Multiple choice

1) In break-even analysis, the contribution margin is defined as 

A.-price minus fixed cost.

B.-variable cost minus fixed cost.

C.-price minus variable cost.

D.-fixed cost minus variable cost.

2) Kuznets Rental Center requires $1,000,000 in financing over the next two years. Kuznets can borrow long-term at 9 percent interest per year for two years. Alternatively, Kuznets can borrow short-term and pay 7 percent interest in the first year. Then, Kuznets projects paying 10 percent interest in the second year. Assuming Kuznets pays off the accrued interest at the end of each year, which of the following statements is true? 

A.-Kuznets will definitely end up paying less under the long-term financing plan.

B.-Kuznets will probably pay more under the short-term financing plan.

C.-Kuznets will definitely end up paying more under the long-term financing plan.

D.-Kuznets will probably pay less under the short-term financing plan.

3) The theory of the term structure of interest rates which suggests that long-term rates are determined by the average of short-term rates expected over the time that a long-term bond is outstanding is the 

A.-segmentation theory.

B.-liquidity premium theory.

C.-expectations hypothesis.

D.-market average rate theory.

4) Normally, permanent current assets should be financed by 

A.-short-term funds.

B.-long-term funds.

C.-borrowed funds.

D.-internally generated funds.