6. In partnerships, a partner can readily transfer his/her wealth to other partners. True??

7. The board of directors is responsible for managing day to day operations and carrying out the policies established by the chief e!ecuti"e officer. FALSE

#hapter $

%. &ince indi"iduals are always confronted with opportunities to earn positi"e rates of return on their funds, the timing of cash flows does not ha"e any significant economic conse'uences. FALSE

(. Time "alue of money is based on the belief that a dollar that will be recei"ed at some future date is worth more than a dollar today. FALSE

)*. +uture "alue is the "alue of a future amount at the present time, found by applying compound interest o"er a specified period of time. True??

)). Interest earned on a gi"en deposit that has become part of the principal at the end of a specified period is called compound interest. TRUE

),. The future "alue interest factor is the future "alue of -) per period compounded at i percent for n periods. FALSE

).. +or a gi"en interest rate, the future "alue of -)** increases with the passage of time. Thus, the longer the period of time, the greater the future "alue. TRUE

)$. The greater the potential return on an in"estment and the longer the period of time, the higher the present "alue. +alse???

#hapter /

)/.

+or the ris01see0ing manager, no change in return would be re'uired for an

increase in ris0. FALSE

)6. +or the ris01a"erse manager, the re'uired return decreases for an increase in ris0. FALSE

)7. +or the ris01indifferent manager, no change in return would be re'uired for an increase in ris0. TRUE

)%. 2ost managers are ris0 a"erse, since for a gi"en increase in ris0 they re'uire an increase in return. TRUE

)(. The return on an asset is the change in its "alue plus any cash distribution o"er a gi"en period of time, e!pressed as a percentage of its ending "alue. TRUE

,*. +or the ris01a"erse manager, the re'uired return decreases for an increase in ris0. FALSE

,). 3n in"estment that guarantees its holder -)** return and another in"estment that earns -* or -,** with e'ual chances 4i.e., an a"erage of -)**5 o"er the same period ha"e e'ual ris0. +alse???

#hapter 6

,,. 6eal rate of interest is the actual rate of interest charged by the suppliers of funds and paid by the demanders. FALSE

,.. The longer the maturity of a Treasury 4or any other5 security, the smaller the interest rate ris0. FALSE

,$. 3 downward sloping yield cur"e indicates generally cheaper short term borrowing costs than long term borrowing costs. FALSE

,/. The nominal rate of interest is the rate that creates e'uilibrium between the supply of sa"ings and the demand for in"estment funds in a perfect world, without inflation, where funds suppliers and demanders ha"e no li'uidity preference and all outcomes are

certain.

,6. 3n in"erted yield cur"e is an upward1sloping yield cur"e that indicates generally cheaper short1term borrowing costs than long1term borrowing costs. FALSE

,7. 3lthough Treasury securities ha"e no ris0 of default or illi'uidity, they do suffer from 7maturity ris089the ris0 that interest rates will change in the future and thereby impact longer maturities more than shorter maturities. TRUE

,%. :i'uidity preference theory suggests that for any gi"en issuer, long term interest rates tend to be higher than short term rates due to the lower li'uidity and higher responsi"eness to general interest rate mo"ements of longer term securities; causes the yield cur"e to be upward sloping. TRUE

#hapter 7

,(. <olders of e'uity ha"e claims on both income and assets that are secondary to the claims of creditors. TRUE

.*. The ta! deductibility of interest lowers the cost of debt financing, thereby causing the cost of debt financing to be lower than the cost of e'uity financing. TRUE

.). =referred stoc0 is a special form of stoc0 ha"ing a fi!ed periodic di"idend that must be paid prior to payment of any interest to outstanding bonds. FALSE

.,. #umulati"e preferred stoc0s are preferred stoc0s for which all passed 4unpaid5 di"idends in arrears must be paid in additional shares of preferred stoc0 prior to the payment of di"idends to common stoc0holders. +alse???

... =referred stoc0 is often considered a 'uasi debt since it yields a fi!ed periodic payment. TRUE

.$. The amount of the claim of preferred stoc0holders in li'uidation is normally e'ual to the mar0et "alue of the preferred stoc0. +alse???

./. #umulati"e preferred stoc0s are preferred stoc0s for which all passed 4unpaid5 di"idends in arrears must be paid along with the current di"idend prior to the payment of

di"idends to common stoc0holders. +alse???

#hapter )* .6. The brea0e"en cash inflow is the minimum le"el of cash inflow necessary for a pro>ect to be acceptable. TRUE

.7. =ro>ects with a small chance of being acceptable and a broad range of e!pected cash flows are more ris0y than pro>ects ha"ing a high chance of being acceptable and a narrow range of e!pected cash flows. TRUE

.%. In capital budgeting, ris0 refers to the chance that a pro>ect has a high degree of "ariability of the initial in"estment. FALSE

.(. &ensiti"ity analysis is a beha"ioral approach that uses a number of possible "alues for a gi"en "ariable to assess its impact on a firm?s return. TRUE

$*. &ensiti"ity analysis is a statistically based approach used in capital budgeting to get a feel for ris0 by applying predetermined probability distributions and random numbers to estimate ris0y outcomes. FALSE

$). &cenario analysis is an approach that uses a number of possible "alues for a gi"en "ariable in order to assess its impact on a firm?s return. FALSE

$,. &imulation is an approach that e"aluates the impact on return of simultaneous changes in a number of "ariables. FALSE

#hapter ),

$..

@enerally, increases in le"erage result in increased return and ris0. TRUE

$$. Area0e"en analysis is used by the firm to determine the le"el of operations necessary to co"er all fi!ed operating costs and to e"aluate the profitability associated with "arious le"els of sales. FALSE

$/.

The firm?s operating brea0e"en point is the le"el of sales necessary to co"er all

fi!ed operating costs. FALSE #hapter )$

/*.

3 firm that is unable to pay its bills as they come due is technically insol"ent. TRUE

/). The short1term financial management is concerned with management of the firm?s current assets and current liabilities. TRUE

/,. In the short1term financial management, the goal is to manage each of the firm?s current assets and current liabilities in order to achie"e a balance between profitability and ris0 that contributes to the firm?s "alue. TRUE

/.. Bor0ing capital represents the portion of the firm?s in"estment that circulates from one form to another in the long1term conduct of business. FALSE

/$. In general, the more a firm?s current assets co"er its short1term obligations, the better able it will be to pay its bills as they come due. TRUE

//. The more predictable its cash inflows, the more net wor0ing capital a firm needs. FALSE

/6. 3s the ratio of current assets to total assets increases, the firm?s ris0 increases. FALSE

#hapter )/

/7. 3ccounts payable are spontaneous secured sources of short1term financing that arise from the normal operations of the firm. FALSE

/%. Cotes payable can be either spontaneous secured or spontaneous unsecured financing and result from the normal operations of the firm. FALSE

/(. 3ccounts payable result from transactions in which merchandise is purchased but no formal note is signed to show the purchaser?s liability to the seller. TRUE

6*. In credit terms, DE2 4Dnd1of12onth5 indicates that the accounts payable must be paid by the end of the month in which the merchandise has been purchased. FALSE

6). 3ccruals are liabilities for ser"ices recei"ed for which payment has yet to be made. TRUE

6,. The cost of gi"ing up a cash discount is the implied rate of interest paid in order to delay payment of an account payable for an additional number of days. TRUE

6.. In gi"ing up a cash discount, the amount of the discount that is gi"en up is the interest being paid by the firm to 0eep its money by delaying payment for a number of days. TRUE

#hapter )%

6$. C3+T3 is a treaty establishing free trade and open mar0ets between Durope and the Fnited &tates. FALSE

6/. The Borld Trade ErganiGation is a new international body established to police world trading practices and to mediate disputes between member countries. TRUE

66. Effshore #enters are cities or states that ha"e achie"ed prominence as ma>or centers for Duromar0et business. TRUE

67. C3+T3 is an international financial mar0et that pro"ides for borrowing and lending currencies outside their country of origin. FALSE

6%. +luctuations in foreign e!change mar0ets can affect foreign re"enues and profits of a multinational company, but they ha"e no impact on its o"erall "alue. FALSE

6(. The Duromar0et is the international financial mar0et that pro"ides for borrowing and lending currencies outside their country of origin. TRUE

7*. The e!istence of specific regulations and controls on dollar deposits in the Fnited &tates, including interest rate ceiling imposed by the go"ernment, ha"e contributed to the growth of the Duromar0et. TRUE