Financial Management 2

Question 1

Serial bonds

Answer 1

are bond issues that mature in installments (i.e., on the same date each year over a period of years)

mature on varying dates allowing an investor to choose a maturity date. (best feature)

Question 2

Zero-coupon bonds

Answer 2

Increase in value each year as they approach maturity, providing the owner with the total payoff at maturity

Question 3

Term bonds

Answer 3

are bond issues that mature on a single date.

Question 4

features of just-in-time (JIT) systems are

Answer 4

1) Reduction of inventories, ideally to zero
2) Simplification of production activities
3) Sharing of sales forecasts with vendors
4) vendors inspect their own goods and guarantee that they are free of defects, thus eliminating the need for incoming inspection by the purchaser.

Higher stockout costs and lower carrying costs reduces total inventory costs

Question 5

The capital asset pricing model is calculated by

Answer 5

using the risk free interest rate, the stock’s beta coefficient, and the estimated return on the market to calculate the cost of equity

Question 6

Purchase of treasury stock

Answer 6

decreases the firm’s assets and stockholders’ equity.

Therefore it increases the firm’s financial leverage.

Question 7

In a capital lease transaction

Answer 7

the lessee is using the lease as a financing source and the lessor is financing the transaction (providing the investment capital) through the leased asset.

Question 8

in a lockbox system

Answer 8

payments are sent directly to the company’s financial institution.

Therefore, collection float is minimized.

Question 9

what is the most expensive form of financing

Answer 9

Common stock

floatation costs new common stock is more expensive than retained earnings.

Question 10

materials requirements planning

Answer 10

is a computerized system that plans manufacturing based on demand estimates.