Of all possible financing strategies, this particular approach uses the largest amount of long-term debt, equity, and spontaneous current liabilities, all other things remaining constant. The general term used to collectively describe the firm’s current asset investment, including its cash, marketable securities, accounts receivable, and inventory. This period is equivalent to the average age of the firm’s inventory, as calculated by dividing the firm’s inventory balance by its daily cost of goods sold. Its value is calculated by dividing a firm’s account receivable balance by its average daily credit sales. A current asset financing strategy in which the cash generated by the conversion of the firm’s current assets is used to repay, or liquidate, the firm’s current liabilities used to finance them. The average elapsed time between the purchase of raw materials and labor using an account payable and the payment of cash for them. Minimum current asset balances below which a firm’s investment rarely drops. The amount of current assets financed with long-term liabilities; calculated as the difference between a firm’s current assets and its current liabilities. This base, or foundational, interest rate is the rate that banks charge on large loans to their most creditworthy business borrowers; rates charged to other, riskier, customers are scaled up from this rate. A legal claim against a borrowing firm’s entire inventory created to secure a loan in which the borrower retains control over the inventory and can sell items without the lender’s permission. An agreement that specifies the terms and conditions of a loan, including its amount, term, rate of interest, and repayment provisions. A loan in which the borrower prepays the interest. Often recurring, these short-term liabilities fluctuate spontaneously with the firm’s production operations. A form of financing resulting from the sale of a firm’s accounts receivable at a discount from their face value to a third party who accepts recourse for the receivables’ nonpayment. Unsecured short-term promissory notes issued by large, exceptionally creditworthy businesses. The effective cost of accounts payable paid during the discount period. The fee charged on the unused portion of a revolving line of credit to compensate the financial institution for setting aside the funds so that they are guaranteed to be available when the borrower wants them. A liability that is originally expected to be repaid within one year. The level and nature of risk attributable to a firm’s activities and operations, and ignoring the risks associated with the firm’s capital structure. The situation in which outsiders, such as external shareholders, credits, suppliers, and customers have less and inferior information about a firm’s past, current, and future conditions and prospects, compared to the firm’s managers. The extent to which a firm’s cost structure contains a large proportion of fixed costs, which raises its level of business risk if the firm’s sales decline. This practice of employing a large proportion of fixed-cost sources of financing, such as debt securities and preferred stock, exposes a firm’s stockholders to more business risk. The ability of a firm to borrow money at a reasonable cost when good investment opportunities arise because it currently less debt than that suggested by its optimal capital structure. An action taken by a firm’s management that provides clues to investors about how management views the firm’s prospects. The risk that is borne solely by the firm’s shareholders, and results from a firm’s decision to finance its assets using fixed-cost sources of capital, including debt securities and preferred stock. The level of sales at which a firm’s earnings per share (EPS) are the same, regardless of which of two alternative capital structures are compared. The mix of debt, preferred stock, and common stock that maximizes the price of the firm’s common stock. The mix of debt, preferred stock, and common stock that finances a firm’s assets.

Of all possible financing strategies, this particular approach uses the largest amount of long-term debt, equity, and spontaneous current liabilities, all other things remaining constant. The general term used to collectively describe the firm’s current asset investment, including its cash, marketable securities, accounts receivable, and inventory. This period is equivalent to the average age of the firm’s inventory, as calculated by dividing the firm’s inventory balance by its daily cost of goods sold. Its value is calculated by dividing a firm’s account receivable balance by its average daily credit sales. A current asset financing strategy in which the cash generated by the conversion of the firm’s current assets is used to repay, or liquidate, the firm’s current liabilities used to finance them. The average elapsed time between the purchase of raw materials and labor using an account payable and the payment of cash for them. Minimum current asset balances below which a firm’s investment rarely drops. The amount of current assets financed with long-term liabilities; calculated as the difference between a firm’s current assets and its current liabilities. This base, or foundational, interest rate is the rate that banks charge on large loans to their most creditworthy business borrowers; rates charged to other, riskier, customers are scaled up from this rate. A legal claim against a borrowing firm’s entire inventory created to secure a loan in which the borrower retains control over the inventory and can sell items without the lender’s permission. An agreement that specifies the terms and conditions of a loan, including its amount, term, rate of interest, and repayment provisions. A loan in which the borrower prepays the interest. Often recurring, these short-term liabilities fluctuate spontaneously with the firm’s production operations. A form of financing resulting from the sale of a firm’s accounts receivable at a discount from their face value to a third party who accepts recourse for the receivables’ nonpayment. Unsecured short-term promissory notes issued by large, exceptionally creditworthy businesses. The effective cost of accounts payable paid during the discount period. The fee charged on the unused portion of a revolving line of credit to compensate the financial institution for setting aside the funds so that they are guaranteed to be available when the borrower wants them. A liability that is originally expected to be repaid within one year. The level and nature of risk attributable to a firm’s activities and operations, and ignoring the risks associated with the firm’s capital structure. The situation in which outsiders, such as external shareholders, credits, suppliers, and customers have less and inferior information about a firm’s past, current, and future conditions and prospects, compared to the firm’s managers. The extent to which a firm’s cost structure contains a large proportion of fixed costs, which raises its level of business risk if the firm’s sales decline. This practice of employing a large proportion of fixed-cost sources of financing, such as debt securities and preferred stock, exposes a firm’s stockholders to more business risk. The ability of a firm to borrow money at a reasonable cost when good investment opportunities arise because it currently less debt than that suggested by its optimal capital structure. An action taken by a firm’s management that provides clues to investors about how management views the firm’s prospects. The risk that is borne solely by the firm’s shareholders, and results from a firm’s decision to finance its assets using fixed-cost sources of capital, including debt securities and preferred stock. The level of sales at which a firm’s earnings per share (EPS) are the same, regardless of which of two alternative capital structures are compared. The mix of debt, preferred stock, and common stock that maximizes the price of the firm’s common stock. The mix of debt, preferred stock, and common stock that finances a firm’s assets.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Please state the term for each of the definitions given.

Of all possible financing strategies, this particular approach uses the largest amount of long-term debt, equity, and spontaneous current liabilities, all other things remaining constant.
The general term used to collectively describe the firm’s current asset investment, including its cash, marketable securities, accounts receivable, and inventory.
This period is equivalent to the average age of the firm’s inventory, as calculated by dividing the firm’s inventory balance by its daily cost of goods sold.
Its value is calculated by dividing a firm’s account receivable balance by its average daily credit sales.
A current asset financing strategy in which the cash generated by the conversion of the firm’s current assets is used to repay, or liquidate, the firm’s current liabilities used to finance them.
The average elapsed time between the purchase of raw materials and labor using an account payable and the payment of cash for them.
Minimum current asset balances below which a firm’s investment rarely drops.
The amount of current assets financed with long-term liabilities; calculated as the difference between a firm’s current assets and its current liabilities.


This base, or foundational, interest rate is the rate that banks charge on large loans to their most creditworthy business borrowers; rates charged to other, riskier, customers are scaled up from this rate.
A legal claim against a borrowing firm’s entire inventory created to secure a loan in which the borrower retains control over the inventory and can sell items without the lender’s permission.
An agreement that specifies the terms and conditions of a loan, including its amount, term, rate of interest, and repayment provisions.
A loan in which the borrower prepays the interest.
Often recurring, these short-term liabilities fluctuate spontaneously with the firm’s production operations.
A form of financing resulting from the sale of a firm’s accounts receivable at a discount from their face value to a third party who accepts recourse for the receivables’ nonpayment.
Unsecured short-term promissory notes issued by large, exceptionally creditworthy businesses.
The effective cost of accounts payable paid during the discount period.
The fee charged on the unused portion of a revolving line of credit to compensate the financial institution for setting aside the funds so that they are guaranteed to be available when the borrower wants them.
A liability that is originally expected to be repaid within one year.


The level and nature of risk attributable to a firm’s activities and operations, and ignoring the risks associated with the firm’s capital structure.
The situation in which outsiders, such as external shareholders, credits, suppliers, and customers have less and inferior information about a firm’s past, current, and future conditions and prospects, compared to the firm’s managers.
The extent to which a firm’s cost structure contains a large proportion of fixed costs, which raises its level of business risk if the firm’s sales decline.
This practice of employing a large proportion of fixed-cost sources of financing, such as debt securities and preferred stock, exposes a firm’s stockholders to more business risk.
The ability of a firm to borrow money at a reasonable cost when good investment opportunities arise because it currently less debt than that suggested by its optimal capital structure.
An action taken by a firm’s management that provides clues to investors about how management views the firm’s prospects.
The risk that is borne solely by the firm’s shareholders, and results from a firm’s decision to finance its assets using fixed-cost sources of capital, including debt securities and preferred stock.
The level of sales at which a firm’s earnings per share (EPS) are the same, regardless of which of two alternative capital structures are compared.
The mix of debt, preferred stock, and common stock that maximizes the price of the firm’s common stock.
The mix of debt, preferred stock, and common stock that finances a firm’s assets.

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