If a firm reports positive net income, its EVA must also be positive.

Which of the following items Cannot be found on a firm’s balance sheet?

Answer: d. Cost of Goods Sold is not a liability account or even an asset and equity account. So, it is not reportable in the balance sheet. It is an expense account reported in the income statement a product cost of the goods sold during the period.

Which of the following statements is correct MVA stands for market value added?

a. MVA stands for market value added, and it is defined as follows: MVA = (Shares outstanding)(Stock price) + Book value of common equity.

Which of the following statements best describes the optimal capital structure?

The optimal capital structure is the mix of debt, equity, and preferred stock that maximizes the company’s earnings per share (EPS). The optimal capital structure is the mix of debt, equity, and preferred stock that minimizes the company’s cost of preferred stock.

What is not associated with business risk?

Explanation: Interest rates on debts are the amounts of money the company must pay after requesting loans or assets on credit. Interest rates are fixed and they are specified at the moment of accepting the transaction that will generate the debt in the organization. Thus, they do not represent a risk for the company.

Which of the following actions can a firm take to increase its current ratio?

Which of the following actions can a firm take to increase its current ratio? Issue short-term debt and use the proceeds to buy back long-term debt with a maturity of more than one year.

Which of the following actions is an example of window dressing?

Borrowing by using short-term notes payable and then using the proceeds to retire long-term debt is an example of “window dressing.” Offering discounts to customers who pay with cash rather than buy on credit and then using the funds that come in quicker to purchase additional inventories is another example of “window …

How is Eva calculated?

The equation used for invested capital in EVA is usually total assets minus current liabilities—two figures easily found on a firm’s balance sheet. In this case, the modified formula for EVA is NOPAT – (total assets – current liabilities) * WACC.

Which of the following statements is correct the four most important financial?

a. The four most important financial statements provided in the annual report are the balance sheet, income statement, cash budget, and the statement of Stockholders’ equity.

Which of the following is correct the optimal capital structure of a firm?

The optimal capital structure occurs when the cost of equity is minimized. The optimal capital structure maximizes shareholder value. D. Shareholder value is maximized when WACC is also maximized.

Which of the following factors does affect a firm’s business risk?

The correct answer is C- -interest cost variability is not related to business risk because interest cost fluctuations are associated to financing. Demand variability, sales price variability, operating leverage and input price variability affects a firm`s business risk as it is affected by operations of a firm.

Which of the following directly affects a firm’s business risk?

The factors that affect a firm’s business risk include industry characteristics and economic conditions, both of which are generally beyond the firm’s control. a. normally leads to an increase in its fixed assets turnover ratio.

What is equity multiplier ratio?

An equity multiplier is a financial ratio that measures how much of a company’s assets are financed through stockholders’ equity. A low equity multiplier indicates a company is using more equity and less debt to finance the purchase of assets.

What is the quick ratio aka The acid test )?

The acid-test, or quick ratio, compares a company’s most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. The acid-test ratio disregards current assets that are difficult to liquidate quickly such as inventory.