All of the following were mentioned in the text as means by which the manager of a firm may decrease the his or her personal exposure to the firm’s risk (on a self-serving basis) EXCEPT: a. excessive corporate diversification b. bias toward investments with near-term payoffs c. securing his or her lifetime compensation with a […]
________ involve(s) a cash flow that never occurs, but we need to add it as a cost or outflow of a new project. A) Cost recovery of divested assets B) Capital expenditures C) Sunk costs D) Opportunity costs ANSWER Answer: D
________ cash flow is the increase in cash generated by a new project above the current cash flow without the new project. A) Future B) Current C) Discounted D) Incremental ANSWER Answer: D
________ of a project are those that have already been incurred and cannot be reversed. A) Erosion costs B) Opportunity costs C) Sunk costs D) Working capital costs ANSWER Answer: C
Business risk is the risk to the firm of being unable to cover required financial obligations. Indicate whether the statement is true or false ANSWER FALSE
A firm can spend its reported profits. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: A firm can only spend cash. Profits are an accounting measure of performance during a specific period of time.
The revenue is $24,000, the cost of goods sold is $12,000, other expenses (from selling and administration) are $6,000, and depreciation is $2,000. What is the EBIT? A) $12,000 B) $6,000 C) $4,000 D) $2,000 ANSWER Answer: C Explanation: C) EBIT = Revenue – Cost of Goods Sold – Other Expenses – Depreciation […]
To get the operating cash flow, given the net income, we add back ________. A) cost of goods sold B) depreciation C) taxes D) EBIT ANSWER Answer: B
A trust receipt inventory loan is an arrangement in which the lender receives control of the pledged inventory collateral, which is stored by a designated agent. Indicate whether the statement is true or false ANSWER FALSE
Consider the case of a business that has had a very profitable year and earned a million dollars in profits. Can it distribute a million dollars to its owners (via dividends)? A) Yes, definitely B) Maybe, maybe not C) Definitely not D) It can certainly distribute over a million dollars. ANSWER Answer: B […]
