1. Annual reports are in a sense, evaluations of management's performance but since they are prepared by management they are likely to:

a. give the shareholders the opportunity to objectively evaluate management's day-to-day performance during the past year.

b. exclude the details of management discussion and analysis.

c. portray the firm's past performance in a most favorable light.

d. exclude the details of the minority interests groups.

2. The principal function of financial statements is to:

a. accurately project future cash flows of a company.

b. convey information to outside investors.

c. guarantee an accurate accounting record.

d. convey confidential information to the board of directors.

3.Free cash flow:

a.assumes that a company needs a constant asset base.

b. includes investing cash flows as well as the financial cash flows.

c. assumes that the firm will remain competitive and continue growing.

d. always includes increases in net fixed assets and in long-term liabilities.

4. A source of cash would be generated by which of the following?

a. An increase in accounts receivable

b. An increase in accounts payable

c. A decrease in accrued expenses

d. An increase in inventory

5. With respect to the statement of cash flows:

a.increases in assets are sources of cash and increases in liabilities are uses.

b. increasing assets is always the predominant use of cash while borrowing is the predominant source of cash.

c. its most important function is to identify the principal sources and uses of cash.

d. All of these choices are correct.