Multiple Choice (3 points×20 = 60 points):
1. Which of the following is not considered one of the basic questions of corporate finance?
A) What long-lived assets should the firm invest?
B) How much inventory should the firm hold?
C) How can the firm raise cash for required capital expenditures?
D) How should the short-term operating cash flows be managed?
E) All of the above.
Answer: B Difficulty: Medium Page: 4
2. Generally accepted accounting principles may recognize and record a sale
A) before a customer pays assuming they will pay soon.
B) only after the company receives payment in full.
C) when the company receives at least 50% of the total revenue from the customer.
D) All of the above.
E) None of the above.
Answer: A Difficulty: Medium Page: 7
3. Working capital management includes decisions concerning which of the following?
I. accounts payable
II. accounts receivable
III. long-term debt
IV. inventory
A. I and II only
B. I and III only
C. II and IV only
D. I, II, and IV only
E. I, III, and IV only
Answer:D
4. Fixed assets can be either tangible or intangible. Intangible assets
A) are property, plant and equipment.
B) can be converted to cash in the normal course of business.
C) may be very valuable, although they have no physical presence, such as trademarks or patents.
D) are highly liquid.
E) None of the above.
Answer: C Difficulty: Medium Page: 22
5. In 2004, TimeNow Corporation had fixed assets of $1,345, current assets of $260, current liabilities of $180 and shareholders' equity of $775. What was the net working capital for TimeNow in 2004?
A) $ 80
B) $180
C) $260
D) $390
E) None of the above.
Answer: A Difficulty: Medium Page: 26
Rationale:
$260 - $180 = $80
6. What is the effect on net working capital if the corporation decides to increase its investment in inventory and pay for it with cash?
A) Increase in net working capital.
B) Decrease in net working capital.
C) Depends on the amount of the investment.
D) No change in net working capital.
E) None of the above.
Answer: D Difficulty: Medium Page: 26-27
7. If you have a choice to earn simple interest on $10,000 for three years at 8% or annually compound interest at 7.5% for three years which one will pay more and by how much?
A) Simple interest by $50.00
B) Compound interest by $22.97
C) Compound interest by $150.75
D) Compound interest by $150.00
E) None of the above.
Answer: B Difficulty: Medium Page: 64
Rationale:
Simple Interest = $10,000 (.08)(3) = $2,400;
Compound Interest = $10,000((1.075)3 1) = $2,422.97;
Difference = $2,422.97 - $2,400 = $22.97
8. What is the relationship between present value and future value interest factors?
A. The present value and future value factors are equal to each other.
B. The present value factor is the exponent of the future value factor.
C. The future value factor is the exponent of the present value factor.
D. The factors are reciprocals of each other.
E. There is no relationship between these two factors.
Answers: D
