Deck 16: Financial Management and Securities Markets

Question 1

Good money managers strive to keep just enough cash on hand to pay bills.This cash is called ______.

A)long-term assets.
B)long-term liabilities.
C)transaction balances.
D)a lockbox.
E)working capital management.

Answer 1

C
Explanation: Good money managers strive to keep just enough cash on hand to pay bills.This cash is called transaction balances.

Question 2

How do firms optimize inventory?

Answer 2

The object is to minimize the firm's investment in inventory without experiencing production cutbacks as a result of critical materials shortfalls or lost sales due to insufficient finished goods inventories.Every dollar invested in inventory is a dollar unavailable for investment in some other area of the organization.Optimal inventory levels are determined,in large part,by the method of production.If a firm attempts to produce its goods just in time to meet sales demand,the level of inventory will be relatively low.If,on the other hand,the firm produces materials in a constant,level pattern,inventory increases when sales decrease and decreases when sales increase.One way that companies are attempting to optimize inventory is through the use of radio frequency identification (RFID)technology.An RFID tag,which contains a silicon chip and an antenna,allows a company's to use radio waves to track and identify the products to which the tags are attached.
Although less publicized,inventory shortages can be as much of a drag on potential profits as too much inventory.Not having an item on hand may send the customer to a competitor.

Question 3

If a firm tries to produce goods just in time to meet sales demand,its level of inventory will tend to be

A)relatively low.
B)very high.
C)relatively high.
D)excessive.
E)wasteful.

Answer 3

A
Explanation: If a firm attempts to produce its goods just in time to meet sales demand,the level of inventory will be relatively low.

Question 4

The goal of financial managers who focus on current assets is to

A)maximize returns on short-term assets.
B)minimize returns on short-term liabilities.
C)minimize returns on short-term assets.
D)decrease return on working capital.
E)none of the above

Question 5

Cash,investments,accounts receivable,and inventory are also known as

A)current assets.
B)current liabilities.
C)long-term assets.
D)long-term liabilities.
E)fixed assets.

Question 6

Why would a firm want to invest its idle cash?

Question 7

Unsecured loans are backed by collateral that the lender can claim if the borrower does not repay the loan.

Question 8

Eurodollar deposits can only be made at banks located in London.

Question 9

Lenders first evaluate a borrower's history of borrowing and repaying loans by looking at the borrower's past credit history.

Question 10

Good financial managers minimize the amount of cash available to pay bills in

A)marketable securities.
B)transaction balances.
C)inventory.
D)the float.
E)banker's acceptances.

Question 11

A marketable security is a temporary investment of cash.

Question 12

All of the following are ways to invest idle cash for the short term except

A)Certificates of deposit.
B)Eurodollars.
C)Treasury bills.
D)Commercial paper.
E)Unsecured loans.

Question 13

One aspect of financial management involves managing cash flow for a business on a daily,weekly,monthly,and yearly basis.

Question 14

A lockbox is a technique for getting cash into a business's account faster.

Question 15

Transaction balances are cash on hand to pay everyday expenses.

Question 16

The principal is the amount of money a business pays to use a bank's funds.

Question 17

Which of the following is a current asset?

A)Accrued taxes
B)Short-term bank loans
C)Accounts payable
D)Accounts receivable
E)Accrued salaries

Question 18

Because having idle cash on hand is undesirable,a manager may choose to invest in

A)credit cards.
B)debit cards.
C)working capital.
D)marketable securities.
E)capital outlay.

Question 19

Commercial paper is issued by large companies and backed by collateral.

Question 20

Current assets include all of the following except

A)accounts receivable.
B)accounts payable.
C)investments.
D)inventory.
E)cash.

Question 21

The ______ is the interest rate commercial bank lenders charge their best customers.

A)factor
B)prime rate
C)subprime rate
D)credit line
E)trade rate

Question 22

If Linda Wilson borrows $20,000 to buy a car and ends up paying the lender a total of $24,000,the $4,000 difference represents the

A)principal.
B)collateral.
C)security.
D)discount.
E)interest.

Question 23

If a boat manufacturer orders 50 units of fiberglass material and secures trade credit,promising to pay the supplier at a later date,the manufacturer will record the amount to be paid as a(n)

A)account receivable.
B)current asset.
C)long-term liability.
D)account payable.
E)equity account.

Question 24

The most widely used source of short-term financing is

A)trade credit.
B)bank loans.
C)commercial paper.
D)mothers and fathers.
E)finance companies.

Question 25

An operating lease is a long-term contract that shows up on the balance sheet as an asset and a liability.

Question 26

Fixed assets,such as production facilities,are expected to last for many years.

Question 27

Trade credit is the most widely used source of short-term financing.

Question 28

A finance company that buys other companies' accounts receivable is known as a(n)_____.

A)bank.
B)factor.
C)collateral loan.
D)pension.
E)unsecured loan.

Question 29

In capital budgeting,all assets and projects must be continually reevaluated to ensure they remain compatible with the organization's needs.

Question 30

What are the different ways which companies can invest their idle cash?

Question 31

Are banks the only sources of short-term funds for businesses?

Question 32

Most business failures are the result of poor long-term financial planning.

Question 33

If the interest rate on a loan changes according to the daily average of the prime rate over the life of the loan,the interest rate is said to be

A)floating.
B)non-variable.
C)fixed.
D)sporadic.
E)flexible.

Question 34

The financial arrangements required for investment in fixed assets can be

A)quite easily arranged.
B)challenging for even the most profitable organization.
C)trivial.
D)short-term.
E)inexpensive.

Question 35

Interest is a percentage of the principal that the bank charges for use of its money.

Question 36

Capital budgeting is the process of analyzing business needs and the selection of assets that will maximize the value of the business.

Question 37

Dan bought three new trucks with a loan obtained from the First National Bank.If he fails to repay the loan,the bank will repossess the trucks.The trucks are

A)bought with an unsecured loan.
B)bought with a line of credit.
C)collateral.
D)interest.
E)principal.

Question 38

Plants,offices,and equipment are considered

A)long-term assets.
B)short-term assets.
C)relatively inexpensive items.
D)liabilities.
E)factors.

Question 39

Of the following,which would not be a fixed asset for the Sprocket and Widget Manufacturing Company?

A)A 10,000-square-foot factory
B)Plastic extruding equipment with a 15-year lifespan
C)$10,000 in T-bills
D)Molds for plastic with lifespan of five years
E)Furniture

Question 40

If a real estate developer borrows $100,000 from a bank and ends up paying back $120,000,the $100,000 represents the

A)collateral.
B)interest.
C)down payment.
D)principal.
E)security.

Question 41

Purchasing new technologically improved equipment

A)is usually too costly.
B)is necessary to a firm's continued productivity and competitiveness.
C)increases labor costs.
D)creates problems with OSHA.
E)reduces retained earnings.

Question 42

Which of the following is not a long-term asset?

A)Eurodollars
B)A factory
C)An automobile
D)Furniture
E)Heavy machinery

Question 43

Items such as a bond's value,date,and rate are specified in the

A)indenture.
B)prospectus.
C)equity preface.
D)ledger.
E)T-account.

Question 44

The amount of money budgeted for the purchase of long-term assets is called the

A)master budget.
B)year's budget.
C)current budget.
D)fixed budget.
E)capital budget.

Question 45

Long-term assets are

A)easily made liquid.
B)convertible to cash in less than six months.
C)expected to last for many years.
D)liabilities.
E)dividends.

Question 46

The process of deciding what fixed assets,projects,and investments will earn profits for the firm beyond the costs necessary to fund them is called _____.

A)taking out a loan.
B)factoring.
C)assessing risk.
D)capital budgeting
E)investing in eurodollars

Question 47

The par value is the interest rate on a bond.

Question 48

Unless fixed assets are continually reevaluated for appropriateness,

A)businesses lose their competitive edge.
B)companies must pay back earnings.
C)equity increases.
D)retained earnings grow.
E)labor costs increase.

Question 49

Two common means of financing with long-term liabilities are: equity financing and debt financing.

Question 50

A method of long-term financing that requires repaying funds with interest is

A)issuing bonds.
B)using retained earnings.
C)issuing stocks.
D)buying insurance.
E)all of the above.

Question 51

Long-term assets are also called what?

A)Current
B)Lengthy
C)Comprehensive
D)Fixed
E)Relevant

Question 52

A bond can be transferred from one owner to another.

Question 53

When a company invests a lot of money in a particular project,it is concerned about the amount of risk involved.In general,the longer the expected life of a project or asset,the potential risk is

A)lesser.
B)constant.
C)greater.
D)unchanged.
E)nonexistent.

Question 54

Why is financing more difficult for fixed assets than for current ones?

Question 55

Explain the risk factors a firm must assess when considering an investment in a new asset.

Question 56

Long-term liabilities are

A)debts that are due in less than six months.
B)debts that will be repaid over a number of years.
C)assets.
D)equity.
E)retained earnings.

Question 57

Which of the following is an example of a long-term liability?

A)Stock
B)Bond
C)Revenue
D)Discount
E)Equity

Question 58

Bonds can be issued not only by corporations but also by governments and nonprofit organizations.

Question 59

Which of the following is the most risky?

A)Adding to a product line
B)Introducing a new product in a foreign market
C)Introducing a new product in a familiar market
D)Buying new equipment for an established market
E)All of the above carry the same risk.

Question 60

A bond contract is also known as an indenture.

Question 61

The only long-term funds that a company can generate internally are

A)dividend yields.
B)unretained earnings.
C)retained earnings.
D)payout earnings.
E)earnings paid out.

Question 62

The following are types of bonds except

A)serial.
B)commercial.
C)secured.
D)floating-rate.
E)unsecured.

Question 63

A bond

A)must be repaid according to the terms set in its indenture.
B)may be defaulted without penalty.
C)is the same as a stock.
D)is a fixed asset.
E)is a current liability.

Question 64

Which of the following is a sequence of small bond issues of progressively longer maturity?

A)Secured bonds
B)Serial bonds
C)Progressive bonds
D)Junk bonds
E)Sequence bonds

Question 65

An investment banker sells securities for corporations.

Question 66

Stockholders who may receive dividends but cannot vote are called

A)common stockholders.
B)uncommon stockholders.
C)standard stockholders.
D)majority stockholders.
E)preferred stockholders.

Question 67

When a stock quote includes the stock symbol followed by the letters "pf," it indicates

A)price fixing.
B)pretty farfetched.
C)common stock.
D)preferred stock.
E)poorly financed.

Question 68

Other than bank loans and short-term loans,discuss how firms raise long-term capital using liabilities.

Question 69

Corporations usually employ an investment banking firm to help sell their securities in ______, which is where firms raise their financial capital.

A)the primary market
B)secondary markets
C)tertiary markets
D)singular markets
E)multiple markets

Question 70

Common stock is a safer investment than preferred.

Question 71

The 52-week high and low are the highest and lowest prices,respectively,paid for a stock in the last

A)month.
B)year.
C)decade.
D)week.
E)earnings period.

Question 72

Explain the difference between common and preferred stock.

Question 73

The market value of common stock is the price at which it is currently trading.

Question 74

What types of bonds are there? Describe each type briefly.

Question 75

The last in line for the payment of profits are the

A)bondholders.
B)common stockholders.
C)preferred stockholders.
D)government.
E)customers.

Question 76

Securities markets provide liquidity.

Question 77

The par value is the dollar amount printed on a stock certificate.

Question 78

The face value of a bond,its initial sales price,is typically ____.

A)$1
B)$10
C)$100
D)$1,000
E)$10,000

Question 79

Retained earnings may be used to finance long-term assets.

Question 80

If a company retains all of its earnings,then it will not pay

A)dividends.
B)taxes.
C)expenses.
D)bills.
E)suppliers.