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1. Net working capital includes:

a. a land purchase.

b. fixed asset depreciation.

c. an invoice from a supplier.

d. the balance due on a 15-year mortgage.

c. an invoice from a supplier.

2. A firm’s liquidity level decreases when:

a. inventory is sold for cash.

b. inventory is sold on credit.

c. inventory is purchased with cash.

d. an account receivable is collected.

c. inventory is purchased with cash.

3. Financial leverage:

a. is inversely related to the level of debt.

b. increases as the net working capital increases.

c. increases the potential return to the stockholders.

d. is equal to the market value of a firm divided by the firm's book value.

c. increases the potential return to the stockholders.

4. Net income increases when:

a. revenue increases.

b. fixed costs increase.

c. depreciation increases.

d. the average tax rate increases.

a. revenue increases.

5. Which one of these is correct?

a. Interest paid is a noncash item.

b. Depreciation has no effect on taxes.

c. Taxable income must be a positive value.

d. Net income is distributed either to dividends or retained earnings.

d. Net income is distributed either to dividends or retained earnings.

6. The DuPont identity can be accurately defined as:

a. Profit margin × Return on equity.

b. Equity multiplier × Return on assets.

c. Total asset turnover × Profit margin × Debt-equity ratio.

d. Return on equity × Total asset turnover × Equity multiplier.

b. Equity multiplier × Return on assets.

a. DuPont rate

b. Internal growth rate

c. External growth rate

d. Sustainable growth rate

a. Balance sheet

b. Income statement

c. Common-size balance sheet

d. Common-size income statement

a. Increase in fixed costs

b. Increase in interest paid

c. Decrease in the tax rate

d. Increase in depreciation expense

a. Net income

b. Retention ratio

c. Return on assets

d. Dividend payout ratio

a. simplifying.

b. discounting.

c. aggregating.

d. compounding.

a. Increasing the interest rate

b. Shortening the investment time period

c. Paying interest only on the principal amount

d. Paying simple interest rather than compound interest

a. $26,397.74

b. $26,887.59

c. $27,520.22

d. $28,511.15

a. $53,003.15

b. $57,124.39

c. $58,419.05

d. $61,798.47

a. 11.17 years

b. 11.39 years

c. 11.89 years

d. 12.02 years

a. Consol

b. Annuity due

c. Ordinary annuity

d. Ordinary perpetuity

a. increase the time period.

b. increase the payment amount.

c. decrease the annuity payment.

d. increase the annuity's future value.

a. 6 percent compounded daily

b. 6 percent compounded annually

c. 6 percent compounded quarterly

d. 6 percent compounded semiannually

a. Amortized

b. Interest-only

c. Pure discount

d. Blended discount

a. Borrowers should prefer the loans offered by First Bank.

b. The First Bank loan has an effective rate of 7.98 percent.

c. The Second Bank loan has an effective rate of 8.01 percent.

d. The annual percentage rate for the Second Bank loans is 7.68 percent.

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