Reference no: EM133379683

Question 1

A commitment fee is required by a commercial bank on:

a. line of credit.

b. revolving credit agreement.

c. single payment note.

d. a and b.

e. All of the above

Question 2.

Only _____cash flows count in relation to a project under consideration.

a. marginal

b. subsidiary

c. fractional

d. incremental

Question 3.

Although NPV is the best capital budgeting technique, most executives prefer to use:

a. profitability index because they are familiar with ratios.

b. NPV adjusted for inflation because it overcomes the difficulties they have with the method.

c. payback because the calculations are easy.

d. IRR because people are more comfortable with rates of return than with the somewhat abstract notion of a present valued dollar.

Question 4

A firm's credit policy:

a. represents an investing decision.

b. has no impact on a firm's ACP.

c. affects the level of a firm's bad debts.

d. a and c

e. All of the above

Question 7

The ____ makes risky projects less acceptable by simply lowering the cash flow estimates themselves.

a. pure play method

b. certainty equivalent approach

c. accounting beta method

d. overlay approach

Question 8

If a firm does not have debt, then ____.

a. the firm has no business risk

b. the firm's ROA is less than its ROE

c. the firm has no financial risk

d. the firm's ROE is higher than it had debt

Question 9

A firm's bad debts:

a. should be reduced by more aggressive collection procedures.

b. are normally positively related to a firm's ACP.

c. are normally unaffected by changes in a firm's cash discount.

d. a and b

e. All of the above

Question 10

A principal difference between a line of credit and a revolving credit agreement is that:

a. the borrower must pay a commitment fee on unborrowed money with a line of credit.

b. a revolver is a legally binding commitment from the bank to lend up to a stipulated amount.

c. the line of credit is an informal agreement but may not be canceled due to a decline in the borrower's financial health during the relatively short period of the agreement.

d. the bank can cancel a revolver at any time if it refunds the commitment fee.

Question 11

According to the incremental cash flow principle, a firm should:

a. include variable costs and fixed costs.

b. exclude variable costs and fixed costs in the project's cash flows.

c. include sunk costs in the project's cash flows.

d. include variable costs and exclude fixed costs in the project's cash flows.

e. exclude opportunity costs in the project's cash flows.

Question 12

A firm performs capital restructuring in order to ____.

a. increase its risk by increasing equity

b. get to an optimal capital structure

c. increase the return on equity by eliminating all debt

d. decrease its risk by adding more leverage