True/False

Indicate whether the statement is true or false.

____ 1. In order to use the payback period model, the proposed investment must have even cash inflows.

____ 2. The indirect method of reporting the cash flows from operating activities on the statement of cash flows is the method most widely used in practice.

____ 3. Common-size statements are statements of companies of similar size and operations.

____ 4. In short-run decision making, the alternative with the lowest overall cost is always chosen.

____ 5. The benefit sacrificed when one alternative is chosen over another is called sunk cost.

____ 6. The current ratio is a measure of the ability of a company to pay its short-term liabilities out of short-term assets.

Multiple Choice

Identify the choice that best completes the statement or answers the question.

____ 7. Short-term creditors are usually most interested in assessing

a.	leverage.
b.	liquidity.
c.	marketability.
d.	profitability.

____ 8. The time required for a firm to recover its original investment is the

a.	internal rate of return.
b.	net present value.
c.	life of the project.
d.	accounting rate of return.
e.	payback period.

____ 9. Depreciation of equipment is often an example of a(n)

a.	relevant cost.
b.	opportunity cost.
c.	sunk cost.
d.	variable cost.
e.	none of these.

____ 10. The acquisition of land by issuing common stock is

a.	an business transaction that is not allowed by GAAP.
b.	a cash transaction that is reported in the investing section in the body of the statement of cash flows.
c.	a noncash transaction that is reported in the operating section in the body of the statement of cash flows.
d.	a noncash transaction that is disclosed in a supplementary schedule or note on the cash flow statement.