True or false questions

______ 2. The lower a firms Net Working Capital level, the more able the firm

is to turn its assets into cash.

______ 3. If a firms credit policy is too loose or lenient, it may cause cash flow

Problems for the firm if customers pay their bills late.

______ 4. In the U.S. banking system, checking accounts held by sole

proprietorship and partnership businesses are not allowed to earn

interest.

______ 5. Disbursement float is the time that elapses from when the firm

makes a payment by check and that check actually clears through

the banking system, resulting in the funds being removed

from the firms checking account.

______ 6. The prime rate is the interest rate that banks charge their very best

customers when they obtain a loan.

______ 7. In capital budgeting, all costs and benefits are computed on a

pre-tax basis.

______ 8. In a capital budgeting project, the purchase price of the new equipment

generally does not include installation costs for the equipment.

______ 9. Investments that have a high cash flow in the early years of the project

tend to have a more favorable Payback Period.

______ 10. If a project has a negative Net Present Value (NPV), it should be

approved by the firm, as it will likely add value to the firm.

______ 11. Using an Excel spreadsheet, a small business owner can do a sensitivity

analysis or what-if analysis for a proposed capital budgeting project.

______ 12. In a post-audit, procedures are used to determine how well the

outcome of a capital budgeting decision correlates with the original

proposal and analysis.

______ 13. Pure risk involves only the chance of loss (i.e., such as a potential fire),

and is insurable.

______ 14. Accepting cash-only sales is a risk avoidance policy that a firm may

adopt.

______ 15. A term life insurance policy allocates part of the premium paid by the

insured party to building equity or cash value. The insured party may

then borrow against this equity or cash value, in cash of an emergency.

______ 16. Municipal bonds usually pay a higher interest rate to investors than do

corporate bonds. This is due to the interest payments on municipal

bonds being free of federal income tax liability.

______ 17. A bond issued with a C credit rating typically bears minimal risk.

______ 18. A no-load mutual fund does not charge a commission on the amount

that you invest at the time that you invest it.