Youare trying to pick the least-expensive machine for your company. You have two choices: machine A, which will cost $50,000 to purchase and which will have OCF of -$3,500 annually throughout the machine's expected life of three years; and machine B, which will cost $75,000 to purchase and which will have OCF of -$4,900 annually throughout that machine's four-year life. Both machines will be worthless at the end of their life. If you intend to replace whichever type of machine you choose with the same thing when its life runs out, again and again out into the foreseeable future, and if your business has a cost of capital of 14 percent, which one should you choose?

• Neither machine A nor B

• Machine A

• MachineB

• Both machines A and B

Which of these does NOT perform vital functions to securities markets of all sorts by channeling funds from those with surplus funds to those with shortages of funds?

• Commercial banks

• Secondary markets

• Mutual funds

• Insurance companies

Which of these is used as a measure of the total amount of available cash flow from a project?

• Sunk cash flow

• Operating cash flow

• Free cash flow

• Investment in operating capital

What are reasons for the firm to go abroad?

• Access to raw materials

• Diversification

• All of the above

• Lower production cost

Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?

• Interest rate risk

• Liquidity rate risk

• Credit quality risk

• Reinvestment rate risk

Which of the following is a true statement?

• If interest rates fall, U.S. Treasury bonds will have decreasing values.

• If interest rates fall, no bonds will enjoy rising values.

• Ifinterestratesfall,allbondswillenjoyrisingvalues.

• Ifinterestratesfall,corporatebondswillhavedecreasingvalues.

Which of the following terms means that during periods when interest rates change substantially, bondholders experience distinct gains and losses in their bond investments?

• Interest rate risk

• Liquidity rate risk

• Credit quality risk

• Reinvestment rate risk

Which of these is the process of estimating expected future cash flows of a project using only the relevant parts of the balance sheet and income statements?

• Substitutionary analysis

• Pro forma analysis

• Cash flow analysis

• Incremental cash flows

Which of these provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds?

• Money markets

• Investment banks

• Secondary markets

• Primary markets