Deck 16: Understanding Financial Management and Securities Markets

Question 1

Financial management is the art and science of managing a firm's money so the firm can meet its goals.

Answer 1

True

Question 2

The benefits from capital expenditures extend beyond one year's time.

Answer 2

True

Question 3

A mortgage loan is a long-term loan that uses real estate as collateral.

Answer 3

True

Question 4

The major disadvantage of debt financing is the inability to deduct interest expenses for income tax purposes.

Question 5

Treasury bills, certificates of deposit, and mortgage loans are the most popular marketable securities.

Question 6

Selling a firm's accounts receivables to a financial institution at a discount is called countertrading.

Question 7

Equity is the owner's investment in the businesses.

Question 8

Lines of credit are short-term loans that are secured by collateral.

Question 9

Trade credit is credit extended to the buyer by the seller.It is entered in the buyer's books as an account receivable.

Question 10

Preferred stock is a form of debt financing because the dividend must be paid before dividends can be paid to the equity owners.

Question 11

In finance, the potential for loss is called probability.

Question 12

Accounts receivable or inventory usually secures short-term secured loans.

Question 13

A term loan is a loan with a maturity of less than a year.
.

Question 14

Of all the forms of equity capital, venture capital is the easiest to obtain.

Question 15

Securities are investment certificates issued by corporations or governments.

Question 16

Investment banker is another term for stockbroker.

Question 17

Sales made, but for which payment has not yet been collected, are called accounts payable.

Question 18

Dividends and interest payment are both tax-deductible.

Question 19

In finance, the opportunity for a profit is called return.

Question 20

Venture capitalists provide a source of debt financing and usually charge high interest for loans because of the high risk of the enterprises they finance.

Question 21

Commercial paper is:

A)the same thing as accounts receivable recorded in the ledger
B)a type of secured debt
C)typically issued by stakeholders
D)a type of IOU
E)accurately described by none of the above

Question 22

Making sure that enough cash is on hand to pay bills as they come due and to meet unexpected expenses is called cash:

A)maintenance
B)capitalization
C)targeting
D)management
E)administration

Question 23

Chez Dove is an independent coffeehouse/bookstore that went bankrupt only eight months after opening due to an unexpected demand for cash to fix a leaking roof.Better cash _____ might have allowed the business to continue operation.

A)maintenance
B)capitalization
C)targeting
D)management
E)administration

Question 24

The cost of inventory to the firm includes all of the following EXCEPT:

A)ordering costs
B)handling costs
C)purchase price
D)selling costs
E)insurance costs

Question 25

Financial managers:

A)play such an important organizational role that they often are called operations managers
B)focus on profit maximization
C)are not typically involved in long-term strategic planning
D)are simply a type of bookkeeper
E)are described by none of the above

Question 26

The NYSE and NASDAQ are vying for supremacy in the U.S.securities markets.

Question 27

Financial managers often shift temporary funds from checking accounts to _____ securities to earn higher interest returns.

A)commercial
B)marketable
C)administrative
D)strategic
E)operational

Question 28

The three most popular types of marketable securities are Treasury bills, certificates of deposit, and:

A)Treasury notes
B)corporate bonds
C)commercial paper
D)money market funds
E)checking accounts

Question 29

In finance, _____ is the potential for loss.

A)leverage
B)risk
C)factoring
D)business chance
E)probability

Question 30

Financial managers constantly strive for a balance between:

A)the opportunity for profit and the potential for loss
B)cash and marketable securities
C)economic responsibility and social responsibility
D)common and preferred stock
E)dividends paid out and interest payments

Question 31

_____ are specific repayment conditions as to how long customers have to pay bills and the amount of cash discount allowed.

A)Credit credentials
B)Credit terms
C)Revolving accounts
D)Liability procedures
E)Sales terms

Question 32

In seeking a balance between the opportunity for profit and the potential for loss, a financial manager is dealing with the concept of _____ trade-off.

A)potential profit
B)risk-return
C)profit-loss
D)sales-profit
E)profit-budget

Question 33

Grainger Distribution Company sold Long Electronics ten circuit breakers for $179.00 each.Long Electronics will be allowed thirty days to pay the bill.Grainger will carry the $1790.00 on its books as a(n):

A)account payable
B)current liability
C)account receivable
D)fixed liability
E)marketable security

Question 34

In finance, the opportunity for profit is called:

A)return
B)potential
C)risk
D)value
E)maximization

Question 35

The primary goal of the financial manager is to:

A)maximize the value of the firm to its owners
B)concentrate on short-term growth strategies
C)develop new goods and services for the company
D)make sure all employees get paid on a regular schedule
E)pay off all debt as quickly as possible

Question 36

Financial managers focus on _____, the inflow and outflow of cash.

A)financial flows
B)sales revenues
C)cash flows
D)revenue streams
E)profit and loss patterns

Question 37

_____ management is the art and science used to determine the most effective ways to acquire and use funds to achieve the firm's goals.

A)Operations
B)Financial
C)Accounting
D)Corporate
E)Money

Question 38

_____ is a short-term unsecured debt issued by a financially strong corporation.

A)A treasury bill
B)A certificate of deposit
C)A money market deposit
D)Commercial paper
E)Investment credit

Question 39

Keisha Hunter keeps track of day-to-day operational data to make sure her employer has enough cash to run the business and will determine if and when the company she works for should open a second distribution center.Hunter is a(n) _____ manager.

A)accounting
B)financial
C)operations
D)analysis
E)facilities

Question 40

Short-term investments that are easily converted back to cash and are used by financial managers to achieve higher returns than those offered by checking accounts are:

A)management vehicles
B)corporate securities
C)marketable credits
D)corporate equities
E)negotiable securities

Question 41

A(n) _____ is a type of loan often used to finance buildup of inventory for seasonal (cyclical) businesses just before their strongest sales period.

A)secured bank loan
B)trade credit
C)unsecured bank loan
D)collateral loan
E)commercial paper loan

Question 42

Albee Construction Company, a financially strong corporation that builds roads and bridges, finances its equipment leases by issuing unsecured short-term debt, which is called:

A)revolving credit
B)commercial paper
C)collateralized loans
D)corporate issues
E)negotiable notes

Question 43

Herschel George is a soybean farmer.He has arranged a business loan with terms that guarantee that he can borrow up to $30,000 whenever he needs it within the next year.He must pay interest only on the unpaid loan balance.George has arranged a:

A)collateralized loan
B)line of credit
C)credit-line loan
D)single-payment note
E)revolving credit agreement

Question 44

A secured loan requires that the borrower pledge specific assets to secure the loan.These assets are called:

A)collateral
B)pledges
C)intangible assets
D)negotiable assets
E)asset requirements

Question 45

Which of the following would be an example of a capital expenditure for a superstore that specializes in outdoor grills and other items needed for outside dining?

A)order forms
B)cardboard sale signs
C)a handheld calculator
D)pens and markers
E)a parking lot

Question 46

In which of the following industries are you most likely to find factoring being used?

A)fast-food industry
B)appliance industry
C)tire industry
D)soft drink industry
E)entertainment industry

Question 47

_____ is the process of selecting the capital expenditures that offer the best returns and meet the goal of maximizing the firm's value.

A)Capital evaluation
B)Capital allocation
C)Budget analysis
D)Capital budgeting
E)Budget allocation

Question 48

Which of the following businesses would be most likely to require an unsecured bank loan, such as a line of credit or a revolving credit agreement?

A)a manufacturer of integrated circuits
B)a Christmas tree farm
C)a poultry producer
D)an envelope manufacturer
E)a manufacturer of health and beauty aids

Question 49

As the Toronto-based Four Seasons hotel chain remodels an existing hotel in Mumbai to bring it to the five-star hotel's exacting standards, it is building a magnificent revolving restaurant overlooking the Arabian Sea at World.The restaurant structure is an example of a(n):

A)capital expenditure
B)material cost
C)operating cost
D)account receivable
E)intangible asset

Question 50

A company sells its accounts receivable to a financial institution that is in the business of buying accounts receivable at a discount.This sale is called:

A)bartering
B)collateralizing
C)factoring
D)countertrading
E)buying on the short

Question 51

Short-term loans:

A)have a maturity of one year or longer
B)are always secured
C)are shown as a current liability on the balance sheet
D)do not require any collateral
E)are shown as a capital expenditure on the balance sheet

Question 52

The major advantage of debt financing is the:

A)number of different sources from which it is available
B)lack of dependence on collateral
C)absence of factoring
D)deductibility of interest expenses
E)amortization benefits

Question 53

The three main types of unsecured short-term loans are:

A)treasury bills, certificates of deposit, and accounts payable
B)accounts payable, notes payable, and loans payable
C)trade credit, accounts payable, and bank loans
D)trade credit, bank loans, and commercial paper
E)commercial paper, accounts payable, and trade credit

Question 54

An IOU is most similar to which type of bank loan?

A)revolving credit
B)collateralized credit
C)commercial paper
D)business trade credit
E)a line of credit

Question 55

Gerald Cooksie owns a restaurant in Panama Beach, Florida.He has arranged a business loan with the bank where he has his business account.The terms of the loan allow him to borrow up to $13,500 within the next year if the bank has funds available to lend; he must pay interest only on the unpaid loan balance.Cooksie has arranged a:

A)collateralized loan
B)line of credit
C)secured loan
D)mortgage loan
E)credit-line loan

Question 56

Funds invested in long-lived assets, such as land, buildings, machinery, and equipment, are called:

A)manufacturing expenses
B)operating expenses
C)capital expenditures
D)production costs
E)material costs

Question 57

Capital budgeting:

A)analyzes production costs
B)selects asset proposals for maximum profitability
C)helps select new products
D)combines all budgets into a master budget
E)allows managers to analyze profit and loss statements

Question 58

When Magna Manufacturing sells hand on screwdriver sets to Malloy Building Supply Company, Magna bills the tool manufacturer for the screwdriver purchase with terms of payment, which specify when the account is due.This type of unsecured loan is called _____ credit.

A)revolving
B)factored
C)product
D)borrower's
E)trade

Question 59

Secured short-term loans are usually secured by:

A)accounts payable and accounts receivable
B)buildings and equipment
C)equipment and inventory
D)inventory and raw material
E)accounts receivable and inventory

Question 60

A loan that requires the borrower to pledge specific assets as collateral is called a(n) _____ loan.

A)promissory
B)commercialized
C)unsecured
D)amortized
E)secured

Question 61

Which statement describes the major drawback to the use of debt financing?

A)The interest paid is not tax-deductible.
B)Debt financing is a form of permanent financing.
C)Debt financing gives common stockholders a voice in company management.
D)Financial risk is always a possibility with debt financing.
E)Dividends are paid from after-tax income.

Question 62

Which of the following statements about preferred stock is true?

A)Preferred stock carries voting rights.
B)Preferred stockholders receive dividends before bondholders receive interest.
C)Preferred stock can be owned only by upper management.
D)Preferred stockholders receive dividends after common stockholders.
E)Preferred stock produces a fixed-amount dividend.

Question 63

The funds that are reinvested in the firm out of profits and after dividends are paid are called:

A)retained earnings
B)stock equity
C)investor earnings
D)secondary earnings
E)convertible bonds

Question 64

Three important forms of long-term (capital) expenditures are:

A)accounts payable, notes payable, and commercial paper
B)treasury bills, certificates of deposit, and accounts payable
C)trade credit, accounts payable, and bank loans
D)trade credit, bank loans, and commercial paper
E)term loans, mortgage loans, and bonds

Question 65

Business loans available from commercial banks with terms generally five to twelve years and secured or unsecured are called _____ loans.

A)collateral
B)mortgage
C)line of credit
D)term
E)prime

Question 66

Long-term debts (liabilities) for corporations and governments are called:

A)preferred stock
B)common stock
C)bonds
D)equity funds
E)lines of credit

Question 67

_____ stock is a security that represents an ownership interest in a corporation and has voting rights.

A)Preferred
B)Common
C)Par value
D)Treasury
E)Equity

Question 68

Payments in the form of more stock to existing stockholders are called:

A)warrants
B)rights offerings
C)stock dividends
D)stock offerings
E)IPOs

Question 69

Term loans:

A)are available from commercial banks, insurance companies, pension funds, commercial finance companies, and manufacturer's financing subsidiaries
B)may be repaid on a quarterly, semiannual, or annual schedule
C)are capital expenditure loans with a maturity of more than one year
D)can be secured or unsecured
E)are accurately described by all of the above

Question 70

A(n) _____ loan is a long-term loan using real estate or other assets as collateral.

A)unsecured
B)line of credit
C)prime
D)discount
E)mortgage

Question 71

Esselte is a Swedish-based company that sells office supplies.It went public when it was founded, and it remained public until 2002 when it was taken private.Now that Esselte is private, it:

A)has more collateral
B)can deduct any dividends from its taxes
C)offers only preferred stock to its investors
D)no longer sells stock to the public
E)can use unsecured loans

Question 72

Long-term debt would be used to:

A)pay employees' salaries
B)buy new tablecloths for a restaurant
C)replace broken glass in a window
D)provide customer with a cash discount
E)do none of the above

Question 73

Dividends are:

A)annual payments on bonds
B)the earnings of the corporation
C)payments to the shareholders from company earnings
D)guaranteed payments to the common shareholders
E)loans made to the shareholders

Question 74

Which of the following statements does NOT describe an advantage inherent in equity financing?

A)The company is not required to repay equity.
B)Interest is tax-deductible.
C)Equity has no maturity date.
D)A firm has no obligation to pay dividends.
E)Equity owners have residual claim on income.

Question 75

_____ invest in new businesses in return for part of the ownership, sometimes as much as 60 percent.

A)Intrapreneurs
B)Multipreneurs
C)Venture capitalists
D)Leveraged capitalists
E)Business opportunists

Question 76

Private individual investors who sometimes provide venture capital to small firms in need of equity capital are called:

A)opportunists
B)entrepreneur backers
C)benefactors
D)angel investors
E)equity developers

Question 77

Tracy Lefteroff is the global managing partner for PricewaterhouseCoopers.She said that her company is eager to invest in newly created biotech companies because the U.S.has an aging population that will need new medications and treatments.What kind of equity capital would Lefteroff be likely to provide?

A)mortgage loan
B)dividends
C)retained earnings
D)venture capital
E)secured bonds

Question 78

A secured Internet service provider would be very likely to attract the attention of _____ because it is in a high-tech industry with lots of opportunity for rapid growth.

A)intrapreneurs
B)multipreneurs
C)venture capitalists
D)leveraged capitalists
E)business opportunists

Question 79

Which of the following statements about preferred stock is true?

A)Preferred stockholders are paid dividends before the company can pay any dividends to common stockholders.
B)The dividends for preferred stock are a fixed amount.
C)Preferred stock is more costly than debt financing.
D)Preferred stockholders are paid before other debt holders in the event of company dissolution.
E)All of the above statements about preferred stock are true.

Question 80

When a firm goes public, it must reveal such information as:

A)financing plans
B)product details
C)financial data
D)operating data
E)all of the above