D076- All Unit Tests Study Guide Questions And Correct Answers

Firm A has an average collection period of 67 days, and the industry norm is 40 days. What can the firm do in order to be competitive with accounts receivable management in the industry? {Ans: Tighten the credit standards for its customers.}You are considering a project that has a profitability index of 1. What does this mean? {Ans: The project has the internal rate of return equal to the cost of capital.}Why is it important to consider the time value of money in an ideal evaluation method for capital investment? {Ans: Because the value of a cash flow today is different from the value of a cash flow of the same dollar amount in 10 years}What is the rate at which a firm can grow without issuing new equity? {Ans: Sustainable growth rate}Suppose you are a manager at a firm. One of your financial analysts places a report on your desk of valuation calculations for some potential investment projects. When you look at the calculations later, you notice that the analyst did not indicate if she used the NPV or IRR method. However, you do notice that the results of the calculations are all percentages. What