Question 1

Investment companies that raise funds from wealthy individuals and institutional investors, and then invest those funds in both public and privately held companies are referred to as:&#10;A) venture capitalists&#10;B) private equity funds&#10;C) hedge funds&#10;D) mutual funds

Accepted Answer

Private equity funds raise funds from wealthy individuals and institutional investors and invest those funds in both public and privately held companies. Venture capitalists typically focus on early-stage investments in startups, while hedge funds typically use more complex trading strategies, and mutual funds invest primarily in publicly traded securities.

Question 2

Which one of the following short-term assets is most liquid?&#10;A) Cash&#10;B) Marketable securities&#10;C) Accounts receivable&#10;D) Inventory

Accepted Answer

Cash is the most liquid of all short-term assets because it can be readily used to make purchases or pay off liabilities without any delay or cost of conversion. Marketable securities can also be easily converted into cash but may have a slight delay or cost of conversion. Accounts receivable and inventory require time and effort for conversion into cash, making them less liquid.

Question 3

The most common type of dividend, regular dividends are paid to shareholders:&#10;A) quarterly.&#10;B) annually.&#10;C) monthly.&#10;D) bi-annually.

Accepted Answer

Regular dividends are typically paid quarterly.

Question 4

At the top of the finance organization of a typical company is a ________________________________.____________________&#10;A) CFO.&#10;B) CEO.&#10;C) COO.&#10;D) VP of finance.

Accepted Answer

The CFO (Chief Financial Officer) is typically at the top of the finance organization of a company and is responsible for managing the company's financial operations and strategy.

Question 5

Which one of the following is not considered a form of short-term financing?&#10;A) line of credit&#10;B) revolving credit agreement&#10;C) commercial paper&#10;D) sale of shares

Accepted Answer

Sale of shares is a form of long-term financing, as it involves issuing and selling stocks to investors for a long period of time, rather than securing temporary funds. The other options listed are all considered forms of short-term financing, as they provide immediate or short-term access to funds that can be used to address immediate financial needs.

Question 6

When inventory turnover has been slowing for several quarters in a row:&#10;A) sales are rising faster than inventory&#10;B) customer demand might be increasing&#10;C) the firm may want to decrease its promotion efforts&#10;D) the firm may want to reduce production

Accepted Answer

If inventory turnover has been slowing for several quarters in a row, it means that the company is holding onto its inventory for a longer period of time. This could be an indication of weak demand or overproduction. In this scenario, the best choice is to reduce production to align with customer demand and avoid increased inventory costs.

Question 7

Which of the following statements concerning debt is correct?&#10;A) As a company uses more debt, the risk to the company decreases.&#10;B) Interest payment on debt must be paid only if the company has sufficient cash flow.&#10;C) As debt increases, the fixed costs a company must pay increase.&#10;D) Debt is frequently the costliest method of raising additional financing dollars.

Accepted Answer

As a company takes on more debt, the fixed costs it must pay increases in the form of interest payments on the debt. This can lead to a higher break-even point for the company, making it more difficult to generate profits. Option A is incorrect because as a company uses more debt, the risk to the company actually increases since it has more financial obligations to meet. Option B is incorrect because interest payments on debt must be paid regardless of cash flow, and failure to do so can lead to default and potentially bankruptcy. Option D is also incorrect since debt is often a cheaper method of financing than equity, since interest payments on debt are tax-deductible.

Question 8

Which one of the following statements concerning equity capital is INCORRECT?&#10;A) When new equity is sold, the control of existing shareholders is weakened.&#10;B) Equity capital is more expensive than debt capital.&#10;C) Creditors have a senior claim to the assets of a firm before shareholders' claims.&#10;D) Unlike interest payments, the firm can deduct the costs of dividends paid to shareholders.

Accepted Answer

Dividends paid to shareholders are not tax-deductible for the firm, unlike interest payments on debt, which are tax-deductible. This makes statement D incorrect.

Question 9

A(n) ___________ that is short-term in nature can also be called an operating plan.&#10;A) budget&#10;B) asset intensity&#10;C) stock offering&#10;D) financial plan

Accepted Answer

The answer of A(n) ___________ that is short-term in nature...

Question 10

Which one of the following statements concerning the risk-return-trade-off is incorrect?&#10;A) The risk-return-trade-off is the right balance between risk and return.&#10;B) Higher risk yields lower potential returns.&#10;C) The more money a firm borrows, the greater the risks to shareholders.&#10;D) Failure to invest surplus funds means lower returns.

Accepted Answer

The incorrect statement is B) Higher risk yields lower potential returns. This is incorrect because the general principle of the risk-return trade-off is that higher risk is associated with the potential for higher returns, not lower.

Question 11

Which one of the following is NOT an asset?&#10;A) marketable securities&#10;B) equipment&#10;C) customer accounts with credit balances&#10;D) office equipment

Accepted Answer

The answer of Which one of the following is NOT...

Question 12

A ________________is the reverse of a merger, that is, a company sells assets such as subsidiaries, product lines, or production facilities.&#10;A) sell-off&#10;B) spin-off&#10;C) tender offer&#10;D) divestiture

Accepted Answer

The answer of A ________________is the reverse of a merger,...

Question 13

The process of maximizing the wealth of the firm's shareholders by striking the optimal balance between risk and return is called ________________________.&#10;A) prospectus&#10;B) risk-return trade-off&#10;C) price fixing&#10;D) serial bonds

Accepted Answer

The answer of The process of maximizing the wealth of...

Question 14

Which of the following statements concerning dividends is correct?&#10;A) Firms are under no legal obligation to pay dividends to shareholders.&#10;B) Earnings that are paid in dividends are reinvested in the firm.&#10;C) Earnings that are paid in dividends contribute additional equity capita.l&#10;D) Companies that pay dividends try to decrease the amount of the dividends paid every year.

Accepted Answer

The answer of Which of the following statements concerning dividends...

Question 15

Transactions where public shareholders are bought out and the firm refers to private status are referred to as:&#10;A) tender offers&#10;B) mergers&#10;C) leveraged buyouts&#10;D) divestitures

Accepted Answer

The answer of Transactions where public shareholders are bought out...

Deck 17: Financial Management