1. If a higher ROE is desirable, what is one reason companies don't take on large amounts of debt? Group of answer choices

a. Highly leveraged companies have a longer cash conversion cycle

b. At some point the cost of the additional debt will be more than the return on assets purchased with that debt

c. Investors prefer companies to have low levels of debt

d. Highly leveraged companies are more difficult to manage

2. Which of the following is NOT an issue that prevents reliance on the statement of cash flows in calculating free cash flows?

Group of answer choices

a. The Statement of Cash Flows may be manipulated because GAAP allows managers discretion on when to record cash transactions

b. On Statement of Cash Flows, Allocation of taxes between operating and financial activities is ignored

c. Significant non-cash transactions are omitted which may be part operational and part financial (for example purchasing an asset with a loan)

d. On Statement of Cash Flows, Interest expense is left in operating section

e. On the statement of Cash Flows, the operating section is not purely related to operating activities

3. Free cash flow can be calculated using the financial statements as

Group of answer choices

a. Net operating profit after taxes less change in net operating assets

b. Change in cash and marketable securities

c. Cash plus marketable securities less current liabilities

d. Operating cash flows less investing cash flows

e. Net income less changes in current assets and current liabilities