1. Issuing new stock or borrowing from a bank is a cash inflow. ( )
2. Since inventory may be held for more than a year, it is not a current asset.( )
3. Retained earnings represent cash. ( )
4. An increase in accounts payable is cash outflow. ( )
5. Assets + Equity = Liabilities. ( )
6. LT debt that matures in this fiscal year is classified as a current liability.( )
7. Interest & dividends are paid before income taxes. ( )
8. Inventory consists of raw materials, work-in-process, and finished goods.( )
9. An increase in retained earnings is a cash inflow. ( )
10. If the firm has a large amount of debt financing, it is highly leveraged. ( )
11. If the D/TA ratio is 50%, then the D/E ratio is 1:1.( )
12. TR = .5Q implies that the P is constant. ( )
13. A firm would prefer to issue preferred stock instead of debt since it increases the
usage of financial leverage. ( )
14. The effect on EPS will be the same if a firm issues bonds with a 9% int or
preferred stock with a 9% div yield. ( )
15. The lower a firms tax rate, the smaller is the incentive to use preferred stock
instead of debt financing. ( )
16. Because interest is tax-deductible, the effective cost of debt is the cost of debt and equity b. > the cost of debt but < the cost of equity c. < the cost of debt and equity d. the cost of equity
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