1) A narrow spread indicates efficiency in the spot exchange market.
2) A return of 12% compounded annually is the same as a return of 1% per month.
3) Determination of safety stock involves a tradeoff between the risk of a stock-out and
increased costs of carrying additional inventory.
4) Increasing depreciation expense results in a decrease of the incremental after-tax free
cash flow.
5) The fundamental goal of a business is to maximize the retained earnings available to
the corporation’s shareholders.
6) The cash conversion cycle cannot be negative.
7) The profitability index is the ratio of the present value of the future free cash flows to
the initial investment.
8) Corporations distribute cash back to their owners (stockholders) either as cash
dividends or by repurchasing shares of stock in the open market.
9) 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.
10) An example of an annuity is the interest received from bonds.
11) Accrued expenses represent a spontaneous form of financing.
12) Joe borrowed $10,000 at 10% per year and promised to pay it back in equal annual
installments at the end of each of the next 5 years. Joe’s payment will be $2,100
[($10,000/5) + ($10,000 10%).