Loose Leaf for Foundations of Financial Management Format: Loose-leaf
17th Edition
ISBN: 9781260464924
Author: BLOCK
Publisher: Mcgraw Hill Publishers
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Chapter 6, Problem 6DQ
Summary Introduction
To explain:Â The significance of the long-term financing of temporary current assets that results in less risk and lower returns as compared to normal financing patterns.
Introduction:
Financing pattern:
The financing pattern represents the capital structure of the project organization and shows the composition of the components of finance.
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Why use short-term financing?
Cash flows from operations may not be sufficient for a firm to keep up with growth-related financing needs, or the firm may not be able to always generate enough cash flow to maintain a surplus of cash. Firms prefer to borrow now to fulfill their capital requirements through means of short-term financing or long-term financing. Both methods have their advantages and disadvantages.
The following statement identifies a possible characteristic of short-term financing.
A. Consider this case:
Short-term credit agreements are more restrictive than long-term credit agreements.
Identify whether the preceding statement is true or false.
This statement is false.
This statement is true.
B. Firms use a variety of short-term financing sources to support working capital. Use the descriptions in the following table to identify the short-term financing source.
Description
Short-Term Financing Source
Continually recurring…
Which of the following are assumptions of the Capital Asset Pricing Model (CAPM)? Check all that apply.
Consider the equation for the Capital Asset Pricing Model (CAPM):
All assets are perfectly divisible and liquid.
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7 = TRF + (TM - TRF) X
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0.30
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In this equation, the term (M - TRF) represents the
1.00
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The stock is more volatile than the market.
Identify the incorrect statement in connection to working capital management:
A.
Conservative financing policies use short-term funds to finance only part of fluctuating
current assets.
B.
Long-term funds are more expensive and more risky than short-term funds .
C.
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D.
Permanent current assets should be financed from long-term sources if a moderate policy is adopted.
Chapter 6 Solutions
Loose Leaf for Foundations of Financial Management Format: Loose-leaf
Ch. 6 - Prob. 1DQCh. 6 - Prob. 2DQCh. 6 - Prob. 3DQCh. 6 - Prob. 4DQCh. 6 - “The most appropriate financing pattern would be...Ch. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - What are three theories for describing the shape...Ch. 6 - Since the mid-1960s, corporate liquidity has been...
Ch. 6 - Gary’s Pipe and Steel Company expects sales next...Ch. 6 - Prob. 2PCh. 6 - Tobin Supplies Company expects sales next year to...Ch. 6 - Antivirus Inc. expects its sales next year to be...Ch. 6 - Prob. 5PCh. 6 - Prob. 6PCh. 6 - Boatler Used Cadillac Co. requires $850,000 in...Ch. 6 - Biochemical Corp. requires $550,000 in financing...Ch. 6 - Sauer Food Company has decided to buy a new...Ch. 6 - Assume that Hogan Surgical Instruments Co. has...Ch. 6 - Assume that Atlas Sporting Goods Inc. has $840,000...Ch. 6 - Colter Steel has $4,200,000 in assets. Short-term...Ch. 6 - Prob. 13PCh. 6 - Guardian Inc. is trying to develop an asset...Ch. 6 - Lear Inc. has $840,000 in current assets, $370,000...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Using the expectations hypothesis theory for the...Ch. 6 - Carmen’s Beauty Salon has estimated monthly...Ch. 6 - Prob. 19PCh. 6 - Eastern Auto Parts Inc. has 15 percent of its...Ch. 6 - Bombs Away Video Games Corporation has forecasted...Ch. 6 - Esquire Products Inc. expects the following...
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- Discuss why it is advisable to invest in a group of financial assets rather than investing in just one, even if this, on average, has offered a high historical return (generally, above the market return).arrow_forwardWhat are some of the risks involved in short-term vs. long-term financing ?arrow_forwardAllied uses debt in its capital structure, so some of the money used to finance the project will be debt. Given this fact, should the projected cash flows be revised to show projected interest charges? Explainarrow_forward
- Is this statement true or false? Please explain in detail As debt-financing is usually cheaper than equity financing, debt-financing will lower risk for transnational company.arrow_forwardAllied uses debt in its capital structure, so some money use to finance the project will be deb. Given this fact, should the projected cash flows be revised to show projected interest charges? Explainarrow_forwardUsing Problem 1, if Hogwarts Corp.’s policy is to employ Aggressive financing policy, which of the following statement would best describe the policy employed? a. all fixed asset and half of the permanent current assets was financed with long-term liabilities b. all the fixed assets, permanent current assets and half of the temporary current assets was financed with long-term liabilities c. all the fixed assets, and permanent current assets was financed with long-term liabilities d. none of the above 2) Using Problem 1, how much is the temporary current assets needed during April?arrow_forward
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