4. Which of the following statements is CORRECT? (C - 3)
a. If a firm increases its sales while holding its accounts receivable constant, then, other things held
constant, its days' sales outstanding will decline.
b. If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry
average and was also increasing and trending still higher, this would be interpreted as a sign of
strength.
c. If a firm increases its sales while holding its accounts receivable constant, then, other things held
constant, its days' sales outstanding (DSO) will increase.
d. There is no relationship between the days' sales outstanding (DSO) and the average collection period
(ACP). These ratios measure entirely different things.
e. A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an
increase in the quick ratio.
5. The YTMs of three $1,000 face value bonds that mature in 10 years and have the same level of risk are
equal. Bond A has an 8% annual coupon, Bond B has a 10% annual coupon, and Bond C has a 12% annual
coupon. Bond B sells at par. Assuming interest rates remain constant for the next 10 years, which of the
statements is CORRECT? (C - 5)
a. Since the bonds have the same YTM, they should all have the same price, and since interest rates
