1. The break-even model expresses the volume of output as a unit quantity.

True
2. According to the Duont Analysis! an increase in net profit margin "ill decrease
return on assets. False
#. A ne" issue of common stock is considered a primary market transaction in the
money market. False
$. %hen forecasting statements! assets al"ays increase proportionately to sales
regardless of capacity. False
& 'f "e invest money for 1( years at )* interest! compounded semi-annually! "e are
really investing money for 2( six-month periods! during "hich "e receive $* interest
each period. True
+. The same basic formula is used for computing both the computation of future value and of
present value. True
, The goal of the firm should be the maximi-ation of profit. False
). .oth the '// rule and the accounting rate of return rule take into consideration the time
value of money. False
0. The '// assumes that cash flo"s are reinvested at the cost of capital. False
1(. The largest cash receipts for a firm come from accounts payable. False
11. There are no disadvantages to the 1et resent 2alue method. False
12. 3orporate profits play a part in the choice firms make bet"een using internal versus
external capital. True
1#. .ecause the 2* discount is so small! terms of credit such as 241( net #( do not have much
affect on accounts receivable management. False
1$. The capital budgeting decision-making process involves measuring the
incremental cash flo"s of an investment proposal and evaluating the attractiveness of these
cash flo"s relative to the pro5ect6s cost. True
1&. ro5ects are said to be mutually exclusive "hen undertaking one prevents doing
the other7s8. True
1+. The "eighted average cost of capital is the minimum required return that must be earned on
additional investment if firm value is to remain unchanged. True
1,. An increase in financial leverage "ill increase earnings before income and taxes
79.'T8. False
1). 9conomies of scale are created "hen sharing of resources increases a firm6s productivity.
True
10. :eading and lagging are financial techniques used to eliminate risk. True
2(. ;inancial ratios comprise the principal tool of financial analysis since they can be
used to ans"er a variety of questions regarding a firm<s financial condition. True
1. %hich of the follo"ing statements about the percent-of-sales method of financial
forecasting is true=
a. 't is the least commonly used method of financial forecasting.
b. 't is a much more precise method of financial forecasting than a cash budget "ould be.
c. It involves estimating the level of an expense, asset, or liability for a future period
as a percent of the forecast for sales revenues.
d. 't pro5ects all liabilities as a fixed percentage of sales.
2. At )* compounded annually! ho" long "ill it take >,&( to double=
a. +.& years
b. $) months
c. 9 years
d. 12 years
#. %hich costs should be included "hen calculating the degree of operating leverage=
a. Depreciation
b. Administrative expenses
c. /eal estate taxes
d. Both b and c
e. All of the above
$. %hat is the payback period for a >2(!((( pro5ect that is expected to return >+!((( for the
first t"o years and >#!((( for ?ears # through &=
a. # 142
b. $ 142
c. 4 2!
d. &
&. An increase in @@@@@@@@@@@@@@@@@@@ "ould increase a firm6s liquidity.
a. notes payable
b. inventories
c. cash
d. both b and c
e. all of the above
+. A company is technically insolvent "henA
a. cash outflo"s in a given period are greater than cash inflo"s.
b. earnings before interest payments are less than the interest payments.
c. it lac"s the necessary li#uidity to promptly pay its current debt obligations.
d. the current ratio is less than 1.(.
,. Dieyard .attery /ecyclers is considering a pro5ect "ith the follo"ing cash flo"sA
'nitial outlay B >1#!(((
3ash flo"sA ?ear 1 B >&!(((
?ear 2 B >#!(((
?ear # B >0!(((
'f the appropriate discount rate is 1&*! compute the 12 of this pro5ect.
a. >$!(((
b. $%4&&
c. >2,!&#$
d. >)!)01
). 'n the basic model! the optimal inventory level is the point at "hichA
a. total cost is minimi'ed.
b. total revenue is maximi-ed.
c. carrying costs are minimi-ed.
d. ordering costs are minimi-ed.
0. %hich of the follo"ing techniques may not consider A:: cash flo"s of a pro5ect=
a. 1et present value
b. 'nternal rate of return
c. (aybac" period
d. Codified internal rate of return
1(. 3ost of capital isA
a. the coupon rate of debt.
b. a hurdle rate set by the board of directors.
c. the rate of return that must be earned on additional investment if firm value is to
remain unchanged.
d. the average cost of the firm6s assets.
11. 2erigreen :a"n 3are products 5ust paid a dividend of >1.)&. This dividend is expected to
gro" at a constant rate of #* per year! so the next expected dividend is >1.0(. The stock
price is currently >12.&(. 1e" stock can be sold at this price sub5ect to flotation costs of
1&*. The company6s marginal tax rate is $(*. 3ompute the cost of internal 7retained8
earnings and the cost of external equity 7ne" common stock8.
a. (! 1,.)*
b. 1&.2*! 1,.)*
c. )*.2+, 2,.9+
d. 1).2*! 1+.21*
12. The 'ndependence Dypothesis states that the use of a greater degree of leverage might
result in greaterA
a. earnings.
b. dividends.
c. firm cost of common equity.
d. both a E c.
e. all of the above.
1#. %hich of the follo"ing does not affect earnings per share 79F8 "hen a merger is
concluded=
a. The exchange ratio for the shares of the acquired firm
b. The relative total assete#uity ratios of the firms
c. The premium paid above market value for the acquired firm
d. The relative earnings gro"th rates of the firms
1$. 9limination of all foreign exchange riskA
a. should be the ob5ective of a prudent financial manager.
b. should be analy'ed on a cost benefit basis.
c. is possible through diversification.
d. both a and c.
e. all of the above.
1&. 3onsider cash flo"s for ro5ects G and ? such asA
ro5ect G ro5ect ?
?ear 1 >#((( > (
?ear 2 > ( >#(((
A rational person "ould prefer receiving cash flo"s sooner becauseA
a. the money can be reinvested.
a.the money is nice to have around.
b. the investor may be tired of a particular investment.
c.the investor is indifferent to either proposal.
1+. 3orporations receive money from investors "ithA
a.initial public offerings.
a.seasoned ne" issues.
b. primary market transactions.
c.a and b.
d. all of the above.
1,. The debt ratio is a measure of a firm6sA
a. leverage.
b. profitability.
c. liquidity.
d. efficiency.
1). 3apital market instruments includeA
a. negotiable certificates of deposit.
b. corporate equities.
c. preferred stock.
d. both b and c.
e. all of the above.
10. %hat is the most important ingredient in developing a firm6s financial plan=
a. - forecast of sales revenues
b. Determining the amount of dividends to pay shareholders
c. ro5ecting the rate of interest on proposed ne" debt
d. Deciding upon "hich method of depreciation a firm should utili-e
2(. %hich of the follo"ing best illustrates the hedging principle as it applies to the
management of "orking capital=
a. Don6t place all your eggs in one basket.
b. Temporary current assets of the firm should be financed .ith short$term sources
of funds.
c. ermanent current assets of the firm should be financed "ith short-term sources of
funds.
d. All current assets should be financed "ith short-term sources of funds.