PART I. State whether the following questions are TRUE, FALSE OR UNCERTAIN).

1.The cost of capital depends mainly on the cost of equity and is used by investors to determine whether an investment is worth the risk com- pared to the return.

2.If net income is positive, then cash flow from operations must be pos- itive for that period.

3.The balance sheet presents stock variables while the income statement presents flow variables.

4.Capital budgeting decisions are used to determine how to raise the cash necessary for investments.

5.In some ways the financing decision is more important than the in- vestment decision.

6.General partners have limited personal liability for business debts in a limited partnership.

7.Financial ratios provide the right answer if they are examined care- fully.

8.Most sole proprietorships and partnerships are smaller firms that do not need, may not be able to afford, and may not desire even if they could afford, the existence of a separate management.

9.An individual can save and invest in a corporation only by lending money to it or by purchasing additional shares.

10.The derivative market is also a source of financing for corporations.

11.If the rate of time preference is higher than the real rate of interest, then people will save more and consume less.

12.The rates of return on investments outside the corporation set the minimum return for investment projects inside the corporation.

13.A sign that a firm is efficient is high profitability ratios.

14.The principal reason for excluding many intangible assets from the balance sheet is that they are difficult to value.

15. Financing for private corporations must flow through financial intermediaries