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True/False (1point each)
1. The sole proprietor has unlimited liability; his or her total investment in the
business, but not his or her personal assets, can be taken to satisfy creditors.
2. Time-value of money is based on the belief that a dollar that will be received
at some future date is worth more than a dollar today.
3. Holders of equity have claims on both income and assets that are secondary
to the claims of creditors.
4. The possibility that the issuer of a bond will not pay the contractual interest
or principal payments as scheduled is called maturity risk.
5. The breakeven point in dollars can be computed by dividing the contribution
margin into the fixed operating costs.
Multiple-choice (1point each)
6. The ________ is the extent of an asset's risk. It is found by subtracting the
pessimistic outcome from the optimistic outcome
7. ________ measure(s) the risk of a capital budgeting project by estimating the
NPVs associated with the optimistic, most likely, and pessimistic cash flow
estimates
8. If a firm uses an aggressive financing strategy,
9. The two major sources of short-term financing are