Multiple Choice - No need for long explanations

1.

I. In conservative strategy, credit sales decrease, collection rate increase, AR balance decrease, bad debts decrease and collection expense decrease. II. The indispensable 5Cs of credit shall be followed in credit policy.

A. True, False

B. True, True

C. False, True

D. False, False

2. A higher dividend payoutratio entails?

A. Higher investment opportunity

B. No effect in cost of capital

C. Lower marginal cost of capital

D. Higher marginal cost of capital

3.

I. The higher the financial leverage, the higher financial risk and the higher the cost of capital. II. Higher debt ratio, the higher the DFL and Required rate of return. The greater the degree of Financial Leverage, the greater the fluctuations in EPS.

A. True, False

B. True, True

C. False, True

D. False, False

4.

I. If there is a positive NPV, IRR is higher than the cost of capital. II. If annual net cash inflow is equal to the cost of investment, then, NPV is zero.

A. True, False

B. True, True

C. False, True

D. False, False

5. a. If NPV is negative, company usually rejects the project. While, if ARR is greater than cost of capital, company accept the project. Last, if Profitability index is greater than 1, accept the project. b. If IRR on investment is zero, its annual cash flows is equal to its required investment.

A. True, False

B. True, True

C. False, True

D. False, False