paid on its debts as discussed in Chapter 4, this is called (a) unfavorable financial leverage (b) favorable financial leverage (c) favorable operating leverage (d) unfavorable combined leverage 7. If a company earns a lower return on its assets (OROA) than the interest Pl a firm's working capital involves which of 8The risk-return trade-off in managing the following? (a) a trade-off between liquidity and activity (b) a trade-off between debt and equity (e) a trade-off between the firm's liquidity and its return on assets (d) none of the above. 9. According to the hedging principle, plant and equipment should be financed with (a) commercial paper (b) long-term funds (c) short-term bank loans (d) spontaneous sources of financing. 10. Which firm below would you expect to be the most capital intensive? (a) Price Waterhouse CPA firm (b) State Farm Insurance (c) Ford Motor Company (d) King and Spalding Attorneys 11. Which assets below are non-earning assets for a company while sitting on the Balance Sheet? (a) accounts receivable b) inventory (c) a noninterest-bearing checking account (d) all of the above. 12. Ifa company's OROA is 24% and its OPM is 20%, this means that (a) its FAT is 2 (b) its GPM is 25% (c) its TAT is 1.2 (d) its TAT is.8333