1) A direct quote of $1.9887 dollars to buy one U.K. pound corresponds to an indirect
quote of .9887 pounds per one dollar.
2) Because the MIRR assumes reinvestment at the cost of capital while IRR assumes
reinvestment at the project’s IRR, the MIRR will always be less than the IRR.
3) Common-sized balance sheets show each account as a percentage of total sales to
help analysts in comparing companies of difference sizes.
4) The initial outlay of a project may be reduced by the after-tax salvage value of
replaced equipment.
5) In response to the banking crisis and economic collapse of 2007 and 2008, the U.S.
government moved to increase interest rates in order to attract foreign capital seeking
high returns in U.S. banks.
6) Effective cash management involves the tradeoff between the risk of insolvency
(resulting in higher near cash balances) and the desire to earn higher returns (resulting
in lower near cash balances).
7) The most relevant measure of risk for capital budgeting is project standing alone risk.
8) Achieving a lower inventory balance through working capital management can result
in savings from both carrying costs and losses associated with obsolete inventory.
9) In general, a project’s free cash flows will fall in one of the following three
categories: initial outlay, differential cash flows over the project’s life, and the terminal
cash flow.
10) Business risk refers to the relative dispersion of a firm’s earnings before interest and
taxes.
11) The asked rate is also known as the selling rate or the offer rate.
12) A stock repurchase plan that involves issuing long-term debt to fund the purchase of
the company’s stock may be used as a way to alter a corporation’s capital structure.
13) Discretionary financing needed is equal to projected total assets minus projected
total liabilities.
14) Proceeds from the issuance of new debt and principal payments upon maturity of
debt used to finance a project should be included in the calculation of the project’s
after-tax cash flows.
15) Managers should not be concerned with business ethics because ethical behavior is
inconsistent with the primary goal of maximizing shareholder value.
16) Due to the dominance of Chinese companies in international trade, the Chinese
yuan is the most frequently traded currency.
17) The benefits of diversification occur as long as the investments in a portfolio are not
perfectly positively correlated.