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On February 10, 2010, After Issuance of Its Financial Statements

question 91

Multiple Choice

On February 10, 2010, after issuance of its financial statements for 2009, House Company entered into a financing agreement with Lebo Bank, allowing House Company to borrow up to $4,000,000 at any time through 2012.Amounts borrowed under the agreement bear interest at 2% above the bank's prime interest rate and mature two years from the date of loan.House Company presently has $1,500,000 of notes payable with First National Bank maturing March 15, 2010.The company intends to borrow $2,500,000 under the agreement with Lebo and liquidate the notes payable to First National.The agreement with Lebo also requires House to maintain a working capital level of $6,000,000 and prohibits the payment of dividends on ordinary shares without prior approval by Lebo Bank.From the above information only, the total short-term debt of House Company as of the December 31, 2010 statement of financial position date is

Recognize the challenges in evaluating mutually exclusive projects and the solutions to those challenges.

Understand the principles and application of the profitability index in investment decision making.

Analyze the concepts of capital budgeting decisions, including capital rationing and project selection based on financial metrics.

Distinguish between various capital project types and their respective risk profiles.

Definitions:

Reciprocal Behavior

Mutual action or exchange between parties, where each party responds to the other with a similar kind of behavior.

Reciprocally Related

Being mutually influencing or having a two-way relationship where both parties have an effect on each other.

Attribution Theory

A psychological theory that explains how individuals pinpoint the causes of their own and others' behavior.

Internal

Relating to or occurring within an organization or entity.