1. Which one of the following statement are correct concerning a corporation with negative taxable income?

A. Net income minus dividends paid will equal the ending retained earnings for the year recorded in the balance sheet.

B. An increase in the tax rate will decrease net income.

C An increase in depreciation will increase the operating cash flow.

D All of the above.

E. None of the above.

2. Which one of the following terms is defined as the management of a firm's everyday financial activities?

A. capital budgeting

B. capital structure

C. working capital management

D long-term investment decision

E. financing decision

3. Which of the followings are means to solve the agency problem in a corporation?

I aligning management and stockholder interests

II threat of a takeover

III employing external auditors

IV providing managers better job prospect

A I and II only

B I and III only

C II and III only

D I, II and IV only

E I, II, III, and IV

4. Which of the following is correct?

A. Balance sheet reports the financial condition of a firm for a specified period of time.

B. Items in income statement is listed in the order of decreasing liquidity

C Net working capital is negative when the total assets are less than the total liabilities

D Noncash items refer to expenses that do not directly affect cash flows.

E. None of the above.

5. Which of the following is correct?

A A positive cash flow to creditors must mean that a firm has increased its long-term debt.

B The sum of net working capital and net fixed asset must be equal to the sum of long term debt and owner's equity

C Liquid firms are more likely to experience short term financial distress than illiquid firms

D Market value of equity is always equal to the book value of equity.

E none of the above