16) 
Dimensions of risk include ___________. A. the certainty of a negative outcome 
B. uncertainty about the future outcome C. uncertainty about yesterday’s outcome 
D. the impossibility of the same return 
17) One problem with using negative 
values for w1 (the proportion invested in the riskless asset) to represent a 
borrowed amount is that the implied borrowing rate of interest is the same as 
__________. A. the current rate of interest B. the prime rate of interest C. the 
nominal rate of interest D. the lending rate of interest 
18) The Principle 
of __________ implies that the expected return for an asset equals its required 
return. A. Risk-Return Trade-Off B. Capital Market Efficiency C. Signaling D. 
Comparative Advantage 
19) __________ says to calculate the incremental 
after-tax cash flows connected with working capital decisions. A. The Principle of Incremental 
Benefits B. The Signaling Principle C. The Options Principle D. The Principle of 
Time Value of Money 
20) Stony Products has an inventory conversion period 
(ICP) of about 60.83 days. The receivables collection period (RCP) is 36.50 days. The payables deferral 
period (PDP) is about 30.42 days. What is Stony's cash conversion cycle (CCC)? 
A. about 69 days B. about 66 days C. about 67 days D. about 68 days 
21) 
Stony Products has a payables turnover of six times. What is Stony's payables 
deferral period (PDP)? A. about 30.42 days B. about 56.50 days C. about 60.83 
days D. none of these 
22) Firms make short-term financial decisions just 
about every day solving such questions as __________. A. Where should we borrow? 
B. Where should we invest our cash? C. How much liquidity should we have? D. all 
of these 
23) __________ says to calculate the incremental after-tax cash 
flows connected with working capital decisions. A. The Options Principle B. The 
Signaling Principle C. The Principle of Incremental Benefits D. The Principle of 
Time Value of Money 
24) Main sources of short-term funds include __________. 
A. trade credit and commercial paper B. futures and bank loans C. bonds and 
trade credit D. none of these 
25) Which of the following statements is (are) 
true? A. The "dating 120" or the "60 extra" mean that the clock does not start 
until 120 or 60 days after the invoice date. B. Prox or proximate refers to the 
next month. C. Invoices with "10th prox" must be paid by the 10th of the next 
month. D. all of these 
26) Which (if any) of the following statements is 
false? A. The invoice is a written statement about goods that were ordered, 
along with their prices and the payment dates. In other words, the invoice is 
simply the bill for purchases. B. For the 4/10, net 40 credit terms, you are offering a total credit period of 30 days from the date of the invoice, a 
discount period of 10 days, and a 4% discount if paid on or before the discount 
period expires. C. When a firm is using invoice billing, the invoice that 
accompanies shipment is a separate bill to be paid. D. none of these 
27) 
Most credit sales are made on an open account basis, which 
means __________. A. that suppliers cannot dictate the terms of the purchase. B. 
that customers simply purchase what they want. C. that suppliers dictate the 
terms of the purchase. D. that customers cannot simply purchase what they want. 

28) An all-equity-financed firm would __________. A. pay corporate income 
taxes if its taxable income is positive. B. not pay any income taxes because 
interest would exactly offset its taxable income. C. pay corporate income taxes 
because it would have interest expense. D. not pay corporate income taxes 
because it would have no interest expense. 
29) A profitable firm would 
__________. A. pay corporate income taxes because it would have interest 
expense. B. pay corporate income taxes because it would not have interest 
expense. C. pay corporate income taxes if it had a positive taxable income. D. 
none of these 
30) An investor's risky portfolio is made up of individual 
stocks. Which of the following statements about this portfolio is true? A. Each 
stock in the portfolio will have a beta greater than one. B. Each stock in the 
portfolio has its own beta. C. Selling any stock in this portfolio will lower 
the beta of the portfolio. D. An investor cannot change the risk of this 
portfolio by her choice about personal leverage (lending or borrowing). 
31) 
Boeing Corporation is a world leader in commercial aircraft. In the face of 
competition, Boeing often faces a critical __________ decision: whether to 
develop a new generation of passenger aircraft. A. dividend B. present value C. 
payback D. capital budgeting 
32) The capital budgeting process 
can be broken down into five steps. These steps include which of the following? 
A. Generate ideas for capital budgeting projects B. Prepare proposals C. Review 
existing projects and facilities D. all of these


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