The NPV method:
a. is consistent with the goalof shareholder wealth maximization.
b. recognizes the time valueof money.
c. uses cash flows.
d. all of the above.
29. ABC Service can purchase a new assembler for$15,052 that will provide an annual net cash flow of $6,000 peryear for five years. Calculate the NPV of the assembler if therequired rate of return is 12%. (Round your answer to the nearest$1.)
a. $1,056
b. $4,568
c. $7,621
d. $6,577
30. Given the following annual net cash flows,determine the IRR to the nearest whole percent of a project with aninitial outlay of $1,520.
Year Net Cash Flow
1 $1,000
2 $1,500
3 $ 500
a. 48%
b. 40%
c. 32%
d. 28%
31. An increase in ___________ would increase networking capital.
a. plant and equipment
b. accounts payable
c. accounts receivable
d. both b and c
32. Which of the following is most likely to be atemporary source of financing?
a. Commercial paper
b. Preferred stock
c. Long-term debt
d. All of the above
33. In order to maximize firm value, managementshould invest in new assets when the internal rate of returnis:
a. greater or equal to thefirm’s marginal cost of capital.
b. greater than the cost ofdebt financing.
c. less than or equal to theaccounting rate of return.
d. less than or equal to thefirm’s marginal cost of capital.
34. In the basic model, the optimal inventorylevel is the point at which:
a. total cost isminimized.
b. total revenue ismaximized.
c. carrying costs areminimized.
d. ordering costs areminimized.
35. The management of inventory is importantbecause:
a. carrying too much inventorycan result in a loss of efficiency and profitability.
b. carrying excessiveinventory can result in a loss of sales.
c. carrying too littleinventory can decrease the average collection period.
d. carrying too littleinventory will adversely affect the firm’s CAPM.
36. An operating lease usually:
a. is for a shorter length oftime than a financial lease.
b. is for high-tech equipmentthat might become obsolete rapidly.
c. has the income tax advantage that the entirelease payment is a deductible expense.
d. both a and c.
e. all the above.
37. If a lease is extended for a length of timethat is equal to the entire useful life of the equipment, thelease:
a. is referred to as anoperating lease.
b. carries no income taxdeduction.
c. is a financial lease.
d. will be terminated by theIRS.
38. Which of the following would decrease free cashflows? A decrease in:
a. depreciation expense.
b. interest expense.
c. incremental sales.
d. both a & c.
e. all of the above.
39. An increase in the ____________ is likely toencourage a corporation to increase its debt ratio.
a. corporate tax rate
b. personal tax rate
c. company’s degree ofoperating leverage
d. expected cost ofbankruptcy
40. A merger that is driven by the potentiallylarge reduction in the staffing of overlapping functions and theintegration of the two companies’ strong similar product lines isreferred to as a:
a. conglomerate merger.
b. vertical merger.
c. horizontal merger.
d. diversification merger.





