Reference no: EM131918628

1. Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision--estimates of its effect would really just be guesses. In this case, the externality should be ignored--i.e., not considered at all--because if it were considered it would make the analysis appear more precise than it really is.

a. True

b. False

2. A conservative financing approach to working capital will result in permanent current assets and some seasonal current assets being financed using long-term securities.

a. True

b. False

3. Which of the following statements is NOT CORRECT?

a. Commercial paper can be issued by virtually any firm so long as it is willing to pay the going interest rate.

b. The risk to a firm that borrows with short-term credit is usually greater than if it borrowed using long-term debt. This added risk stems from the greater variability of interest costs on short-term debt and possible difficulties with rolling over short-term debt.

c. A conservative approach to working capital management will result in most if not all permanent assets being financed with long-term capital.

d. Bank loans generally carry a higher interest rate than commercial paper.

e. Accruals are "free" in the sense that no explicit interest is paid on these funds.