1. A company's balance sheet shows a significant increase in inventory levels compared to the previous period. Which of the following could be a potential cause of this change? A) Increased sales volume B) Decreased cost of goods sold C) Improved inventory management D) Slower inventory turnover Answer: D) Slower inventory turnover Rationale: An increase in inventory levels could indicate slower inventory turnover, which may suggest a decrease in demand or overstocking of inventory. 2. During an audit, an accountant finds that the accounts receivable turnover ratio has decreased significantly from the previous year. What does this suggest about the company's collection process? A) It has become more efficient. B) It has remained consistent. C) It has become less efficient. D) It cannot be determined from this ratio alone. Answer: C) It has become less efficient. Rationale: A decrease in the accounts receivable turnover ratio indicates that the company is taking longer to collect payments, suggesting inefficiency in the collection process. 3. A corporation is considering investing in a project that has a net present value (NPV) of zero. What does this imply about the project's expected profitability? A) The project will generate a loss. B) The project will break even. C) The project will generate a profit. D) The project's profitability cannot be determined. Answer: B) The project will break even. Rationale: An NPV of zero suggests that the project's cash flows are expected to equal the initial investment, resulting in a break-even situation. 4. If a company's quick ratio is significantly lower than its current ratio,