Question

1) Cash flow to creditors decreases when:

A) current liabilities are repaid.
B) new long-term loans are acquired.
C) accounts payables decrease.

D) long-term debt is repaid.

E) interest expense declines.

2) When modeling an NPV of a project, an option to expand into allied businesses in the future is called?

A) Strategic option
B) Hard rationing
C) Contingency option

D) Capital rationing option

E) Soft rationing

3)

One of financial goals of a sole proprietorship?
A) Minimize the market value of the equity
B) Maximize the reliance on fixed costs
C) Minimize net income given the current resources of the firm

D) Maximize the tax impact on the proprietor

E) Minimize long-term debt to optimal levels to reduce the risk to the owner

Answer 1

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Answer:

1)

Cash flow to creditors = Interest paid-Net new long-term debt

So any long term debt repayment and interest payment will increase cash flows to creditors.

Hence, correct option is long-term debt is repaid.

2)

Contingency option allows to expand or contract the project in further developments

3)

a.maximise the market value of the equity.

the primary goal of financial management for a sole proprietorship is to maximise the market value of its equity.