Question :
21. Charm City Electric a regulated monopoly providing electric services in : 1230314
21. Charm City Electric is a regulated monopoly providing electric services in a large city. Property, plant, and equipment dominate the asset side of the balance sheet. Which of the following is true?
A. It relies more on long-term debt than shareholders’ equity to finance these facilities.
B. It may a debt-equity ratio of 100% or more.
C. The regulated monopoly status practically eliminates the risk of default or bankruptcy, so Charm City Electric faces a relatively low borrowing cost.
D. Charm City Electric’s production and transmission facilities can serve as collateral for the long-term.
E. all of the above
22. Divine Paper, a United States-based company, processes wood pulp into paper products in fixed-asset intensive facilities. It has a large ratio of property, plant, and equipment to total assets and a high debt-equity ratios. Which of the following is/are true?
A. Divine Paper carries a higher levels of risk than an electrical utility.
B. Divine Paper does not have the regulated, monopoly status of an electrical utility..
C. Sales of Divine Paper are more sensitive to changes in the level of business activity than those of an electric utility.
D. The higher risk of Divine Paper, relative to an electric utility, raises its borrowing costs and decreases its reliance on debt financing.
E. all of the above
23. Excellent Paper, a United States-based company, processes wood pulp into paper products in fixed-asset intensive facilities. It has a large ratio of property, plant, and equipment to total assets and a high debt-equity ratios. Which of the following is/are not true?
A. Excellent Paper carries a higher levels of risk than an electrical utility.
B. Excellent Paper does not have the regulated, monopoly status of an electrical utility..
C. Sales of Excellent Paper are more sensitive to changes in the level of business activity than those of an electric utility.
D. The higher risk of Excellent Paper, relative to an electric utility, raises its borrowing costs and decreases its reliance on debt financing.
E. Excellent Paper, relative to an electric utility, has more assets to serve as collateral for borrowing.
24. First Communications Group is a communication services firm whose employees provide advertising, market research, public relations, and other services worldwide. Other than relatively small amounts of equipment, it owns virtually no property, plant, and equipment (it leases most of its office space). Which of the following is true?
A. First Communications Group has a low fixed asset intensity.
B. First Communications Group has a low debt-equity ratio.
C. First Communications Group creates value from employees’ services, not from operating assets, so there is neither the need nor the ability to borrow long-term using property, plant, and equipment as collateral.
D. all of the above are true
E. none of the above
25. General Semiconductor is a European-based designer and manufacturer of semiconductors. It manufactures semiconductors in fixed-asset intensive plants. The moderate fraction of its total assets that are property, plant, and equipment results from depreciating its technology-intensive manufacturing facilities over periods as short as four years. Which of the following is/are true?
A. General Semiconductor has small long-term debt and debt-equity ratios.
B. General Semiconductor incurs substantial technology risk from product obsolescence, with product life cycles of less than two years.
C. Heavy reliance on debt financing would add financing risk and thereby increase borrowing costs even more.
D. all of the above are true
E. none of the above
26. Firms that need cash for long-term purposes, such as acquiring buildings and equipment or financing a business acquisition, and that wish to use debt as a means of obtaining cash, will
A. borrow from commercial banks
B. borrow from insurance companies
C. borrow from financial institutions
D. issue bonds in the capital markets
E. all of the above
27. Firms that need cash for long-term purposes, such as acquiring buildings and equipment or financing a business acquisition, and that wish to use debt as a means of obtaining cash, will
A. issue common stock in the capital markets
B. issue preferred stock in the capital markets
C. issue paid-in-capital in the capital markets
D. issue bonds in the capital markets
E. all of the above
28. Loans from commercial banks and other financial institutions often require firms to pledge assets as _____.
A. “senior” tranches
B. derivatives
C. collateral
D. “junior” tranches
E. principal payments
29. Which of the following is/are true?
A. Common terminology refers to the financial contract underlying bank loans as a note.
B. Financial contracts underlying bank loans usually appear on the balance sheet under the title Notes Payable.
C. Notes of business firms generally have maturity dates less than approximately ten years.
D. No public market for Notes Payable exists, so the borrower will have difficulty disengaging from the borrowing arrangement prior to maturity.
E. all of the above
30. Which of the following is/are not true?
A. Common terminology refers to the financial contract underlying bank loans as a note.
B. Financial contracts underlying bank loans usually appear on the balance sheet under the title Notes Payable.
C. Notes of business firms generally have maturity dates less than approximately ten years.
D. A public market for Notes Payable exists, so the borrower will be able to disengage from the borrowing arrangement prior to maturity.
E. all of the above
