Why should corporations be allowed to generate profits?
A) So they can hire talented employees.
B) To help establish a legal framework for the country in which they operate.
C) So the government can generate more tax dollars.
D) Because the country's standard of living involves the goods and services created by profit-seeking companies.
E) Because stakeholders of the company demand a return on their investment in the organization.
Answer: D
Explanation: Much of what we consider when assessing a society's standard of living involves goods and services created by profit-seeking companies.
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The inventory management approach that attempts to minimize, if not eliminate, carrying and stockout costs is
A) materials requirements planning. B) economic order quantity. C) just-in-time inventory. D) evaluated receipt settlement.
MBG is best described as currently:
Barbara Andrade is an equity analyst who covers the entertainment industry for Greengable Capital Partners, a major global asset manager. Greengable owns a significant position with a large unrealized capital gain in Mosely Broadcast Group (MBG). On a recent conference call, MBG’s management states that they plan to increase the proportion of debt in the company’s capital structure. Andrade is concerned that any changes in MBG’s capital structure will negatively affect the value of Greengable’s investment. To evaluate the potential impact of such a capital structure change on Greengable’s investment, she gathers the information about MBG given in Exhibit A. EXHIBIT A Current Selected Financial Information for MBG Yield to maturity on debt 8.00% Market value of debt $100 million Number of shares of common stock 10 million Market price per share of common stock $30 Cost of capital if all equity-financed 10.3% Marginal tax rate 35% Andrade expects that an increase in MBG’s financial leverage will increase its costs of debt and equity. Based on an examination of similar companies in MBG’s industry, Andrade estimates MBG’s cost of debt and cost of equity at various debt-to-total capital ratios, as shown in Exhibit B. Chapter 5 Capital Structure 47 part-i-05 13 January 2012; 10:19:50 EXHIBIT B Estimates of MBG’s Before-Tax Costs of Debt and Equity Debt-to-Total Capital Ratio Cost of Debt Cost of Equity 20% 7.7% 12.5% 30% 8.4% 13.0% 40% 9.3% 14.0% 50% 10.4% 16.0% A. 25% debt financed and 75% equity financed. B. 33% debt financed and 66% equity financed. C. 75% debt financed and 25% equity financed.