San Jose City College Business 82 REVIEW Chapters 6-10 (101-193Q) Answer Keys……………..

| August 14, 2017

The following questions were pulled from the test bank to provide a basis for preparation for a midterm exam. DO NOT MEMORIZE these questions as the exam will ask different questions about the same material. After you have researched each of the questions, bring any issues to class for discussion.____ 101. Benny’s Bumpers is incorporated in Ohio but also conducts business in Florida. Benny’s Bumpers is a _______ in Ohio but is a _________ in Florida.a)b)c)d)C corporation, S corporationglobal, multinationalprimary corporation, secondary corporationdomestic corporation, foreign corporation____ 102. Suzanne Limley was just elected to the board of directors at United Bank Corporation. As a board member, she is expected to represent the interests ofa)b)c)d)senior bank management.shareholders.creditors.customers.____ 103. Mike’s Motorcycles, Inc., has just incorporated the business in Delaware. John Littleton, a partner, now becomes aa)b)c)d) trainee.board member.____ 104. You are in a group of investors that is considering taking over Sips and Chips, the cybercafe in town. Severalinvestors favor reorganizing the cafe by forming a C corporation. You want to make sure these investors areaware of the possible drawbacks of this form of ownership, so you point out thata) this type of business lacks permanence.b) earnings that the investors receive would be taxed both as corporate income and as incometo the investors.c) all of the investors would be subject to unlimited liability for any debts the firm incurs.d) all of the items in this list would be legitimate drawbacks of forming a C corporation.____ 105. Recently, several well-known large companies such as Home Depot, Inc., and Time Warner, Inc., have beencriticized for paying CEOs exorbitant salaries and bonuses even when the corporations they lead have lostvalue. This is considered a failure on the part of the __________ of these firms to protect the rights of the___________ who elected them..a)b)c)d)boards of directors, creditorsboards of directors, stockholderstop management, employeesaudit committee, partners____ 106. ___________ are clauses in senior management contracts that can compensate executives with millions of dollars in severance pay.a)b)c)d)Indenture agreementsSilver spoonsGolden parachutesBomb shelters____ 107. Like a statutory close corporation, a limited liability company (LLC)a)b)c)d)files articles of incorporation outlining operational and organizational not required to elect a board of directors or hold annual stockholders’ meetings.follows the same state laws that C corporations follow.has no more than 50 shareholders.____ 108. Elaine and several friends want to start a business. They like the idea of limited liability. However, they want to keep their organization simple and avoid the need to have formal meetings. Each member of the group wants to actively participate in managing the business and share in any profits. Which of the following formsof business ownership would best satisfy the goals of Elaine and her friends?a)b)c)d)general partnership.nonprofit corporation.statutory close corporation.____ 109. To increase production capacity and provide consumers with market stability, Exxon and Mobil createdExxonMobil. This would be an example of a _______ merger.a)b)c)d)conglomeratehorizontalverticallimited liability____ 110. In 1988, Philip Morris, the leading cigarette manufacturer in the United States, merged with Kraft, Inc., themaker of several leading food brands, such as Miracle Whip, Velveeta, and Maxwell House. Thiscombination would be classified as a _________ merger.a)b)c)d)horizontalverticalconglomeratemacro____ 111. Tim, Bill, and Mel want to start a rehabbing business. All of them want to take an active role in managingtheir company while also protecting their personal assets from unlimited liability. They are likely to find thatforming a ______________ will meet their needs.a)b)c)d)nonprofit corporationlimited partnershiplimited liability companygeneral partnership____ 112. Compared to C corporations, an advantage of an LLC is thata) C corporations must file paperwork with the state when they are formed, while nopaperwork needs to be filed to form an LLC.b) C corporations are limited to no more than 100 owners, while LLCs can have an unlimitednumber of owners.c) earnings of C corporations that are distributed to owners are subject to double taxation, butthe earnings of LLCs pass through the company and are taxed only as personal income.d) LLCs are classified as domestic firms in all of the states where they operate, whilecorporations are classified as “foreign” business entities in states other than the one inwhich they are incorporated.____ 113. In a typical business format franchise, the franchisora)b)c)d)pays royalties and fees to the franchisees.provides the franchisees with management training and support.allows franchisees to operate loosely, as long as they are profitable.owns all of the franchise outlets but leases them to the franchisees.____ 114. Successful franchisors are particularly vigilant in avoiding the ______________, a situation where thebehavior of an incompetent or irresponsible franchisee harms the reputation of the franchisor and otherfranchisees.a)b)c)d)pie-in-the-sky effectsaturated effectnegative halo effectrestructuring effect____ 115. Jacob currently works as a manager at a major corporation but has been thinking about quitting to start hisown business. Which of the following reasons would most likely explain Jacob’s interest in making this majorcareer change?a)b)c)d)He wants a job with fewer responsibilities.He wants more benefits and a steadier income.He doesn’t like the risk associated with working in the corporate environment.He wants to have more independence and flexibility than his corporate position allows.____ 116. Michael Peters is a middle-aged professional who lost his job five months ago when his former employerdownsized. He’s been actively looking for work at all of the nearby companies, but he hasn’t been able to finda job that truly uses his talents or abilities—or that offers an income anywhere close to what he earned in hisprevious position. He is beginning to feel that the only way to survive in his current situation is to start hisown business. Michael might well become a(n)a)b)c)d)venture capitalist.intrapreneur.necessity entrepreneur.frictional worker.____ 117. Greg has developed an automobile engine that runs efficiently for up to three hours on a single russet potato.His friends have pointed out how difficult it will be to get car manufacturers to adopt his new technology andthat it could take years to get enough service stations to stock potatoes to make it practical for people to relyon the new energy source for long trips. But Greg is convinced he can make the U.S. economy energyindependent, thus changing the world. He plans to create a new business called Spuds-to-Go to promote hisnew engine. Greg hasa)b)c)d) external locus of control.opportunity sense.strong strategic planning skills.____ 118. Which of the following questions would an entrepreneur be most likely to ask in the aftermath of a businessfailure?a)b)c)d)Why did I ever think I’d be good at running a business on my own?When will other people start recognizing my talents and abilities?What can I learn from this experience that will help me be more successful in the future?When will this string of bad luck end?____ 119. Cal is thinking about starting a small business and is trying to access the potential opportunities and threatsassociated with a new start-up. He’s talked with friends and associates about his plans, and several haveoffered him opinions and advice. The comments of four friends are summarized below. Which of thesestatements would probably be the most helpful to Cal?a) You are likely to face some lean months at first, so manage your money carefully. Avoidthe temptation to make splashy purchases.b) One advantage of operating a small business is the fact that you don’t have to worry verymuch about government regulation.c) Focus on the domestic market. There is no practical way for you to compete effectivelyagainst big businesses in foreign markets.d) Aim your efforts at the broadest possible market segments. Those are the ones that offeryou the greatest potential to make profits quickly.____ 120. Sal is thinking about starting a small business and is trying to access the potential opportunities and threatsassociated with a new start-up. She’s talked with friends and associates about her plans, and several haveoffered her opinions and advice. The comments of four friends are summarized below. Which of thesestatements would probably be the most helpful to Sal?a) Since your company will be small and new, it’s important to impress your customers.Spend a lot of money on upscale offices and state-of-the-art equipment to create a“WOW” factor.b) Don’t worry about your lack of business experience and limited business skills.Entrepreneurs can make up for a lack of skills with enthusiasm and hard work.c) Hang in there. If a business is going to fail, it almost always happens in the first year. Ifyou can stick it out for more than a year, you’ll be on your way to success.d) Find a market segment that you can profitably serve but which is too small to attract largercompanies.____ 121. Dana is thinking about starting her own graphics design business but is keenly aware of the fact that she lacksmuch business experience. A friend has suggested that she consider going to work for someone else in thesame type of business before going out on her own. This advice isa) usually a bad idea. Working for someone else tends to stifle creativity.b) often a good idea because it allows you to learn the ins and outs of running that type ofbusiness with little personal risk. But keep in mind that if you work for someone else toolong you might get too comfortable in your position to follow through with your plans.c) almost always an excellent idea. Most studies suggest that the vast majority of successfulsmall business owners worked for at least 10 years for someone else before they launchedtheir own company.d) sometimes a good idea, but more often it’s a waste of time. Most small businesses are sosimple to manage that prior experience isn’t really necessary.____ 122. Barnie has been a very successful sales rep for a big corporation and has managed to save up a large sum ofmoney. He’s tired of working for the big company and is wondering if he should sink his savings into a newbusiness. He is willing to work hard and has very good people skills. But he hasn’t been able to develop agood business concept from scratch. He also realizes that he doesn’t have strong financial skills and mightneed some training and assistance in this area. Someone like Barniea)b)c)d)is unlikely to find a small business opportunity that suits his likely to find franchising an attractive option.would find that starting a business from scratch is the best way to go.obviously needs to develop a stronger external locus of control before leaving hiscorporation.____ 123. Sheila loves taking care of animals and has thought about starting her own pet grooming business. However,she doesn’t know much about the growth potential for this type of business or the amount of competition shewould face. She also wants to find out if there are any government regulations she would need to deal with.She should be able to find answers to many of her questions by contacting thea)b)c)d)American Association of Entrepreneurs.Federal Trade Commission.Small Business Administration.local chapter of the federal government’s Entrepreneurial Advisory Board.____ 124. Barry and Inga recently founded a hot new company that is growing rapidly. They need more money tofinance their company’s growth and have been approached by a venture capital firm. Barry and Inga shouldrealize that the venture capital firm will only provide financinga)b)c)d)if they agree to avoid any risky investments.after they have paid off all of the personal debt they incurred to start their exchange for a significant stake in their firm’s ownership.if they agree to pledge specific company assets as collateral to back the loan.____ 125. Cynthia is a successful business woman who has amassed a large amount of money by investing in companieswith the potential for rapid growth. These companies are either later sold to other investors or the companiesoffer stock to the public. While she is excited about the possibility of helping these businesses grow, herprimary motivation is to make money for herself. Cynthia seems to match the profile of a(n):a)b)c)d)angel investor.venture capitalist.institutional partner.____ 126. Senator Taxmoore wants to help revitalize inner cities and stimulate more innovation. He could achieve bothof these goals by supporting legislation that woulda)b)c)d)encourage the formation of small businesses.make it illegal for firms to outsource jobs.increase government benefits for those that are for greater government ownership of factories located in inner cities.____ 127. Senator Foghorne is running for re-election. One of his political proposals is the enactment of new legislationthat will provide American workers who are laid off with much higher unemployment compensation and willguarantee those benefits for a full year. If enacted, Senator Foghorne’s proposal is likely toa)b)c)d)lower tax rates on small businesses.have a negative impact on entrepreneurship rates.encourage more people to start new businesses.reduce the federal deficit.____ 128. Tiny Timber Tree Farms applied to United Bank for a business loan. Which financial statements would theloan officer of the bank be most likely to request?a) Balance sheets, income statements, and cash flow statements.b) Journals, ledgers, and trial balances.c) Total debits and total credits.d) The prospectus, statement of retained earnings, and total liability statement.____ 129. Samantha is an accounting major who has been disturbed by all of the recent accounting scandals. She hasdecided to dedicate her career to catching those involved in embezzlement, securities fraud, moneylaundering, and other white collar crimes. One way Samantha could achieve this would be to seek training asa(n)a)b)c)d)certified bookkeeper.forensic accountant.transactional accountant.FASB analyst.____ 130. Recent calls to reform GAAP have focused on the need for the FASB toa) eliminate the necessity for standardization so that small businesses and big businesses willaccount for earnings in significantly different ways.b) give firms more flexibility in their accounting procedures so that they can present theirearnings in the most meaningful way.c) allow CPA firms a greater role in advising the firms that they audit.d) make it more difficult for firms to manipulate results, thus making it easier for investors tocompare financial results of different firms.____ 131. The accounting equation shows us that the value of the firm’s assets must equal the value of the firm’sa)b)c)d)earnings at a point in time.revenues minus expenses.owners’ equity.financing provided by owners and creditors.____ 132. Lottadoe’s liabilities are $130,000, and its owners’ equity is $170,000. This means that Lottadoe’sa)b)c)d)total assets are $300, income is $40, income for the current year was $300, cash flow for the current year was $40,000.____ 133. Which of the following statements is the rationale for the accounting equation?a)b)c)d)What the firm owns minus what it owes creditors equals what it is worth to its owners.A firm is worth its equity minus its assets.The firm’s profit is equal to its revenue minus its expenses.Assets must equal earnings minus expenses.____ 134. As represented on the balance sheet, a firm has two sources of funds: the firm’sa)b)c)d)assets and liabilities.liabilities and the owners’ equity.assets and owners’ equity.assets and earnings.____ 135. Sabiha is the small business loan officer at Regional National Bank. It is her job to approve loans for smallbusinesses so that the local economy will grow. One factor she looks at carefully when making loan decisionsis the amount of debt the firm already has outstanding. She can find this information by looking at the firm’sa)b)c)d)income statement.balance sheet.statement of cash budget.____ 136. A business has two sources of funds: the owners and the non-owners. The financing provided by owners isrepresented on the balance sheet as ____________, and the financing provided by non-owners is representedon the balance sheet as ___________.a)b)c)d)liabilities; retained earningsdividends; interestowners’ equity; liabilitiesrevenues; expenses____ 137. A firm’s current liabilitiesa) are what it owes to its shareholders.b) are due in less than a year.c) do not have to be repaid on any specific date. Instead, repayment can be deferred as longas the firm is willing and able to make the required interest payments.d) must equal its current assets.____ 138. A firm’s cost of goods sold is subtracted from the ________________ on the ___________________ in orderto compute the firm’s ____________________.a)b)c)d)total assets; balance sheet; net worthrevenue; statement of cash flows; cash balancerevenue; income statement; gross profitliabilities; balance sheet; total profit____ 139. Mason owns stock in Munnymacher Inc. and wants to see if he can identify any trends in its financialperformance over the past few years. This suggests he would want to perform a(n)a) incremental analysis.b) horizontal analysis.c) vertical analysis.d) elasticity analysis.____ 140. Radcliffe McCoy is the financial manager for his company. He is comparing income statements from the pastthree years to see the trend (if any) in cost of goods sold and other expenses. He is usinga)b)c)d)vertical analysis.horizontal analysis.ratio analysis.managerial analysis.____ 141. Small business owner Barry Shain has always paid all of his current bills on time. However, this year he hasmore bills coming due than normal. Which type of ratio would help him evaluate whether he is likely to haveenough cash to continue meeting his obligations over the next year?a)b)c)d)liquidity ratio.managerial ratio.leverage ratio.profitability ratio.____ 142. By calculating a ____________, Paul Pezzelle determined that his firm was financed by debt and equity at aratio of 1:1 (50 percent with debt and 50 percent with equity).a)b)c)d)liquidity ratiomanagerial ratioleverage ratioprofitability ratio____ 143. Tiny Timber Tree Farms has decided to adopt activity-based costing. One likely reason the firm’s accountantsdecided on this approach was toa)b)c)d)provide a more meaningful way to assign overhead costs to specific products.simplify the process of assigning costs to specific products.base costing on the amount of direct labor used to produce each product.move from a system that focuses on assigning costs to goods and services to a system thatassigns costs to activities.____ 144. Arvid’s Moving and Storage has a fleet of 37 trucks. Arvid currently has two of his own mechanics whoperform all of the routine maintenance as well as other minor repairs on all of the trucks. However, hewonders whether outsourcing this work would be more cost-effective and asks his accountant to work withtwo managers to analyze such a change. Which of the following types of analysis would the accountant bemost likely to use?a)b)c)d)Incremental analysis.Horizontal analysis.Ratio analysis.CPM analysis.____ 145. Pierre’s Gourmet Foods produces high-quality desserts and appetizers that are distributed by upscale grocerystores. When assigning production costs to its various food products, the costs of ingredients used to make aproduct are ____________, the cost of the workers who prepare the product are _______________, and thecost of the rent and insurance on the building are ________________.a)b)c)d)direct costs, derived costs, fixed coststax-exempt costs, taxable costs, depreciable expensesfixed costs, proportional costs, capital costsdirect materials costs, direct labor costs, overhead costs____ 146. Desmond owns a restaurant and is considering buying his desserts from a local bakery rather than continuingto hire a pastry chef for this purpose. When he performs an incremental analysis, which of the followingwould be considered an incremental cost?a) The utilities, including the oven costs that are shared with the other chefs, during regularhours of operation.b) The pastry chef’s wages.c) The head chef and salad chef’s wages.d) The insurance on the restaurant’s building and equipment.____ 147. Preparing a good budget is beneficial becausea) it fosters better communication and coordination among members of various departmentswith direct responsibility for producing products and services.b) it provides direction through the identification of goals and plans of action.c) it provides an effective way to monitor progress.d) All of these statements are benefits of budgeting.____ 148. As a financial manager for his firm, Martin Meyer is worried about possible cash shortages his firm mightface over the next few months. The ____________ budget would help him identify periods when cash mightbe very tight.a)b)c)d)revenuesalesliquiditycash____ 149. Sally Meadows works for Swictek Industries. Her primary responsibilities involve management of the firm’sworking capital and the analysis of long-term investment opportunities for Swictek. Sally’s job is in the areaofa)b)c)d)managerial management.operational budgeting.____ 150. At Chips and Dips, a local convenience market, an increase in the inventory turnover ratio would indicate thatit wasa)b)c)d)at risk of holding too much inventory.selling its stock of merchandise more quickly.relying heavily on credit sales.more likely to face a cash flow problem.____ 151. At Sips and Chips, a local cybercafe, a financial manager has calculated the debt to equity ratio anddiscovered it is equal to one. This means that Sips and Chipsa)b)c)d)relies exclusively on debt financing to meet its long-term financing at risk of being unable to pay its short-term debts when they come relying on equal amounts of debt and equity financing.has an equal amount of current assets and current liabilities.____ 152. At Sips and Chips, the local cybercafe, management is measuring the profit earned on each dollar invested bythe stockholders. Managers are measuring the firm’sa)b)c)d)degree of financial leverage.earnings per share.return on assets.return on equity.____ 153. Snow International, a ski company in the Midwest of the United States, has 500 shares of outstandingcommon stock and has not issued any preferred stock. Net income is $27,500. What would be the earnings pershare calculation?a)b)c)d)$27,500/500 = $55500/$27,500 = $.018$27,500 ? 500 = $13,750,000$27,500 – 500 = $27,000____ 154. Two firms in the same industry are the same size and have very similar real-world financial results. Theprofitability ratios of these firmsa) should be very similar because both firms must use exactly the same mathematicalformulas to calculate their ratios.b) could be quite different if they use different GAAP-approved methods to construct theirfinancial statements.c) could be very different because ratios are based on projections of future performancerather than on actual real-world performance.d) should be identical because GAAP requires all firms in the same industry to use the sameaccounting methods to construct their financial statements and compute their key financialratios.____ 155. Kendra Wright was recently hired by High Adventure Inc. to be a financial manager. She is surprised to learnthat the company currently operates “by the seat of its pants.” As she seeks to develop a more rigorousfinancial plan, she will have toa) work independently of others in the organization.b) avoid too much reliance on pro forma statements.c) seek input from the managers of the various functional units of the firm as well as thefirm’s accountants.d) make heavy use of a technique known as value mapping.____ 156. The manager of Timmy’s Timbers, the local landscape company, realizes that he runs a seasonal business. Forexample, although his sales do not start coming in until April and May, he needs to be well-stocked in Marchin anticipation of the spring sales. He should create a _________ to help plan for when the firm will need toarrange for additional funds in order to avoid a cash crunch.a)b)c)d)pro forma income statementpro forma balance sheetset of leverage ratioscash budget____ 157. George’s Car Repair Shop buys parts from a local parts distributor. The distributor delivers the parts promptlyunder terms stated on the invoice that say: 3/15 net 30. George has always paid the bill in just 30 days and hasnever really worried about these invoice terms. Your advice to George is:a) He is smart to wait until the 30th day before making payment because this gives him theuse of cash for the maximum possible amount of time.b) These terms mean that the payment is due in 30 days, but that as long as he is not morethan 15 days late, he can avoid the 3 percent late penalty. Thus, George could actuallydelay payment until the 45th day without incurring a penalty.c) If possible, it is smart to pay the bill within 15 days after receipt because then he willreceive a 3 percent discount. If he does a lot of business with this firm, this will result in asizeable savings for George by year’s end.d) George should not react to these payment terms because they are a tactic used by manydistributors to get customers to pay early, with little or no benefit to George.____ 158. United Financial Corporation is a large, well-known company with an excellent credit rating. Its financialmanagers project that United Financial will need to obtain some short-term financing in the near future. Thesesame managers believe that interest rates on short-term loans from banks are currently undesirably high. Onefinancing option these financial managers might find attractive would be toa)b)c)d)issue T-bills.sell some additional bonds.issue commercial paper.establish a revolving credit arrangement with its banker.____ 159. Sally McGregor sells lawn and garden products in bulk to companies that do lawn and garden work. Sheextends credit to her customers for 60 days, but she is worried about cash flow problems. But this is a highlycompetitive business and most of her competitors also offer credit—some of them for up to 90 days. Sally isalso concerned with the cost of billing and collecting money from her customers, some of whom make it ahabit of paying late. Which of the following statements represents the most useful advice to Sally?a) Sally can reduce her cash flow issues by extending credit for 90 days.b) Sally should consider a “cash only” policy and eliminate credit sales. This would eliminateher cash flow problems and free up money and other resources that she now devotes tocollecting past due accounts.c) Sally would be able to generate more sales and reduce her collection costs by cutting thecredit period to 30 days.d) Sally should consider selling her receivables to a factor, thus allowing her to receive cashmore quickly and eliminate the hassles associated with collections.____ 160. Jasmine started a small business two years ago. The business is just now seeing some success, and Jasminenotes that she has a few thousand dollars more in her bank account than she currently needs to pay her bills.However, because of the uncertainty of cash flows in her new business, she is concerned that she may needaccess to these funds on fairly short notice in the future. Given this situation, Jasmine shoulda)b)c)d)invest the funds in common stocks.keep all of these funds in her checking account.put some of her excess cash into money market mutual funds.use her excess cash to buy intangible assets.____ 161. William is the credit manager for Timmy’s Timbers, a local landscaping company. Just recently, his mulchsupplier noted on the invoice the terms of 3/15 net 30. What does this mean?a) Timmy’s Timbers will get a 3 percent cash discount if the balance owed to the supplier ispaid within 15 days; otherwise the entire balance is due in 30 days.b) The entire amount is due in 30 days, but the 3 percent late penalty will only be imposed ifpayment is more than 15 days late.c) Timmy’s Timbers Tree Farm must pay 15 percent of the amount due in 3 days; then theremaining 85 percent is due in 30 days.d) Timmy’s Timbers has to pay the invoice within 30 days. Late payment penalties are 3percent if the bill is paid in less than 60 days, but they rise to 15 percent if payment is notmade within 60 days.____ 162. Timmy’s Timbers has just arranged a $300,000 line of credit with its banker for the next year. This meansthata) Timmy’s Timbers now has $300,000 more in cash in its bank account but must beginpaying financing charges on these funds immediately.b) Timmy’s Timbers now has guaranteed access to up to $300,000, but it must pay acommitment fee on any unused portion of these available funds.c) as long as its credit rating doesn’t deteriorate, Timmy’s Timbers can take out loans of upto $300,000 from the bank over the next year without having to negotiate new loanagreements each time it needs to borrow funds.d) the bank now holds commercial paper issued by Timmy’s Timbers that will be worth$300,000 plus interest when it matures. In exchange, the bank provides Timmy’s Timberswith $300,000 of cash that it can use immediately or at any time over the next year.____ 163. Firms that _______________ may find that they can achieve their objective by developing a relationship witha firm that offers factoring services.a) need to establish a source of long-term financing that avoids fees and commissionsb) have larger than necessary cash balances and want to find a safe way to invest the excesscashc) rely heavily on credit sales and want to speed up their receipt of cashd) plan to issue large sums of commercial paper in the near future____ 164. Denise is 25 years old and has decided to begin saving for retirement by setting aside $2,500 each year. Sheexpects to earn 6 percent on the funds in her retirement account. Under this scenario, she will have $413,000in her retirement account, even though she only made $100,000 in contributions. The additional $313,000 isthe result ofa)b)c)d)accruing.discounting.compounding.factoring.____ 165. Dan inherited $1,000 from his grandmother’s estate. He has found an investment opportunity that will earn 7percent interest compounded annually each year for the next two years. If he puts his money into thisinvestment, in the first year he will earn _____ in interest, while in the second year he will earn _______ ininterest.a)b)c)d)$7; $14.70$70; $77$70; $74.90$100.70; $107.77____ 166. Alison has $5,000 to invest and is trying to decide between two investment opportunities. One investmentoffers her future cash flows of $2,000 for each of the next five years. Another investment offers her futurecash flows of $5,000 in year five and $7,500 in year six. You tell her that in order for her to compare thesetwo investments, she will need to calculate the _________ of the future cash flows.a)b)c)d)common payout valueaverage annual payoutannuity valuepresent value____ 167. Flying High Inc. is trying to decide whether to invest in a new robot for its packaging line. The new robot willcost $370,000 and is expected to significantly increase efficiency and thus save the company $67,000 per yearfor the next eight years. At that time, the robot will be completely depreciated and may not have any salvagevalue. As part of the financial management team for Flying High, you are assigned to evaluate this proposal.A key part of your analysis will probably consist of a computation of the proposal’sa)b)c)d)gamma present net cash flow.breakeven point.____ 168. A wealthy relative promises to give you $5,000 when you complete all of the college courses needed to earn adegree in business. The present value of this future sum must bea) more than $5,000, but the exact value depends on how long it takes you to earn yourdegree and the rate of interest you can earn on investments.b) less than $5,000, but the exact value depends on how long it takes you to earn your degreeand the rate of interest you can ea

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