1. d.

Computing return on equity is determined by dividing net income by average stockholder's equity. Return on equity does not take into consideration the time value of money.

2. a.

The internal rate of return is where the cash inflows and cash outflows have a present value equal to zero. That interest rate used to determine the zero net present value is the internal rate of return.

3. c.

All of the items listed except common stock deal with cash flows and can be evaluated by the use of present value techniques.

4. c.

If the internal rate of return (IRR) is greater than the required rate of return there will be a positive net present value. This happens because the rate used to discount the net cash inflows is lower than the IRR, thus the present value of the inflows will be large enough to produce a positive net present value when compared to the net investment at time zero.

5. a.

The interest for the first month is $166.67. Multiply that by twelve to get the amount of annual interest which is $2,000. $2,000 interest divided by the $25,000 principal gives you an interest rate of 8% annually.

6. c.

The interest expense for 1999 would be the sum of the interest amounts in the year 1999 or $166.67 + $166.19 + $165.70 + $165.21 or $663.77. The interest payable is zero because each month the company made a payment which included principal plus interest and there is no outstanding interest owed at year end.

7. d.

The mortgage payable is the principal balance at the balance sheet date; in this case 12/31/99 which would be $24,708.11. This is the amount in the last column of the amortization table on the 12/31/99 row.

8. b.

Capital lease are noncancellable long term leases.

9. c.

The interest for the first year of the lease is $20,000. $20,000 interest divided by the $200,000 principal gives you an interest rate of 10% annually.

10. a.

As of 12/31/2000, no yearly payments have yet been paid. At that date the interest expense and interest payable would be interest from April 1st to December 31, 2000 or 9 months of interest. 9/12ths of the first year interest of $20,000 would be $15,000.

11. b.

As of 12/31/2000 no payments have been made on the lease so the lease liability is still $200,000.

12. d.

The interest expense for February 2000 is $295.98 calculated by multiplying the annual interest rate of 9% by the previous liability balance of $39,463.48 and then dividing by 12 to get the monthly interest. If the interest is $295.98, then the principal portion of the $405.71 payment would be $109.73. The new principal balance would then be the previous balance of $39,463.48 less the principal portion of $109.73 or $39,353.75.