T 1. A cash budget enumerates receipts and disbursements.
F 2. A cash budget seeks to determine estimated costs and
revenues in order to forecast earnings.
T 3. The bottom line of a cash budget shows the firm's
F 1. Long-term debt spontaneously changes with the level of
T 2. Accounts payable are illustrative of liabilities that
spontaneously vary with the level of sales.
F 3. The percent of sales method of forecasting ass
ANALYSIS OF FINANCIAL STATEMENTS
T 1. Retained earnings are part of the stockholders' equity
in a corporation.
F 2. If a firm sells inventory at cost for cash, its total
3. Additional paid-in capital is a current asset.
THE TIME VALUE OF MONEY
T 1. Even if the interest rate is only 1%, a lump sum of
$1,000 today is preferred to $100 a year for 10 years.
T 2. Compounding refers to the earning of interest on
T 3. Discounting refers to the pro
F 1. The major function of the New York Stock Exchange is
to raise funds for corporations.
2. The SEC sets the margin requirement.
F 3. If a stock is quoted 10-11, an investor can sell
the stock for $11 a share.
RISK AND ITS MEASUREMENT
1. There is no risk in a world of certainty.
2. Realized returns frequently differ from expected returns.
3. The standard deviation measures an asset's expected return.
T 4. The larger the standard devia
F 1. The market in which securities are initially sold to
the general public is the secondary market.
F 2. When an individual buys stock through a secondary
market (e.g., the NYSE), the firm receives the sales
THE FEDERAL RESERVE
F 1. The power to create money is given by the Constitution to
the Federal Reserve.
F 1. When commercial banks grant loans to the public, their
total reserves are reduced.
T 2. When corporations retire (pay off) lo
THE FEATURES OF LONG-TERM DEBT - BONDS
T 1. The document stating the terms of a bond is the
2. The highest credit rating is triple A.
T 3. Equipment trust certificates issued by a firm should
be safer than its debentures
THE FEATURES OF STOCK
T 1. The owners of a corporation elect the board of
F 2. Cumulative voting concentrates voting power in the
hands of a majority of corporate voters.
T 3. Pre-emptive rights mean that current stockhold
FUTURES AND SWAPS
F 1. If a speculator enters a futures contract to sell
(make delivery), that individual anticipates selling the
F 2. Entering a futures contracts is not speculative
because commodity prices are stable.
OPTIONS: PUTS AND CALLS
F 1. A call is an option to sell stock at a specified price
within a specified time period.
T 2. A put option is the right to sell stock at a specified
price within a specified time period.
T 3. An option's pr
F 1. A decrease in interest rates decreases the net present
value of an investment.
T 2. A decrease in investors' required rate of return will
increase an investment's net present value.
T 3. A decrease in the cost
BREAK-EVEN ANALYSIS AND THE PAYBACK PERIOD
F 1. Break-even analysis is used to determine the best level of
2. If a firm has no sales, it has no costs.
T 3. The straight-line total revenue function suggests the firm
MANAGEMENT OF SHORT-TERM LIABILITIES
F 1. Since commercial bank loans are cheaper than trade credit,
few firms use trade credit.
F 2. The smaller the trade discount, the more expensive is the
F 3. A change in the trade
INTERMEDIATE-TERM DEBT AND LEASING
T 1. Intermediate term loans acquired by insurance companies
usually are secured by collateral.
F 2. Intermediate term notes sold to the general public are
usually secured by collateral.
3. All te
MANAGEMENT OF CURRENT ASSETS
T 1. Short-term financing is an inappropriate source of
finance to acquire long-term assets.
T 2. The use of short-term instead of long-term debt
financing tends to increase both earnings and risk.
F 3. A
COST OF CAPITAL
F 1. A firm will prefer to issue preferred stock rather than debt
because the dividend is tax-deductible.
T 2. The lower the firm's tax rate, the larger is the incentive
to use preferred stock instead of bonds.
BOND PRICING AND YIELDS
F 1. If interest rates fall, the prices of existing bonds
F 2. Bonds only sell for a discount when the firm is having
F 3. The current yield considers not only the interest pai
1. A mutual fund has a fixed number of shares.
2. Mutual funds do not pay income taxes.
T 3. The shares of closed-end investment companies are
bought and sold in secondary markets like the NYSE.
F 4. The shar
F 1. A convertible bond may be converted at the firm's
option into common stock.
2. Generally, convertible bonds lack a call provision.
T 3. A convertible bond's value fluctuates with the price
of the stock in
T 1. The value of stock depends in part on future dividends
and investors' required return.
T 2. The return on an investment in stock depends on both
dividends and capital gains.
F 3. The dividend-growth model may be
T 1. Preferred stock dividends are paid after interest but
before dividends to common stock.
T 2. Preferred stock dividends are not a tax deductible
expense for the firm.
T 3. Arrearage means that a cumulative preferr