Question

1. Cash flow to creditors must be negative when: a. net new borrowings exceed the amount of interests paid b. the amount of dividends paid exceeds the net new borrowings. c. dividends payment exceed the interests payments. d. both the cash flow from assets and the cash flow to shareholders are negative. 2. The greater the level of debt incurred by a firm means: a. the greater the number of shares of common stock issued The higher the financial leverage employed by a firm b. c. the higher the cash flow to shareholders each year the lower the firm's cash flows and its NPV d. . Yourtax rate is the amount of tax payable on the next taxable dollar you earn. a. residual c. average b. total d. Marginal When fixed assets on a pro forma statement change proportionately with increase in sales, it can be assumed that the firm is: 4. a. projected to grow at the internal rate of growth. b. projected to grow at the sustainable rate of growth. c currently operating at less than full capacity. d. currently operating at full capacity 5. Maximum growth rate achievable using internally generated funds and issuing debt while maintaining a constant debt-equity ratio is best described as the: sustainable growth rate short-term growth rate long-term growth rate a. c. d. b. internal growth rate 6. NPV rule: a. cannot be used for long-term investment projects. b. is not as useful to decision makers as IRR when comparing different sized (scale) projects. c. of a project decreases when the cost of capital increases. d. will accept the project when the project's NPV is negative. 7. The internal rate of return method of analysis: a. will definitely produce one rate of return (G.e, one IRR) for a project with non-conventional cash flow duri the project's life b. will lead to same decisions as NPV method when comparing independent projects c conflicts with NPV if the cost of capital is more than the crossover rate. d. all of the above statements are true.

Answer 1

1) Cash flow to creditors = Interest paid-Net new borrowing From the above formula we can say that, cash flows to creditors will be negative when net new borrowing has exceeded interest paid Hence, correct option is a.