______ 16. Each of the following is a typical source of long-term capital for a firm EXCEPT

A. Accounts Receivable.

B. long-term debt.

C. preferred stock.

D. common stock.

______ 17. ____________________________ is the process of evaluating and selecting long-term

investments that are consistent with the firms goal of maximizing owners wealth.

A. Compounding

B. Capital budgeting

C. Normalizing

D. Underwriting

______ 18. ________________________ are projects whose cash flows in a capital budgeting analysis are

unrelated to one another. I.e., accepting one project does not prevent the firm from doing the

other project, also.

A. Mutually exclusive projects

B. Null projects

C. Independent projects

D. Diversified projects

______ 19. A firm that needs increased production capacity could obtain it by

A. expanding its plant.

B. acquiring another company.

C. contracting with another company for production.

D. A and B.

E. A and B and C.

______ 20. Typically, firms operate under __________________________, as they have only a fixed

amount available for capital expenditures.

A. capital rationing

B. free will funding

C. last-in, first-out standards

D. the investment first principle

______ 21. The _____________________ method measures how long (in years and/or months) it takes

to recover the initial project investment, based on the projects cash inflows.

A. Net Present Value (NPV)

B. Internal Rate of Return (IRR)

C. payback period

D. Profitability Index (PI)

______ 22. Each of the following is considered to be an advantage of the payback period capital budgeting

methodEXCEPT

A. it uses discounted cash flows in its analysis.

B. it is simple and intuitive to use.

C. it considers cash flows, rather than accounting profits.

D. it can be used as a supplement to other capital budgeting methods.

______ 23. With the Net Present Value (NPV) method of capital budgeting, a firm would undertake a

project only if

A. the projects payback period is less than 3 years.

B. the present value of the cash flows that the project generates is greater than the cost of

making the investment.

C. the present value of the cash flows that the project generates is less than the cost of

making the investment.

D. the project cost is less than $1,000,000.

______ 24. When using the Net Present Value (NPV) method for capital budgeting analysis,

A. if NPV > $0, then the project will be accepted.

B. if NPV < $0, then the project will be rejected.

C. A and B.

D. None of the above.

______ 25. When companies evaluate investment opportunities using the Profitability Index (PI)

analysis method, the firm will

A. invest in the project when the Profitability Index is less than 1.0.

B. invest in the project when the Profitability Index is greater than 1.0.

C. invest in the project only when the prime interest rate on the market exceeds 5%.

D. invest in the project only when the projects Profitability Index has exceeded 1.0 for

three consecutive years.

______ 26. The firms operating breakeven point (OBP) is

A. the level of operations at which the dividend payment to shareholders is maximized.

B. the level of sales necessary to cover all operating expenses.

C. the level of operations at which the firms sales revenue exactly equal the firms

Total Assets.

D. the level of profits at which the firms Price/Earnings (P/E) ratio is maximized.

______ 27. Each of the following is an example of a fixed cost for a manufacturing firm EXCEPT

A. Rent Expense on the production facility.

B. insurance premium costs to insure the production facility.

C. property taxes owing on the production facility.

D. cost of the electricity expense to run the line production equipment.

______ 28. Generally, if ____________________ increase, then a firms operating breakeven points will

also increase.

A. fixed operating costs (FC)

B. variable operating cost per unit (VC)

C. dividend payments per share

D. A and B and C

E. A and B

______ 29. Effective capital structure decisions for a firm can

A. lower the firms cost of capital.

B. result in higher Net Present Value (NPV) outcomes for capital budgeting projects the

firm undertakes.

C. result in more capital budgeting projects being accepted.

D. A and B and C.

______ 30. Each of the following is a possible source ofequitycapital for a firm EXCEPT

A. long-term bonds.

B. preferred stock.

C. common stock.

D. retained earnings.