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a. The ratio of long-term debt to total capital is more likely to experience seasonal
fluctuations than is either the DSO or the inventory turnover ratio.
b. If two firms have the same ROA, the firm with the most debt can be expected to
have the lower ROE.
a. Since companies can deduct dividends paid but not interest paid, our tax system
favors the use of equity financing over debt financing, and this causes companies
debt ratios to be lower than they would be if interest and dividends were both
deductible.
1)
A time line is not meaningful unless all cash flows occur annually
2)
Time lines are useful for visualizing complex problems prior to doing actual
calculations
3)
Question 1
Assume that in recent years both expected inflation and the market risk
premium (rM
rRF) have declined. Assume also that all stocks have positive betas. Which of the
following would be most likely to have occurred as a result of these changes?
Answer
a. $1,714,750
b. $1,805,000
Question 1
Which of the following statements is CORRECT?
Answer
Question 2
a. Modigliani and Miller argue that investors prefer dividends to capital gains because
dividends are more certain than capital gains. They call this the bird-in-the hand
effect.
b. One reason that companies tend to avoid
Question 1
Question 2
Question 1
Suppose DeGraw Corporation, a U.S. exporter, sold a solar heating station to a
Japanese customer at a price of 143.5 million yen, when the exchange rate was 140
yen per dollar. In order to close the sale, DeGraw agreed to make the bill payable in
yen, thus agreeing to take some exchange rate risk for the transaction. The terms
were net 6 months. If the yen fell against the dollar such that one dollar would buy