Question 1

If a lease is not capitalized,

1.	the return on assets is overstated
2.	the return on assets is understated
3.	the use of financial leverage is overstated
4.	the use of financial leverage is understated

	a.	1 and 3
	b.	2 and 4
	c.	2 and 3
	d.	1 and 4

Question 2

Generally it is not wise to use

	a.	long-term debt to finance short-term assets
	b.	short-term debt to finance short-term assets
	c.	short-term debt to finance long-term assets
	d.	long-term debt to finance long-term assets

Question 3

Which of the following increases financial risk?

	a.	the substitution of short-term debt for long-term debt
	b.	the substitution of long-term debt for short-term debt
	c.	the substitution of equity for short-term debt
	d.	the reduction of cash and marketable securities

Question 4

The lower the rate of interest, the smaller is

	a.	the economic order quantity
	b.	the number of units sold
	c.	the cost of carrying inventory
	d.	the safety stock

1 points

Which of the following may not be used to secure a short-term loan?

	a.	inventory
	b.	retained earnings
	c.	equipment
	d.	accounts receivable

Question 6

The cost of commercial paper (i.e., the interest rate)

	a.	increases as the paper sells for a premium
	b.	decreases as the paper sells for a discount
	c.	decreases as the paper's price increases
	d.	increases as the paper's price increases

Question 7

If a firm leases instead of borrowing, it

1.	owns the asset
2.	has the use of the asset
3.	receives the depreciation expense
4.	losses the asset's residual value

	a.	2 and 4
	b.	2 and 3
	c.	1 and 2
	d.	1 and 3

Question 8

If a term loan requires equal annual payments that retire the loan and pay the interest, that is similar to

	a.	mortgage payments
	b.	dividend payments
	c.	lease payments
	d.	a sinking fund

Question 9

Secured loans imply

	a.	specific liabilities support the loan
	b.	an asset is pledged to support the loan
	c.	the firm has excessive debt financing
	d.	the firm is using only long-term debt financice

Question 10

Which of the following money market securities are sold at a discount?

1.	commercial paper
2.	corporate stock
3.	certificates of deposit
4.	Treasury bills

	a.	3 and 4
	b.	1 and 4
	c.	2 and 3
	d.	1 and 2

Question 11

More lenient terms of credit will probably decrease

	a.	receivables turnover
	b.	risk
	c.	sales
	d.	inventory turnover

Question 12

Term loans are

	a.	short-term obligations
	b.	made by insurance companies
	c.	generally lack collateral (i.e., unsecured)
	d.	usually for twenty years

Question 13

In a sale and leaseback

	a.	the lessee sells its equipment back to the lessor after a period of time
	b.	the lessor sells the asset to the lessee
	c.	the lessee sells equipment to a lessor and leases back the equipment
	d.	the lessor borrows funds to purchase the asset from the lessee

Question 14

The effective cost of credit depends upon

1.	the amount of time the borrower has the use of the funds
2.	the stated rate of interest
3.	the proceeds the borrower may use

	a.	1 and 3
	b.	2 and 3
	c.	1 and 2
	d.	1, 2, and 3

Question 15

One means by which a commercial bank may increase the effective cost of a loan is to

1.	require an origination fee
2.	have the loan paid off in one lump at maturity
3.	have the loan discounted in advance

	a.	1 and 3
	b.	1 and 2
	c.	2 and 3
	d.	1, 2, and 3