Question

Leasing is advantageous for companies that need to upgrade their equipment regularly to reduce obsolescence risk.

Select one:

True

False

Wolf Inc. has estimated sales (in millions $) for the next 4 quarters as follows:

	Q1	Q2	Q3	Q4
Sales	210	180	244	280

Wolf’s purchases from suppliers in a quarter are equal to 50% of the next quarter’s forecast sales, and suppliers are normally paid after 90 days (one quarter is 90 days). Given this information the expected payment to suppliers in quarter one (Q1) is ______.

Select one:

a. $90 million   

b. $195 million

c. $105 million                   

d. $180 million                   

A potential profitable strategy when markets overreact to companies’ negative announcements is buying the stock and sell it later, when it reaches its fair value.

Select one:

True

False

Answer 1

Answer 1:- True

(Explanation - Leasing offers a variety of advantages which includes that it reduces obsolescence risk and the risk of reduction in asset value as leasing does not involve transfer of ownership. So, the companies that need to upgrade their equipment regularly prefer leasing over buying.)

Answer 2:- $90 Million

(Explanation :- If the suppliers are paid after 90 days then payment of the first quarter will be received by the suppliers in the second quarter.

For Quarter 1:-

Beginning Payable : 0

Accounts payable : 90 ( Quarter 2: 180 x 50%)

Payment to Account :0

Ending payable : 90

So, Expected payment to suppliers = $90 million )

Answer 3:- True

( Explanation:- If market overreacts to a negative news then it will lead the stock prices to lower levels and sometimes below their fair value too, so at that point buying the stock and selling it later can prove to be profitable as the stock will come back to its fair value in long-run.)