Need help with the following study questions

1. Which of the following statements is most correct?

a. A firm acquiring another firm in a horizontal merger will not have its required rate of return affected because the two firms will have similar betas.
b. Financial theory says that the choice of how to pay for a merger is really irrelevant because, although it may affect the firm's capital structure, it will not affect the firm's overall required rate of return.
c. The basic rationale for any financial merger is synergy and thus, development of pro-forma cash flows is the single most important part of the analysis.
d. In most mergers, the benefits of synergy and the price premium the acquirer pays over market price are summed and then divided equally between the shareholders of the acquiring and target firms.
e. The primary rationale for any operating merger is synergy, but it is also possible that mergers can include aspects of both operating and financial mergers.

2. Which of the following statements is most correct?

a. If a company which produces military equipment merges with a company which manages a chain of motels, this is an example of a horizontal merger.
b. A defensive merger is where the firm's managers merge with another firm to avoid or lessen the possibility of being acquired through a hostile takeover.
c. Acquiring firms send a signal that their stock is undervalued if they choose to use stock to pay for the acquisition.
d. None of the statements above is correct.
e. Answers a and c are correct.

3. Which of the following statements is most correct?

a. If a company puts in place a 2-for-1 stock split its stock price should roughly double.
b. Share repurchases are taxed less favorably than dividends; this explains why companies typically pay dividends and avoid share repurchases.
c. On average, a company's stock price tends to rise when it announces that it is initiating a share repurchase program.
d. Statements a and b are correct.
e. All of the statements above are correct.

4. Which of the following statements is most correct?

a. Stock repurchases can be used by firms to defend against hostile takeovers since they increase the proportion of debt in a firm's capital structure.
b. After a 3-for-1 stock split, a company's price per share will fall and its number of shares outstanding will rise.
c. Investors can interpret a stock repurchase by a firm as a signal that the firm's managers believe the stock is underpriced.
d. Both statements a and b are correct.
e. All of the statements above are correct.

5. Exchange rate risk is the risk that the cash flows from a foreign project will be worth less than those same cash flows denominated in the parent company's home currency.

a. True
b. False

6. A lockbox plan is most beneficial to firms which

a. Send payables over a wide geographic area.
b. Have widely disbursed manufacturing facilities.
c. Have a large marketable securities account to protect.
d. Hold inventories at many different sites.
e. Make collections over a wide geographic area.

7. Permanent net operating working capital reflects the fact that net operating working capital does not shrink to zero even when business is at a seasonal or cyclical low. Thus, permanent net operating working capital represents a minimum level of net operating working capital the firm must finance.

a. Ture
b. False

8. Which of the following actions will increase a company's quick ratio?

a. Reduce inventories and use the proceeds to reduce long-term debt.
b. Reduce inventories and use the proceeds to reduce current liabilities.
c. Issue short-term debt and use the proceeds to purchase inventory.
d. Issue long-term debt and use the proceeds to purchase fixed assets.
e. Issue equity and use the proceeds to purchase inventory.

9. Going public establishes a true market value for the firm and ensures that a liquid market will always exist for the firm's shares.

a. True
b. False

10. A revolving credit agreement is a formal line of credit usually used by large firms. The firm will pay a fee on the unused balance of the committed funds to compensate the bank for the commitment to extend those funds.

a. True
b. False

11. Which of the following statements is most correct?

a. Net working capital may be defined as current assets minus current liabilities. Any increase in the current ratio will automatically lead to an increase in net working capital.
b. Although short-term interest rates have historically averaged less than long-term rates, the heavy use of short-term debt is considered to be an aggressive strategy because of the inherent risks of using short-term financing.
c. If a company follows a policy of "matching maturities," this means that it matches its use of common stock with its use of long-term debt as opposed to short-term debt.
d. All of the statements above are correct.
e. None of the statements above is correct.

12. Helena Furnishings wants to sharply reduce its cash conversion cycle. Which of the following steps would reduce its cash conversion cycle?

a. The company increases its average inventory without increasing its sales.
b. The company reduces its DSO.
c. The company starts paying its bills sooner, which reduces its average accounts payable without reducing its sales.
d. Statements a and b are correct.
e. All of the statements above are correct.

13. Which of the following statements is NOT correct about working capital policy?

a. A company may hold a relatively large amount of cash if it anticipates uncertain sales levels in the coming year.
b. Credit policy has an impact on working capital since it has the potential to influence sales levels and the speed with which cash is collected.
c. The cash budget is useful in determining future financing needs.
d. Holding minimal levels of inventory can reduce inventory carrying costs and cannot lead to any adverse effects on profitability.
e. Managing working capital levels is important to the financial staff since it influences financing decisions and overall profitability of the firm.

14. Which of the following actions are likely to reduce the length of a company's cash conversion cycle?

a. Adopting a new inventory system that reduces the inventory conversion period.
b. Reducing the average days sales outstanding (DSO) on its accounts receivable.
c. Reducing the amount of time the company takes to pay its suppliers.
d. Statements a and b are correct.
e. All of the statements above are correct.

15. When a firm has accounts payable that are greater than the level of its receivables, the firm is actually receiving net trade credit.

a. True
b. False

16. Multinational financial management requires that financial analyses consider the effects of changing currency values.

a. True
b. False

17. The percentage of sales method is based on which of the following assumptions?

a. All balance sheet accounts are tied directly to sales.
b. Most balance sheet accounts are tied directly to sales.
c. The current level of total assets is optimal for the current sales level.
d. Answers a and c above.
e. Answers b and c above.

18. Multinational financial management requires that

a. The effects of changing currency values be included in financial analyses.
b. Legal and economic differences be considered in financial decisions.
c. Political risk be excluded from multinational corporate financial analyses.
d. All of the above.
e. Only a and b above.

19. Which of the following statements is most correct?

a. A conglomerate merger is where a firm combines with another firm in the same industry.
b. Regulations in the United States prohibit acquiring firms from using common stock to purchase another firm
c. Defensive mergers are designed to make a company less vulnerable to a takeover.
d. Answers a and b are correct.
e. All of the answers above are correct.

20. Which of the following statements about listing on a stock exchange is most correct?

a. Listing is a decision of more significance to a firm than going public.
b. Any firm can be listed on the NYSE as long as it pays the listing fee.
c. Listing provides a company with some "free" advertising, and status as a listed company may enhance the firm's prestige.
d. Listing reduces the reporting requirements for firms, because listed firms file reports with the exchange rather than with the SEC.
e. Statements b and c are both correct.

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