Question 41

The EOQ model is the optimal level of average inventory to minimize the total cost of maintaining inventory.

True

False

Question 42

Compensating Balance raises the effective interest rate on a loan.

True

False

Question 43

Supervising the collection of accounts receivable requires close monitoring of average collection period and payment schedule.

True

False

Question 44

An annuity is a series of constant receipts that are received at the end of each year for a period of time.

True

False

Question 45

Discounted present value or discounted cash flow references the sum of cash to be received in the future.

True

False

Question 46

As interest is compounded more often, the terminal value of investment becomes smaller.

True

False

Question 47

Compound interest is the process by which an organization evaluates and selects long-term investment projects.

True

False

Question 48

Payback ignores the time value of money.

True

False

Question 49

Net present value is the difference between the present value of expected future benefits of a project and present value of the expected cost of a project.

True

False

Question 50

When selecting a discount rate, choose a rate at which money in hand may be received between now and a future period in which money is to be received.

True

False

Question 51

The cost of capital is the percentage cost of permanent funds used in business.

True

False

Question 52

Capital structure is the mix of short-term debt and equity for financing needs.

True

False

Question 53

Average cost increases more slowly than marginal cost.

True

False

Question 54

According to cost of capital curves, average cost is equal to marginal cost over some range of capital raised, beyond which both costs begin to rise.

True

False

Question 55

As a rule of thumb, a firm should accept investment projects where marginal cost of capital is greater than internal rate of return in order to maximize value of the firm.

True

False

Question 56

When taking working capital management principles into consideration, there is no universal optimization model to determine credit policy for accounts receivable.

True

False

Question 57

Trade credit is a form of free financing.

True

False

Question 58

Short-term commercial bank loans can be used to finance inventory and accounts receivable.

True

False

Question 59

When factoring, the lender buys accounts receivable outright from borrower at a discount and assumes burden of collecting receivables.

True

False

Question 60

In regards to inventory financing, trust receipts are a legal document that creates a lien on some specific item of inventory.

True

False

Balance Sheet 2019 2018 Income Statement 2019 2018 Assets Sales $ 51,000,000 $ 47,000,00 . . . Cash $ 5,100,000 $ 4,900,000 Operating Expenses: Marketable Securities 102,000 98,000 Cost of Goods Sold 5,100,000 4,700,000 Accounts Receivable 1,632,000 1,568,000 Depreciation 2,550,000 2,350,000 Inventories 2,856,000 2,744,000 Selling & Admn. Expenses 6,120,000 5,640,000 Total Current Assets $ 9,690,000 $ 9,310,000 Total Operating Expenses $ 13,770,000 $ 12,690,000 Property, Plant, & Equipment 3,264,000 3,136,000 Operating Income 37,230,000 34,310,000 Other Fixed Assets 2,703,000 2,597,000 Other Income 102,000 94,000 Total Fixed Assets $ 5,967,000 $ 5,733,000 Total Income $ 37,332,000 $ 34,404,000 Total Assets $ 15,657,000 $ 15,043,000 Interest Expense 1,530,000 1,410,000 Liabilities & Equity Earnings Before Tax 35,802,000 32,994,000 Accounts Payable 1,878,840 $ 1,805,160 Provision for Income Tax 8,160,000 7,520,000 Notes Payable 1,722,270 1,654,730 Net Income $ 27,642,000 $ 25,474,000 Accrued Expenses Payable 1,409,130 1,353,870 Accrued Taxes Payable 1,252,560 1,203,440 Total Current Liabilities $ 6,262,800 $ 6,017,200 Long-Term Debt $ 782,850 $ 752,150 Total Liabilities 7,045,650 $ 6,769,350 Stockholder's Equity: Preferred Stock ($100 par, 6%) $ 1,095,990 $ 1,053,010 Common Stock ($5 par value) 2,035,410 1,955,590 Paid-In Capital in Excess of Par 4,227,390 4,061,610 Retained Earnings 1,252,560 1,203,440 Total Stockholder's Equity $ 8,611,350 $ 8,273,650 Total Liabilities & Equity $ 15,657,000 $ 15,043,000