Questions from Financial Management

Q: Does its management typically have complete control over a firm’s credit policy

Does its management typically have complete control over a firm’s credit policy? As a general rule, is it more likely that a company would increase its profitability if it tightened or loosened its cr...

Q: Suppose a company’s current credit terms are 1/10, net

Suppose a company’s current credit terms are 1/10, net 30, but management is considering changing its terms to 2/10, net 40, relaxing its credit standards, and putting less pressure on slow-paying cus...

Q: Suppose a firm makes a purchase and receives the shipment on February

Suppose a firm makes a purchase and receives the shipment on February 1. The terms of trade as stated on the invoice read “2/10, net 40, May 1 dating.” What is the latest date on which payment can be...

Q: Is it true that if a firm calculates its days sales outstanding

Is it true that if a firm calculates its days sales outstanding, it has no need for an aging schedule? Explain your answer.

Q: Firm A had no credit losses last year, but 1%

Firm A had no credit losses last year, but 1% of Firm B’s accounts receivable proved to be uncollectible and resulted in losses. Can you determine which firms credit manager is performing better? Why...

Q: An unlevered firm has a value of $800 million. An

An unlevered firm has a value of $800 million. An otherwise identical but levered firm has $60 million in debt at a 5% interest rate. Its cost of debt is 5% and its unlevered cost of equity is 11%. No...

Q: Should options given as part of compensation packages be reported on the

Should options given as part of compensation packages be reported on the income statement as an expense? What are some pros and cons relating to this issue?

Q: The rationale behind granting stock options is to induce employees to

The rationale behind granting stock options is to induce employees to work harder and be more productive. As the stock price increases (presumably due to their hard work), the employees share in this...

Q: Suppose a company has a DSO that is considerably higher than its

Suppose a company has a DSO that is considerably higher than its industry average. If the company could reduce its accounts receivable to the point where its DSO was equal to the industry average with...

Q: How do managers, bankers, and security analysts’ use:

How do managers, bankers, and security analysts’ use: (a) trend analysis, (b) benchmarking, (c) percent change analysis, and (d) common size analysis?