2. How does "discounting" work in capital budgeting?

• Increases in cash flows are discounted as only being seasonal.

• Future cash flows are discounted by the interest rate. ( I think this one but I'm not sure )

• Future cash flows are discounted by realistic expectations.

• Present cash flows are discounted by the interest rate.

8. In which situation would a company prefer equity financing over debt financing?

• when a company has significant collateral

• when a company chooses to have low leverage

• when a company has a high tax rate

• when a company has stable and predictable cash flow ( I think this one but i'm not too sure )

9. Theoretically, how should a business choose between borrowing and equity in its capital structure?

• They should choose equity, because companies with debt are less efficient and experience more employee slack.

• They should choose to borrow, because interest payments are tax-deductible.

• They should disregard taxes and transaction costs in making the decision.

• They should choose equity, because dividends paid to shareholders are tax-deductible. ( I think this )

13. Why do stock index funds have a higher rate of return than corporate bonds or savings accounts?

• There are more people investing in stock index funds.

• There is less risk with a stock index fund. ( I think this correct )

• There is more risk with a stock index fund.

• More cash is required to invest in stock index funds.

15. How can you best describe the "operating cycle"? ( I think C or D but im not too sure )

• The operating cycle is the method of billing customers for sales and collecting cash.

• The operating cycle is the lead time between placing orders with vendors and receiving the product.

• The operating cycle is the conversion from inventory to receivables to cash.

• The operating cycle is the timeframe a company uses when creating its statement of cash flows.