1. Which of the following is NOT directly reflected in the cash budget of a firm that is in the zero tax bracket?
a. Repurchases of common stock.
b. Writing off bad debts.
c. Payment lags.
d. Cumulative cash.
e. Payment for plant construction.
2. A basic rule in capital budgeting is that if a project's NPV exceeds its IRR, then the project should be accepted.
a. True
b. False
3. Roton Inc. purchases merchandise on terms of 2/15, net 40, and its gross purchases (i.e., purchases before taking off the discount) are $675,000 per year. What is the maximum dollar amount of costly trade credit the firm could get, assuming it abides by the supplier's credit terms? (Assume a 365-day year.)
a. $38,965
b. $51,198
c. $45,308
d. $41,684
e. $48,027