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FIN 534 Week 11 Final Exam 1 and 2FIN534 Week 11 Final Exam 1 and 2

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FIN 534 Week 11 Final Exam 1 and 2FIN534 Week 11 Final Exam 1 and 2;Which of the following statements is CORRECT?;Answer;An option's value is determined by its exercise value, which is the market price of the stock less its striking price. Thus, an option can't sell for more than its exercise value.;As the stock?s price rises, the time value portion of an option on a stock increases because the difference between the price of the stock and the fixed strike price increases.;Issuing options provides companies with a low cost method of raising capital.;The market value of an option depends in part on the option's time to maturity and also on the variability of the underlying stock's price.;The potential loss on an option decreases as the option sells at higher and higher prices because the profit margin gets bigger.;Which of the following statements is CORRECT?;Answer;Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.;Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.;Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.;Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.;If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit;3;Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?;Answer;-$3.10;$16.90;$17.75;$22.50;$25.60;The current price of a stock is $50, the annual risk-free rate is 6%, and a 1-year call option with a strike price of $55 sells for $7.20. What is the value of a put option, assuming the same strike price and expiration date as for the call option?;Answer;$7.33;$7.71;$8.12;$8.55;$9.00;Question 5;Which of the following statements is CORRECT?;Answer;If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit.;Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.;Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.;Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.;Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.;Braddock Construction Co.'s stock is trading at $20 a share. Call options that expire in three months with a strike price of $20 sell for $1.50. Which of the following will occur if the stock price increases 10%, to $22 a share?;Answer;The price of the call option will increase by more than $2.;The price of the call option will increase by less than $2, and the percentage increase in price will be less than 10%.;The price of the call option will increase by less than $2, but the percentage increase in price will be more than 10%.;The price of the call option will increase by more than $2, but the percentage increase in price will be less than 10%.;The price of the call option will increase by $2.;Question 7;Which of the following statements is CORRECT?;Answer;When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation.;Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM.;If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough reinvested earnings to take care of its equity financing and hence must issue new stock.;Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC.;When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation;With its current financial policies, Flagstaff Inc. will have to issue new common stock to fund its capital budget. Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock?;Answer;Increase the percentage of debt in the target capital structure.;Increase the proposed capital budget.;Reduce the amount of short-term bank debt in order to increase the current ratio.;Reduce the percentage of debt in the target capital structure.;Increase the dividend payout ratio for the upcoming year.;Which of the following statements is CORRECT? Assume a company's target capital structure is 50% debt and 50% common equity.;Answer;The WACC is calculated on a before-tax basis.;The WACC exceeds the cost of equity.;The cost of equity is always equal to or greater than the cost of debt.;The cost of reinvested earnings typically exceeds the cost of new common stock.;The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet.;10;Which of the following statements is CORRECT?;Answer;The percentage flotation cost associated with issuing new common equity is typically smaller than the flotation cost for new debt.;The WACC as used in capital budgeting is an estimate of the cost of all the capital a company has raised to acquire its assets.;There is an "opportunity cost" associated with using reinvested earnings, hence they are not "free.;The WACC as used in capital budgeting would be simply the after-tax cost of debt if the firm plans to use only debt to finance its capital budget during the coming year.;The WACC as used in capital budgeting is an estimate of a company's before-tax cost of capital.;Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?;Answer;Accounts payable.;Common stock ?raised? by reinvesting earnings.;Common stock raised by new issues.;Preferred stock.;Long-term debt.;Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?;Answer;The flotation costs associated with issuing new common stock increase.;The company's beta increases.;Expected inflation increases.;The flotation costs associated with issuing preferred stock increase.;The market risk premium declines.;Which of the following statements is CORRECT?;Answer;For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods.;Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR.;If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years.;The percentage difference between the MIRR and the IRR is equal to the project's WACC.;The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.;Which of the following statements is CORRECT?;Answer;The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects;14;Which of the following statements is CORRECT?;Answer;The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.;The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects;Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.;Answer;The lower the WACC used to calculate a project's NPV, the lower the calculated NPV will be.;If a project's NPV is less than zero, then its IRR must be less than the WACC.;If a project's NPV is greater than zero, then its IRR must be less than zero.;The NPV of a relatively low-risk project should be found using a relatively high WACC.;A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC.;Which of the following statements is CORRECT?;Answer;One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money.;One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital.;One defect of the IRR method versus the NPV is that the IRR values a dollar received today the same as a dollar that will not be received until sometime in the future.;One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.;One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project's full life.;Projects S and L are both normal projects with an initial cost of $10,000, followed by a series of positive cash inflows. Project S's undiscounted net cash flows total $20,000, while L's total undiscounted flows are $30,000. At a WACC of 10%, the two projects have identical NPVs. Which project's NPV is more sensitive to changes in the WACC?;Answer;Project L.;Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.;Neither project is sensitive to changes in the discount rate, since both have NPV profiles that are horizontal.;The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRs.;Project S.;Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.;Answer;A project's regular IRR is found by discounting the cash inflows at the WACC to find the present value (PV), then compounding this PV to find the IRR.;If a project's IRR is greater than the WACC, then its NPV must be negative.;To find a project's IRR, we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs.;To find a project's IRR, we must find a discount rate that is equal to the WACC.;A project's regular IRR is found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting this TV at the WACC.;Which of the following statements is CORRECT?;Answer;In a capital budgeting analysis where part of the funds used to finance the project would be raised as debt, failure to include interest expense as a cost when determining the project's cash flows will lead to a downward bias in the NPV.;The existence of any type of "externality" will reduce the calculated NPV versus the NPV that would exist without the externality.;If one of the assets to be used by a potential project is already owned by the firm, and if that asset could be sold or leased to another firm if the new project were not undertaken, then the net after-tax proceeds that could be obtained should be charged as a cost to the project under consideration.;If one of the assets to be used by a potential project is already owned by the firm but is not being used, then any costs associated with that asset is a sunk cost and should be ignored.;In a capital budgeting analysis where part of the funds used to finance the project would be raised as debt, failure to include interest expense as a cost when determining the project's cash flows will lead to an upward bias in the NPV.;Which of the following rules is CORRECT for capital budgeting analysis?;Answer;Only incremental cash flows, which are the cash flows that would result if a project is accepted, are relevant when making accept/reject decisions.;Sunk costs are not included in the annual cash flows, but they must be deducted from the PV of the project's other costs when reaching the accept/reject decision.;A proposed project's estimated net income as determined by the firm's accountants, using generally accepted accounting principles (GAAP), is discounted at the WACC, and if the PV of this income stream exceeds the project's cost, the project should be accepted.;If a product is competitive with some of the firm's other products, this fact should be incorporated into the estimate of the relevant cash flows. However, if the new product is complementary to some of the firm's other products, this fact need not be reflected in the analysis.;The interest paid on funds borrowed to finance a project must be included in estimates of the project's cash flows.;Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?;Answer;Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost.;The company has spent and expensed $1 million on R&D associated with the new project.;The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project.;The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year.;The new project is expected to reduce sales of one of the company's existing products by 5%.;2 points;When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPT;Answer;Previous expenditures associated with a market test to determine the feasibility of the project, provided those costs have been expensed for tax purposes.;The value of a building owned by the firm that will be used for this project.;A decline in the sales of an existing product, provided that decline is directly attributable to this project.;The salvage value of assets used for the project that will be recovered at the end of the project's life.;Changes in net working capital attributable to the project.;Which of the following statements is CORRECT?;Answer;In comparing two projects using sensitivity analysis, the one with the steeper lines would be considered less risky, because a small error in estimating a variable such as unit sales would produce only a small error in the project's NPV.;The primary advantage of simulation analysis over scenario analysis is that scenario analysis requires a relatively powerful computer, coupled with an efficient financial planning software package, whereas simulation analysis can be done efficiently using a PC with a spreadsheet program or even with just a calculator.;Sensitivity analysis is a type of risk analysis that considers both the sensitivity of NPV to changes in key input variables and the probability of occurrence of these variables' values.;As computer technology advances, simulation analysis becomes increasingly obsolete and thus less likely to be used as compared to sensitivity analysis.;Sensitivity analysis as it is generally employed is incomplete in that it fails to consider the probability of occurrence of the key input variables.;Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product?;Answer;A new product will generate new sales, but some of those new sales will be from customers who switch from one of the firm's current products.;A firm must obtain new equipment for the project, and $1 million is required for shipping and installing the new machinery.;A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected.;A firm can produce a new product, and the existence of that product will stimulate sales of some of the firm's other products.;A firm has a parcel of land that can be used for a new plant site or be sold, rented, or used for agricultural purposes.;2 points;F. Marston, Inc. has developed a forecasting model to estimate its AFN for the upcoming year. All else being equal, which of the following factors is most likely to lead to an increase of the additional funds needed (AFN)?;Answer;A switch to a just-in-time inventory system and outsourcing production.;The company reduces its dividend payout ratio.;The company switches its materials purchases to a supplier that sells on terms of 1/5, net 90, from a supplier whose terms are 3/15, net 35.;The company discovers that it has excess capacity in its fixed assets.;A sharp increase in its forecasted sales;A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?;Answer;The company increases its dividend payout ratio.;The company begins to pay employees monthly rather than weekly.;The company's profit margin increases.;The company decides to stop taking discounts on purchased materials.;The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.;Which of the following statements is CORRECT?;Answer;The first, and perhaps the most critical, step in forecasting financial requirements is to forecast future sales.;Forecasted financial statements, as discussed in the text, are used primarily as a part of the managerial compensation program, where management's historical performance is evaluated.;The capital intensity ratio gives us an idea of the physical condition of the firm's fixed assets.;The AFN equation produces more accurate forecasts than the forecasted financial statement method, especially if fixed assets are lumpy, economies of scale exist, or if excess capacity exists.;Perhaps the most important step when developing forecasted financial statements is to determine the breakdown of common equity between common stock and retained earnings.;The term "additional funds needed (AFN)" is generally defined as follows;Answer;Funds that a firm must raise externally from non-spontaneous sources, i.e., by borrowing or by selling new stock to support operations.;The amount of assets required per dollar of sales.;The amount of internally generated cash in a given year minus the amount of cash needed to acquire the new assets needed to support growth.;A forecasting approach in which the forecasted percentage of sales for each balance sheet account is held constant.;Funds that are obtained automatically from routine business transactions.;Which of the following statements is CORRECT?;Answer;Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets.;If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth.;Additional funds needed (AFN) are typically raised using a combination of notes payable, long-term debt, and common stock. Such funds are non-spontaneous in the sense that they require explicit financing decisions to obtain them.;If a firm has a positive free cash flow, then it must have either a zero or a negative AFN.;Since accounts payable and accrued liabilities must eventually be paid off, as these accounts increase, AFN as calculated by the AFN equation must also increase.;Spontaneous funds are generally defined as follows;Answer;A forecasting approach in which the forecasted percentage of sales for each item is held constant.;Funds that a firm must raise externally through short-term or long-term borrowing and/or by selling new common or preferred stock.;Funds that arise out of normal business operations from its suppliers, employees, and the government, and they include immediate increases in accounts payable, accrued wages, and accrued taxes.;The amount of cash raised in a given year minus the amount of cash needed to finance the additional capital expenditures and working capital needed to support the firm's growth.;Assets required per dollar of sales.;An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options?;Answer;Put;Naked;Covered;Out-of-the-money;In-the-money;Suppose you believe that Basso Inc.'s stock price is going to increase from its current level of $22.50 sometime during the next 5 months. For $3.10 you can buy a 5-month call option giving you the right to buy 1 share at a price of $25 per share. If you buy this option for $3.10 and Basso's stock price actually rises to $45, what would your pre-tax net profit be?;Answer;-$3.10;$16.90;$17.75;$22.50;$25.60;An option that gives the holder the right to sell a stock at a specified price at some future time is;Answer;a put option.;an out-of-the-money option.;a naked option.;a covered option.;a call option.;Other things held constant, the value of an option depends on the stock's price, the risk-free rate, and the;Answer;Variability of the stock price.;Option's time to maturity.;Strike price.;All of the above.;None of the above.;Which of the following statements is CORRECT?;Answer;Call options generally sell at a price greater than their exercise value, and the greater the exercise value, the higher the premium on the option is likely to be.;Call options generally sell at a price below their exercise value, and the greater the exercise value, the lower the premium on the option is likely to be.;Call options generally sell at a price below their exercise value, and the lower the exercise value, the lower the premium on the option is likely to be.;Because of the put-call parity relationship, under equilibrium conditions a put option on a stock must sell at exactly the same price as a call option on the stock.;If the underlying stock does not pay a dividend, it does not make good economic sense to exercise a call option prior to its expiration date, even if this would yield an immediate profit;Which of the following statements is CORRECT? Assume a company's target capital structure is 50% debt and 50% common equity.;Answer;The WACC is calculated on a before-tax basis.;The WACC exceeds the cost of equity.;The cost of equity is always equal to or greater than the cost of debt.;The cost of reinvested earnings typically exceeds the cost of new common stock.;The interest rate used to calculate the WACC is the average after-tax cost of all the company's outstanding debt as shown on its balance sheet.;To help them estimate the company's cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = $1.45, P0 = $22.50, and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings?;Answer;11.10%;11.68%;12.30%;12.94%;13.59%;Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?;Answer;Accounts payable.;Common stock ?raised? by reinvesting earnings.;Common stock raised by new issues.;Preferred stock.;Long-term debt.;As a consultant to Basso Inc., you have been provided with the following data: D1 = $0.67, P0 = $27.50, and g = 8.00% (constant). What is the cost of common from reinvested earnings based on the DCF approach?;Answer;9.42%;9.91%;10.44%;10.96%;11.51%;Adams Inc. has the following data: rRF = 5.00%, RPM = 6.00%, and b = 1.05. What is the firm's cost of common from reinvested earnings based on the CAPM?;Answer;11.30%;11.64%;11.99%;12.35%;12.72%;Burnham Brothers Inc. has no retained earnings since it has always paid out all of its earnings as dividends. This same situation is expected to persist in the future. The company uses the CAPM to calculate its cost of equity, and its target capital structure consists of common stock, preferred stock, and debt. Which of the following events would REDUCE its WACC?;Answer;The flotation costs associated with issuing new common stock increase.;The company's beta increases.;Expected inflation increases.;The flotation costs associated with issuing preferred stock increase.;The market risk premium declines.;Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?;Answer;A project's NPV increases as the WACC declines.;A project's MIRR is unaffected by changes in the WACC.;A project's regular payback increases as the WACC declines.;A project's discounted payback increases as the WACC declines.;A project's IRR increases as the WACC declines.;Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.;Answer;A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting the TV to find the IRR.;If a project's IRR is smaller than the WACC, then its NPV will be positive.;A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.;If a project's IRR is positive, then its NPV must also be positive.;A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV), then discounting the TV at the WACC;Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?;Answer;Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project, a portion of her salary for that year should be charged to the project's initial cost.;The company has spent and expensed $1 million on R&D associated with the new project.;The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project.;The firm would borrow all the money used to finance the new project, and the interest on this debt would be $1.5 million per year.;The new project is expected to reduce sales of one of the company's existing products by 5;Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses?;Answer;Differential project risk cannot be accounted for by using "risk-adjusted discount rates" because it is highly subjective and difficult to justify. It is better to not risk adjust at all.;Other things held constant, if returns on a project are thought to be positively correlated with the returns on other firms in the economy, then the project's NPV will be found using a lower discount rate than would be appropriate if the project's returns were negatively correlated.;Monte Carlo simulation uses a computer to generate random sets of inputs, those inputs are then used to determine a trial NPV, and a number of trial NPVs are averaged to find the project's expected NPV. Sensitivity and scenario analyses, on the other hand, require much more information regarding the input variables, including probability distributions and correlations among those variables. This makes it easier to implement a simulation analysis than a scenario or a sensitivity analysis, hence simulation is the most frequently used procedure.;DCF techniques were originally developed to value passive investments (stocks and bonds). However, capital budgeting projects are not passive investments?managers can often take positive actions after the investment has been made that alter the cash flow stream. Opportunities for such actions are called real options. Real options are valuable, but this value is not captured by conventional NPV analysis. Therefore, a project's real options must be considered separately.;The firm's corporate, or overall, WACC is used to discount all project cash flows to find the projects' NPVs. Then, depending on how risky different projects are judged to be, the calculated NPVs are scaled up or down to adjust for differential risk.;Which of the following statements is CORRECT?;Answer;A sunk cost is any cost that was expended in the past but can be recovered if the firm decides not to go forward with the project.;A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project.;Sunk costs were formerly hard to deal with but now that the NPV method is widely used, it is possible to simply include sunk costs in the cash flows and then calculate the PV of the project.;A good example of a sunk cost is a situation where Home Depot opens a new store, and that leads to a decline in sales of one of the firm's existing stores.;A sunk cost is any cost that must be expended in order to complete a project and bring it into operation.;Puckett Inc. risk-adjusts its WACC to account for project risk. It uses a WACC of 8% for below-average risk projects, 10% for average-risk projects, and 12% for above-average risk projects. Which of the following independent projects should Puckett accept, assuming that the company uses the NPV method when choosing projects?;Answer;Project B, which has below-average risk and an IRR = 8.5%.;Project C, which has above-average risk and an IRR = 11%.;Without information about the projects' NPVs we cannot determine which project(s) should be accepted.;All of these projects should be accepted.;Project A, which has average risk and an IRR = 9%;A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase?;Answer;The company increases its dividend payout ratio.;The company begins to pay employees monthly rather than weekly.;The company's profit margin increases.;The company decides to stop taking discounts on purchased materials.;The company previously thought its fixed assets were being operated at full capacity, but now it learns that it actually has excess capacity.;Which of the following statements is CORRECT?;Answer;Suppose a firm is operating its fixed assets at below 100% of capacity, but it has no excess current assets. Based on the AFN equation, its AFN will be larger than if it had been operating with excess capacity in both fixed and current assets.;If a firm retains all of its earnings, then it cannot require any additional funds to support sales growth.;Additional funds

 

Paper#30719 | Written in 18-Jul-2015

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