A Firm's Operating Cycle Can Be Determined By

question 44

Multiple Choice

A firm's operating cycle can be determined by:

• A)Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.
• B)Adding the average days in inventory to the average days in receivables.
• C)Dividing cost-of-goods-sold by average inventory.
• D)Dividing 365 days by the difference in the inventory turnover and the receivable turnover.

Comprehend M&M propositions and their implications on corporate finance, including the effects of capital structure on firm value.

Understand the concept of capital structure and the relevance of debt-equity ratios.

Recognize the impact of financial leverage on firm value and bankruptcy risk.

Identify the costs associated with bankruptcy and financial distress.

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Definitions:

Economic Growth

An increase in the production of goods and services in an economy over a period of time, reflecting an improvement in the standard of living.

General Obligation Bond

A municipal bond backed by the full faith and credit of the issuing authority, with repayment guaranteed by the authority's ability to tax.

Revenue Bond

A type of municipal bond supported by the revenue from a specific project, like a toll road or public utility, rather than from tax revenue.

Secured Bond

A type of bond backed by the issuer's assets, providing a safeguard to bondholders by promising specific collateral in case of default.