Question 13

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Consider the following data from a company's 95-day operating cycle:

• Payable days: 8
• Receivable days: 25
• Inventory days: 70

What is the cash conversion cycle for this company?

• 87
• 47
• 53
• 103

Question 14

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Venture capital bridge financing is appropriate for a company in what stage of development?

• Introduction
• Decline
• Maturity
• Growth

Question 15

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What is the benefit to a company from a securities underwriter?

• They help companies to reduce the risk associated with an IPO.
• They help companies to receive a premium on the sale of their securities.
• They study the market and advise companies on where to set their IPO share price.
• They generate demand for a company's securities by giving them a strong credit rating.

Question 16

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Which of the following describes derivatives, rather than debt securities or equity securities?

• They are the least risky of the three.
• They are often used to offset external risks like changes in commodity pricing.
• They are considered a liquid investment.
• They are a fixed-term security.

Question 17

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When performing capital budgeting and considering replacement projects, one factor that must be considered is the potential __________ of equipment that is no longer needed.

• depreciation
• taxation
• sunk costs
• salvage value

Question 18

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Millie owns stock in an energy company. She has noticed that the market value of her stock does not seem to fall when the company issues no dividends.

The market's response to the company supports the idea of __________.

• information asymmetry
• reinvestment bias
• the dividend effect
• dividend irrelevance

Question 19

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What is one disadvantage of NPV as a capital budget method?

• It is rarely used, so there is disagreement as to what an adequate NPV is.
• It cannot be used to compare investments with different upfront costs.
• It can be misleading if inputs like cash flow turn out to be wrong.
• It does not deliver an overall picture of the gain or loss of implementing a project.

Question 20

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A construction company is preparing a capital budget and considering four long-term investments. The profitability index of each project is as follows:

• Project A: 0.34
• Project B: 1.12
• Project C: 1.26
• Project D: 0.93

In theory, which two projects should the company pursue?

• Projects B and C
• ProjectsA and D
• ProjectsA and C
• ProjectsB and D

Question 21

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Which of the following investors would likely prefer a cash dividend over a stock dividend?

• Enrique subscribes to the "bird in the hand" theory when it comes to dividends.
• Layton prefers when companies let him decide how to benefit from his dividends.
• Harriett is more focused on long-term outcomes than short-term ones when it comes to investing.
• Kylie is a high-income earner and prefers to avoid additional taxes this year.

Question 22

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Which of the following is a goal of working capital management?

• To eliminate the risk of customers defaulting on credit
• To make long-term capital investment decisions
• To minimize liquidity and maximize profitability
• To balance the cash conversion cycle against maximum revenue

Question 23

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Which of the following is true of venture capital?

• One way venture capitalists evaluate potential investments is by analyzing a company's share price.
• Venture capitalists reserve the right to sell their portion of company shares before an IPO.
• On average, venture capital investors seek a return on their investment in about five years.
• Venture capital is comparable to a bank loan, which must be repaid over time.