1) If the sales growth rate is greater than zero, then the discretionary financing needed
will also be greater than zero.
2) The risk-return tradeoff leads to two objectives: (1) keep enough cash on hand to
make necessary payments, and (2) reduce investments in idle cash to a minimum.
3) Whenever the internal rate of return on a project equals that project’s required rate of
return, the net present value equals zero.
4) Bill saves $3,000 per year in his IRA starting at age 25 and continuing to age 65,
when he retires. The amount Bill has in his IRA at age 65 can be characterized as the
future value of an annuity.
5) Depreciation expense produces a cash inflow equal to the depreciation expense
multiplied by the firm’s marginal tax rate.
6) If the future value of annuity A is greater than the future value of annuity B, then the
present value of annuity A must also be greater than the present value of annuity B.
7) In order to reduce agency costs, managers may decrease dividends, thus shifting the
focus of investors to future capital gains than can only be attained by a well-run
corporation.
8) Positive NPV projects may be rejected when capital must be rationed.
9) Cash budgets are completed only on an annual basis because shorter periods of time
are too variable and uncertain for meaningful results.
10) In a replacement decision, the initial outlay is equal to the cost of the new asset less
the reduction in depreciation from elimination of the old asset.
11) Over time, there has been a high correlation between actual rates of return on
securities and the securities’ standard deviations of returns.
12) Common stock is considered a short-term security because it has no maturity date
and a long-term security is one with a maturity date of more than one year.
13) The break-even quantity of output is that quantity of output, in units, that results in
an EBIT equal to zero.