1. Over the life of a project, a projects accounting earnings equal to its net cash flows

a. True

b. False

2. What does the cash operating cycle, days in payables (days in sales + days in inventory) tell analysts about a company?

a. Firms that pay their suppliers prior to collecting from customers receive better credit terms from their suppliers

b. Firms that pay their suppliers prior to collecting from customers are less efficient in their operations and must finance their operating capital.

c. Firms that pay their suppliers prior to collecting from customers turn their inventory quicker.

d. Firms that pay their suppliers prior to collecting from customers have less stringent credit terms for their customers

e. All of the above

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

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

4. If a higher ROE is desirable, why don't companies take on large amounts of debt?

a. Additional debt reduces the risk to investors since their investment in the company is less

b. Companies will low leverage more efficient

c. Companies with lower leverage are more attractive to investors

d. Highly leveraged companies are less efficient

e. The cost of debt will eventually exceed the return on the additional assets acquired from the debt financing