Deck 17: Financial Management

Question 1

____________ involves the planning, obtaining, and managing the company's funds in order to accomplish its objectives as efficiently and effectively as possible.

A) Finance
B) Operational accounting
C) Leverage
D) Auditing

Answer 1

A

Question 2

In a large corporation, which executive reports to the Chief Executive Officer and is largely responsible for setting financial policy?

A) the chief operating officer
B) the controller
C) the chief financial officer
D) the treasurer

Answer 2

C

Question 3

The mix of a firm's debt and equity capital is referred to as which of the following?

A) owner's equity
B) capital structure
C) leverage rate
D) asset allocation

Answer 3

B

Question 4

According to the text, risk is defined as which of the following?

A) the possibility of gains
B) the certainty of loss
C) the balance between return and investment
D) the uncertainty of gain or loss

Question 5

In performing their jobs, most finance professionals seek to balance which of the following?

A) profits and loss
B) risk and returns
C) investment and capital
D) taxes and revenues

Question 6

The process by which decisions are made, regarding investments in long-lived assets, is called ___________________________________.

A) price fixing
B) capital investment analysis
C) indenture
D) convertible securities

Question 7

A financial plan is based on three questions. Which of the following is not one of these questions?

A) What funds will the firm require during the appropriate period of operations?
B) Where will the firm obtain the necessary funds?
C) When will the firm need more funds?
D) How will the firm manage payments on debt?

Question 8

Financial managers ___________________________________.

A) present financial data that is timely, accurate, and relevant
B) are concerned with acquiring funds but not the use of funds
C) develop a financial plan and determine the most appropriate sources and uses of funds
D) work independently of the strategic plan to maximize shareholder value

Question 9

Which of the following is a short-term asset?

A) inventory
B) accounts receivable
C) cash
D) all of the above

Question 10

Short-term assets can be, or are expected to be, ____________________________.

A) converted into cash within a year
B) sources of future borrowing
C) collateral for purchases of equipment and property
D) high-risk, high-return securities

Question 11

A(n) ___________ that is short-term in nature can also be called an operating plan.

A) budget
B) asset intensity
C) stock offering
D) financial plan

Question 12

Most firms invest excess cash in marketable securities.

Question 13

Borrowing cash allows a company to leverage, thereby _________ (the) rate of return on funds invested.

A) doubling
B) keeping the same
C) decreasing
D) increasing

Question 14

What is the first step in preparing a financial plan?

A) projecting levels of profits
B) estimating assets that will be required in the coming period
C) determining capital expansion plans
D) forecasting sales or revenue

Question 15

During a recession, firms that have a greater degree of leverage have _________________.

A) more flexibility
B) increased risk
C) higher taxes
D) stable cash flows

Question 16

Funds provided by the firm's owners, when they reinvest their earnings, make additional contributions, liquidate assets, issue shares, or raise capital is referred to as which of the following?

A) equity capital
B) capital structure
C) debt capital
D) asset allocation

Question 17

DuPont requires more than three times as many assets per dollar of sales compared to Costco. This is a measure of _______________________________________.

A) liquidity
B) asset management
C) financial planning
D) asset intensity

Question 18

At the top of the finance organization of a typical company is a:

A) CFO.
B) CFF.
C) CIO.
D) VP.

Question 19

The process of maximizing the wealth of the firm's shareholders by striking the optimal balance between risk and return is called ___________________________________.

A) prospectus
B) risk-return trade-off
C) price fixing
D) serial bonds

Question 20

The key to managing leverage is to ensure the company's interest payments remain larger than earnings.

Question 21

A _________ refers to the sale of new stock or bond issues to a small group of investors, such as pension funds or insurance companies, rather than to the general public.

A) private offering
B) private placement
C) private brokering
D) private debt

Question 22

______ involves a business selling its accounts receivable to either a bank or a finance company.

A) Leveraging
B) Short-selling
C) Factoring
D) Discounting

Question 23

Business firms, or groups of individuals, that invest in new and growing firms in exchange for an ownership share are referred to as which of the following?

A) angel investors
B) venture capitalists
C) investment bankers
D) start-up investors

Question 24

When a firm receives goods or services and agrees to pay for them at a later date, their supplier is extending to them which of the following?

A) payment extension
B) revolving credit
C) trade credit
D) commercial loan

Question 25

There are two types of short-term bank loans: line of credit and _________ agreements.

A) deposit turnover
B) revolving credit
C) certificates of deposit
D) commercial paper

Question 26

Clara is the finance manager at a mid-sized company. Although she knows that interest rates sometimes change in a favourable direction, she would prefer the stability of fixed interest payments over time. She should have a higher percentage of ____________ to finance her company's operations.

A) long-term funds
B) current liabilities
C) commercial paper
D) variable rate loans

Question 27

In October 2000, Kellogg Co. agreed to purchase Keebler Foods Co. for $4.3 billion in cash and assumed debt. This was a(n) ____________________________________.

A) tradeoff
B) acquisition
C) take over
D) joint venture

Question 28

Why would a firm prefer to sell its bonds through private placement rather than an initial public offering?

A) Firms typically receive more favourable repayment terms from private holders.
B) There are more buyers for private placements than publicly traded bonds.
C) It is often cheaper for the firm to sell securities privately.
D) Private placements reduce the risk of default.

Question 29

A ________ is the reverse of a merger, that is, a company sells assets such as subsidiaries, product lines, or production facilities.

A) sell-off
B) spin-off
C) tender offer
D) divestiture

Question 30

A sale of a company's subsidiary is an example of a tender offer.

Question 31

A type of divesture where the assets sold form a new firm is referred to as which of the following?

A) selloff
B) spinoff
C) tender offer
D) leveraged sellout

Question 32

A hedge fund is ____________________________________-.

A) a form of private equity owned by governments
B) a form of investment bank that operates internationally
C) a private investment company open only to qualified, large investors
D) a source of long-term capital raised from wealthy individuals and institutional investors

Question 33

Unlike venture capital funds, private equity funds will invest even in mature companies.

Question 34

General Electric has stated that it is no longer interested in competing in the major appliance business. What might it do with that division?

A) make a tender offer
B) divest it
C) merge with another company
D) take the division private through a leveraged buyout

Question 35

The most common type of dividend, regular dividends, are paid to shareholders____________________________.

A) once a month
B) every three months
C) twice a year
D) once a year

Question 36

A sovereign wealth fund is which of the following?

A) a form of private equity owned by governments
B) a form of investment bank that operates internationally
C) a private investment company open only to qualified, large investors
D) a source of long-term capital raised from wealthy individuals and institutional investors

Question 37

In deciding on the size of a line of credit, which of the following is an important tool?

A) cash budget
B) income statement
C) balance sheet
D) statement of owner's equity

Question 38

Which would be the best way to obtain short-term financing?

A) Establish a line of credit with the bank.
B) Issue common stock.
C) Accept accounts receivable in payment for goods.
D) Sell debentures.

Question 39

Transactions where public shareholders are bought out and the firm reverts to private status is referred to as which of the following?

A) leveraged buyout
B) trade off
C) take over
D) acquisition

Question 40

Trade credit is a source of long-term financing.