Deck 17: Financial Management Appendix C Managing Risk

Question 1

provide financing to new or emerging companies with high profit potential. In return,these organizations expect a share of ownership in return for the financing they provide.

A)Investment bankers
B)Commercial banks
C)Venture capital firms
D)Loansharks

Answer 1

C

Question 2

Which of the following is the most popular way of raising cash among small businesses?

A)factoring
B)line of credit
C)revolving credit agreement
D)commercial paper

Answer 2

A

Question 3

offers financially stable corporations a technique to raise short-term funds by issuing unsecured promissory notes to the general public.

A)Trade credit
B)A line of credit
C)Commercial paper
D)Factoring

Answer 3

C

Question 4

Rebecca intends to major in business in college.She has never had much interest in subjects with numbers and so she'd like to avoid taking any finance courses if possible.Rebecca should:

A)avoid finance courses and focus on subjects that she enjoys.
B)realize that her success in business requires an understanding of financial issues.
C)change majors and go into nuclear engineering.
D)take a finance course to satisfy graduation requirements.

Question 5

Murray is the manager of Oh! Canada Sporting Goods.He is concerned that his cash expenditures have been exceeding his cash receipts for the last six months.Oh! Canada is suffering from a(n)problem.

A)accounting
B)exchange rate
C)undercapitalization
D)cash flow

Question 6

A(n)allocates dollars to various costs and expenses needed to operate a business at an estimated level of sales revenue.

A)budget
B)balance sheet
C)income statement
D)forecast

Question 7

Which of the following represents a capital expenditure?

A)Issuing paycheques to workers.
B)Purchasing a building to be used for office space.
C)Paying for advertising on a local radio station.
D)Purchasing raw materials to be used in the production of a firm's product.

Question 8

Which of the following statements is most accurate?

A)Financial managers keep the books for a firm.
B)Accounting and finance are not related.
C)Financial managers need to understand accounting.
D)Non-profit organizations must choose between accounting and finance.

Question 9

Charging interest on past due customer accounts reflects that:

A)credit customers receive preferential treatment.
B)government regulations protect customers who are late in making payments.
C)money has a time value.
D)credit sales cost more to manage than they are worth.

Question 10

A loan that requires the borrower to provide collateral represents a(n):

A)debenture loan.
B)secured loan.
C)unsecured loan.
D)bond trust.

Question 11

Lancer Wholesale Company wants to improve cash flow provided by accounts receivable collections.Which of the following strategies would be most likely to help Lancer achieve this objective?

A)Offering cash discounts to buyers who pay their accounts promptly.
B)Offering extended payment plans to qualified buyers.
C)Accepting IOUs from customers who buy in large quantities.
D)Relaxing its credit policy for new customers.

Question 12

The rate of return a company must earn in order to meet the demands of its lenders and the expectations of its equity holders is known as what?

A)cost of capital
B)preferred stock
C)retained earnings.
D)debenture

Question 13

The financial manager of Caroline Graphics negotiated a with her bank that allows Caroline to borrow up to $50,000 without collateral.This arrangement eliminates the need to renegotiate the terms of the loan and complete new paper work each time Caroline borrows money.The preapproved loan agreement is contingent upon the bank having the funds available.

A)line of credit
B)renewable income option
C)cash flow conversion
D)factor agreement

Question 14

Which of the following companies faces the problem of undercapitalization?

A)A large corporation that has been hit with a major lawsuit because one of its products has a design flaw that has led to serious injuries.
B)An electric utility that has recently experienced a significant increase in the cost of coal and labour.
C)A medium-sized company that has decided to buy out a smaller competitor.
D)A small new company struggling because it has insufficient start-up funds.

Question 15

Manitoba Supply offers their customers trade credit with terms 2/15 net 30.This implies that:

A)the annual financing cost of failing to pay within 15 days is about 48%.
B)most customers will pay their bill within 2 days in order to take the maximum discount.
C)Manitoba's customers have very little incentive to pay within the discount period.
D)paying within 30 days will let a customer deduct 15% off the invoice price.

Question 16

Acquiring funds through borrowing represents:

A)speculative capital.
B)venture capital.
C)equity financing.
D)debt financing.

Question 17

In comparing the roles of accounting and finance:

A)accounting gathers information,while finance interprets this information.
B)finance gathers information,while accounting interprets this information.
C)they are virtually the same,as the terms can be used interchangeably.
D)they are very different from each other,and never would have the same boss.

Question 18

represents funds acquired for major purchases that will be repaid over a year or longer.

A)Long-term financing
B)Short-term financing
C)Asset funding
D)Liability funding

Question 19

Obtaining long-term financing:

A)is generally not available to small businesses.
B)is normally provided by trade credit.
C)occupies the majority of a finance manager's day.
D)is available through pledging accounts receivable.

Question 20

Equity financing comes from the of the firm.

A)owners
B)employees
C)suppliers
D)creditors

Question 21

Which of the following would not normally involve long-term financing?

A)Worker's salaries
B)Purchase of modern equipment
C)Plant expansion
D)Purchase of a large tract of land

Question 22

Which of the following presents an effective technique to improve cash management?

A)Speed up both collections and payments of cash.
B)Speed up cash payments and slow down cash collections.
C)Slow down both the payment and collections of cash.
D)Speed up cash collections and slow down cash payments.

Question 23

After earning $30 million in net income,Rolatrim Industries distributed $5 million in dividends to their stockholders.The board of directors of the firm decided to invest the remaining $25 million back into the business.This $25 million reinvestment of profits represents:

A)trust fund.
B)mutual funds.
C)retained earnings.
D)preferred capital.

Question 24

A major concern for firms selling on credit is:

A)the inability to utilize factoring as a source of financing.
B)the resulting increase in the debt ratio for the firm.
C)the realization that many credit customers never pay their bills.
D)not all firms accept credit cards.

Question 25

Which of these is backed only by the reputation of the issuer?

A)Venture capital
B)Debenture bonds
C)Secured bonds
D)Long-term financing

Question 26

Finance is most closely related to:

A)human resource management
B)accounting
C)marketing
D)production

Question 27

Carlos wants to know the income potential of several different strategic plans for his computer consulting business.Which of the following would be most helpful?

A)Cash flow forecast
B)Capital budget forecast
C)Long-term forecast
D)Short-term forecast

Question 28

________ examine the data prepared by and then make recommendations to top management regarding strategies for improving the firm.

A)Accountants;bankers
B)Accountants;financial managers
C)Financial managers;bankers
D)Financial managers;accountants

Question 29

Financial managers identify three steps to financial planning.Which of the following is not one of the three key steps to financial planning?

A)Preparing the income statement and balance sheet.
B)Establishing financial control to see how well the company is following the financial plans.
C)Forecasting both short-term and long-term financial needs.
D)Developing budgets to meet anticipated needs.

Question 30

A forecast predicts the revenues,costs,and expenses a firm will incur for a period longer than one year.

A)cash flow
B)long-term
C)short-term
D)capital expenditures

Question 31

A just-in-time inventory system allows a firm to:

A)reduce capital expenditures.
B)reduce their investment in inventory.
C)extend credit to new customers.
D)provide sufficient inventory for most contingencies.

Question 32

Long-term financing would normally be used to purchase:

A)buildings.
B)supplies.
C)inventory.
D)highly liquid assets.

Question 33

Problems can occur in short-term loans from family and friends if the lender and the borrower do not understand what?

A)cash flow
B)revolving credit agreement
C)capital drawing agreements
D)collateral trust funds

Question 34

An effective budget requires:

A)management approval.
B)stakeholder consensus.
C)a successful advertising campaign.
D)accurate forecasts.

Question 35

Many small businesses rely on factoring as a source of short-term financing because:

A)loans provided by factors do not require collateral.
B)small firms often find it difficult to qualify for bank loans.
C)interest paid to a factor qualifies for a tax credit.
D)factoring provides a much cheaper source of funds than bank loans.

Question 36

As a finance manager at All Sports Communication,Charlie worries about the firm's borrowing and debt repayment requirements for the next year.He knows the benefit of estimating All Sports' money disbursements and short-term investment expectations.Facing these concerns,a(n)would provide Charlie with valuable information.

A)capital budget
B)line item budget
C)cash budget
D)operating budget

Question 37

Businesses acquire long-term financing from two major sources:

A)debt financing and government funds.
B)debt financing and equity financing.
C)equity financing and trade credit.
D)retained earnings and commercial paper.

Question 38

As a result of cash flow shortages,Kellco Department Stores has fallen behind in payments to suppliers.Some suppliers are withholding shipments to Kelco until they receive payments on overdue accounts.To meet their immediate needs,Kellco Department Stores should utilize:

A)vulture capital.
B)short-term financing.
C)contingency capital.
D)long-term financing.

Question 39

When Libertine Industries renegotiated their loan agreement,they borrowed an additional $2 million.The new loan requires Libertine to repay the new amount in nine months.Liberty's activity represents financing.

A)debt
B)equity
C)secured
D)revitalized

Question 40

Susan is convinced that her new business failed because she lacked the necessary funds to do the things that it takes to get a new business up and running.Her problem apparently was:

A)a cash flow issue.
B)undervalued inventory.
C)undercapitalization.
D)inadequate financial control.

Question 41

Farmers Savings Co.agreed to extend Eckert's Orchards $200,000 of unsecured short-term funds,contingent upon the bank having the funds available.This arrangement represents a:

A)trade voucher.
B)pledge agreement.
C)line of credit.
D)factoring agreement.

Question 42

The first step in the financial planning process is:

A)establishing financial control.
B)preparing financial statements.
C)developing budgets.
D)forecasting financial needs.

Question 43

refers to the process that identifies variances by comparing actual revenues and expenses to projected revenues and expenses.

A)Financial planning
B)Forecasting
C)Financial control
D)Factor analysis

Question 44

Budgeting,managing receivables,payables,and inventory,and managing taxes are all part of a(n)job.

A)financial manager's
B)CPA's
C)investment banker's
D)portfolio manager's

Question 45

All of the following are primary areas of concern for financial managers except:

A)under-capitalization.
B)poor control over cash flow.
C)inability to recruit qualified workers.
D)inadequate expense control.

Question 46

Selling accounts receivable to obtain short-term funds is called:

A)factoring.
B)debt financing.
C)pledging.
D)equity financing.

Question 47

The process of uses a firm's accounts receivable as collateral for a loan.

A)inventory financing
B)establishing a line of credit
C)factoring
D)revolving credit

Question 48

are assets that are often pledged by businesses as collateral for a loan.

A)Automobiles
B)Accounts receivable
C)Company-owned stocks
D)Buildings

Question 49

A promissory note that requires the borrower to repay the loan in specified installments is called a(n):

A)amortization installment.
B)repayment scheduling.
C)term loan agreement.
D)revolving line of credit.

Question 50

The overall objective of financial planning is to:

A)prepare financial statements for managers.
B)optimize the firm's profitability.
C)forecast the impact of technological trends.
D)establish budgets for financial control.

Question 51

By selling shares of ownership in their company,Ottawa Scientific acquires the funds needed to finance their research and development projects.Ottawa Scientific provides for their long-term funding needs through financing.

A)retained
B)asset
C)equity
D)debt

Question 52

With plans to build a $50 million theme park,Lakeview Enterprises intends to finance this project through the sale of additional shares of ownership in their firm.Selling new shares of stock represents financing.

A)equity
B)debt
C)initial offering
D)retained

Question 53

New World Chemical does not offer customers a cash discount for early payment of their accounts receivable.As a result,most customers wait to pay their bill on the last day before late penalties are charged.These customers apparently understand the:

A)benefits of tax deductible expenses.
B)time value of money.
C)government's regulations of the chemical industry.
D)financial community's perception of equity financing.

Question 54

Nicole is a financial manager.Her responsibilities include all of the following except preparing:

A)for the expenditure of funds.
B)financial statements.
C)for the acquisition of funds.
D)a cash flow analysis.

Question 55

As the owner of Kingdom's Treasures,Jerry negotiates with suppliers who hope to place their products in his high volume retail gift store.Jerry finances his inventory through the ________ credit offered by suppliers who delay payments for up to 60 days after the merchandise has been delivered to his business.

A)LIFO
B)asynchronous
C)trade
D)residual

Question 56

The main reason why companies want to maintain a minimum cash balance is:

A)cash,in and of itself,can earn a very high rate of return.
B)they are required by law.
C)to make sure there is a pool of cash available to deal with an expected need.
D)the balance sheet always needs to reflect a cash balance.

Question 57

Venture capital firms look to invest their funds in firms that:

A)require extra funding to avoid financial difficulties.
B)are new with great profit potential.
C)present financial statements indicating stronger than average cash flows.
D)operate in established,mature industries.

Question 58

After enjoying the increased sales and profits of several popular products,XYZ Inc.plans to expand their production facilities.The firm,a well-known producer of lawn care products,prefers financing this project with a funding source that avoids interest and dividend payments as well as underwriting costs.Which of the following best meets the needs of XYZ Inc.?

A)Retained earnings
B)Common stock
C)Venture capital
D)Debenture bonds

Question 59

Some suppliers hesitate to offer trade credit to firms with a poor credit history.In these cases,the supplier may insist that the customer sign a(n):

A)factoring agreement.
B)indenture agreement.
C)promissory note.
D)line of credit.

Question 60

Financing that must be repaid within one year represents:

A)short-term financing.
B)liability funding.
C)asset funding.
D)long-term financing.

Question 61

Akiko realizes the importance of developing a for her interior design business. Akiko knows of no better way of establishing revenue expectations and allocating resources in order to achieve the goals of her firm.

A)cash flow analysis
B)financial forecast
C)budget
D)market prediction

Question 62

When using financing,the company incurs a legal obligation to repay the amount borrowed.

A)equity
B)commitment
C)debt
D)retained earnings

Question 63

No matter the size,finance is a critical activity for:

A)accountants,but not for financial managers.
B)non-profit organizations,but not for profit-seeking businesses.
C)profit-seeking and non-profit organizations.
D)profit-seeking,but not for non-profit organizations.

Question 64

One of the challenges of effective financial management is:

A)working within the strict regulations of the Financial Accounting Standards Board (FASB).
B)to have sufficient cash on hand without compromising the firm's investment potential.
C)providing the financial data in a timely manner for management consultants to improve decision making.
D)ensuring the satisfaction of each of the stakeholder groups.

Question 65

Rather than requiring cash payment for all sales,some firms offer credit to:

A)match revenues with expenses for the same time period.
B)keep current customers happy and attract new customers.
C)improve the organization's cash flow position.
D)replace accounts receivable with fixed assets.

Question 66

Vitale Jewelers obtains needed short-term funds by selling its accounts receivable to the Friendly Finance Company.Friendly Finance usually pays Vitale about 80% of the value of the receivables.Vitale Jewelers utilizes as a means of raising short-term funds.

A)receivable draft agreements
B)trade credit
C)revolving credit agreements
D)factoring

Question 67

Tiffany's work in the finance department of her firm consists of checking accounting records and financial statements to verify that proper procedures are followed.Tiffany's activities are those of a(n):

A)comptroller.
B)CPA.
C)financial advisor.
D)internal auditor.

Question 68

Which of the following suggests that higher interest rates are charged to high risk borrowers?

A)Risk/return tradeoff
B)Compensating balance concept
C)Cost-benefit analysis
D)Direct relationship principle

Question 69

The most widely used source of short-term funding is:

A)trade credit.
B)commercial finance companies.
C)factoring.
D)line of credit.

Question 70

The budget that estimates a firm's projected cash inflows and outflows,and helps managers anticipate borrowing needs,debt repayment,operating expenses and short-term investments is called the budget.

A)operating
B)cash
C)capital
D)monetary

Question 71

Which of the following is the most commonly used source of short-term financing for businesses?

A)trade credit
B)bank loans
C)factoring
D)family and friends

Question 72

Which of these statements about corporate bonds is correct?

A)Interest paid to bondholders represents a tax deductible business expense.
B)Bonds provide equity financing.
C)Issuing new bonds dilutes the existing ownership in the firm.
D)Debenture bonds require assets pledged as collateral.

Question 73

Working in the finance department of a firm that operates a chain of dry cleaning and tailoring shops,Demonte discovered that tax management is:

A)an area of major concern.
B)handled by his department,but is not a major concern because businesses that provide services are exempt from most taxes.
C)not an area of concern for his department,since the accounting department prepares the tax returns.
D)an activity of his department,but not a major concern because software now available automates the handling of taxes.

Question 74

To secure financing for a planned expansion,JamesCo Electronics borrowed $400,000 from King Finance.The loan agreement requires that JamesCo Electronics provide the title to their factory as collateral.

A)minority
B)secured
C)recapitalization
D)pledged

Question 75

Which business function involves collecting payments from customers?

A)Production
B)Marketing
C)Finance
D)Accounting

Question 76

Which of the following organizations would be most likely to acquire short-term funding by issuing commercial paper?

A)A small business that is unable to qualify for loans from commercial banks.
B)A firm with a significant percentage of current assets held as accounts receivable.
C)A well-known,financially stable corporation.
D)A company that prefers equity financing to obtain short-term funds.

Question 77

A firm negotiates a(n)with its bank so the firm will have access to a specified amount of unsecured short-term funds,provided the bank has the funds available.

A)capital drawing agreement
B)asset drawing account
C)line of credit
D)reserve account

Question 78

Which of the following represents a source of short-term funding?

A)Common stock
B)Corporate bonds
C)Retained earnings
D)Commercial paper

Question 79

Victoria Nursery offers customers credit terms of 3/15 net 30.This gives customers a:

A)three percent discount if they pay in fifteen days.
B)fifteen percent discount if they pay in three days.
C)fifteen percent discount if they pay in thirty days.
D)three percent discount if they pay in thirty days.

Question 80

is a source of long-term equity financing.

A)Venture capital
B)Commercial paper
C)A bank loan
D)Selling bonds