40. Which of the following generally have maturities of one year or less?
a. Treasury bills
b. Money market mutual fund
c. Commercial paper
d. Both a and c
e. All of the above
Treasury bills are instruments issued by the government and last for 3 – 6 months. A Commercial paper is an instrument issued by reputable companies that usually lasts less than a year.
41. Which of the following is a category of inventory?
a. Raw materials
c. Finished goods
d. All of the above
42. Which of the following influences the amount of investment a firm will have tied up in accounts receivable?
a. Terms of sale
b. Volume of credit sales
c. Collection efforts
d. Credit-worthiness of customers
e. All of the above
Accounts receivables are the debtors of a firm.
43. Which of the following cash flows are not considered in the calculation of the initial outlay for a capital investment proposal?
a. Training expense
b. Working capital investments
c. Installation costs of an asset
d. Before-tax selling price of old machine
44. XYZ, Inc. is considering adding a product line that would utilize unused floor place of their manufacturing plant. The floor space would be considered a(n):
a. variable cost.
b. opportunity cost.
c. sunk cost.
d. irrelevant cash flow.
A sunk cost is an expense, on an item, place, machine etc, that has been incurred and no further benefits are expected.
45. What is the capital budgeting term that is used to refer to more than one investment alternative that performs the same function?
b. Capital rationed
c. Mutually exclusive
46. Which of the following best describes why cash flows are utilized rather than accounting profits when evaluating capital projects?
a. Cash flows have a greater present value than accounting profits.
b. Cash flows reflect the timing of benefits and costs more accurately than accounting profits.
c. Cash flows are more stable than accounting profits.
d. Cash flows improve the tax position of a firm more than accounting profits.
e. None of the above
47. The most expensive source of capital is:
a. preferred stock.
b. new common stock.
d. retained earnings.
48. A company has a capital structure that consists of 50% debt and 50% equity. Which of the following is true?
a. The weighted average cost of capital is less than the cost of equity financing.
b. The cost of equity financing is greater than the cost of debt financing.
c. The weighted average cost of capital is calculated on a before-tax basis.
d. Both a and b.
c. All of the above.
49. Typically, Delta, Inc. maintains $1 million in cash and marketable securities. The firm currently is expecting an economic recession and projects that its net cash flows from operations during the period will be $2.5 million. Delta expects annual interest and sinking fund payments will be $3 million during the period. If the recession occurs, Delta’s cash balance at the end of the period will be:
a. $6.5 million.
b. $1 million.
d. $3.5 million.
A sinking fund is a fund setup in order to liquidate a liability. The company already has $3.5million and has to make payments of $3million.
50. Which of the following is not a component of a firm’s capital structure?
a. Preferred stock
c. Common stock
d. Accounts payable
e. Retained earnings
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