Question

Part II. True or False (2 10) Directions: Please write T or F in the blanks. 1. In a limited partnership, partners are classified as general or limited Limited partners manage the business and have unlimited personal liability for its debts. long-run survival of the corporation. assets must be shown in the balance sheet at their current market value 2. Maximizing or at least maintaining- market value is necessary for the 3. Items in the balance sheet are valued according to GAAP. These state that adjusted for depreciation. If customers are quick to pay, unpaid bills will be a relatively small proportion of sales and the receivables turnover will be high. Therefore, a low ratio often indicates an efficient credit department that is quick to follow up on late payers. The value of a company depends on how much cash it can generate for investors after it has paid for any new capital investments. This cash is called the company's free cash flow 6. In calculating EVA, it's customary to take account of all the long-term capital contributed by investors in the corporation. Total long-term capital, usually called total capitalization, is the sum of long-term debt and shareholders' equity 7. Earning interest on interest is called simple interest. In contrast, if the bank calculated the interest only on your original investment, you would be paid compound interest. 8. Because debt increases returns to shareholders in good times and reduces rage. Financial leverage them in bad times, it is said to create financial leve is usually measured by the ratio of long-term debt to total capitalization. 9. A level stream of payments starting immediately is known as an annuity The present value of an annuity is the value today of a stream of payments that starts in one period. 10. Both the NPV rule and the rate of return rule set the same cutoff point. An investment that is on the knife edge with an NPV of zero will also have a rate of return that is just equal to the cost of capital. Partlll.Short Answer Questions (10 3) 1. Most large corporations have a chief financial officer. Below the CFO are usually a treasurer and a controller. Distinguish the responsibilities of the CFO, the treasurer and the controller. 8-3

Answer 1