Q1. The management of inventory is important because:
a. carrying too much inventory can result in a loss of efficiency and profitability.
b. carrying excessive inventory can result in a loss of sales.
c. carrying too little inventory can decrease the average collection period.
d. carrying too little inventory will adversely affect the firm's CAPM.
Q2. An operating lease usually:
a. is for a shorter length of time than a financial lease.
b. is for high-tech equipment that might become obsolete rapidly.
c. has the income tax advantage that the entire lease payment is a deductible expense.
d. both a and c.
e. all the above.
Q3. If a lease is extended for a length of time that is equal to the entire useful life of the equipment, the lease:
a. is referred to as an operating lease.
b. carries no income tax deduction.
c. is a financial lease.
d. will be terminated by the IRS.
Q4. Which of the following would decrease free cash flows? A decrease in:
a. depreciation expense.
b. interest expense.
c. incremental sales.
d. both a & c.
e. all of the above.
Q5. An increase in the ____________ is likely to encourage a corporation to increase its debt ratio.
a. corporate tax rate
b. personal tax rate
c. company's degree of operating leverage
d. expected cost of bankruptcy