Deck 16: Financial Management and Securities Markets

Question 1

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 1

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 2

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 2

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

Question 3

A marketable security is a temporary investment of cash.

Answer 3

True
Explanation: Sometimes cash is received faster than it is needed to pay bills;this idle cash is invested in marketable securities (which include T-Bills,CDs,etc)until it is needed to pay debt.

Question 4

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 5

Transaction balances are cash on hand to pay everyday expenses.

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

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

Question 11

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 12

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 13

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 returns on working capital.
E) have as much cash as possible.

Question 14

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

Question 15

Current assets include all of the following except

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

Question 16

How do firms optimize inventory?

Question 17

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 18

Why would a firm want to invest its idle cash?

Question 19

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

Question 20

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

Question 21

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 22

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

Question 23

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 24

The longer a project or asset is expected to last,the smaller is its potential risk.

Question 25

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 26

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

Question 27

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 28

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

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

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

Question 31

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 32

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 33

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

Question 34

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 35

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 36

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

Question 37

During the financial meltdown beginning in 2008,why did banks become unwilling to lend money to businesses?

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

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 40

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 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 Occupational Safety and Health Administration.
E) increases retained earnings.

Question 42

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

Question 43

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 44

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) Eurodollars.
D) trade credit.
E) retained earnings.

Question 45

Long-term assets are also called what?

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

Question 46

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 47

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

A) Stock
B) Bond
C) Marketable security
D) Eurodollar
E) Trade credit

Question 48

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

A) indenture.
B) prospectus.
C) equity contract.
D) advertisement.
E) interest-rate specification.

Question 49

A bond can be transferred from one owner to another.

Question 50

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

Question 51

Bonds can be issued only by corporations.

Question 52

A bond contract is also known as an indenture.

Question 53

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

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

Question 54

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

Question 55

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 56

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) Repairing old equipment.

Question 57

The par value is the interest rate on a bond.

Question 58

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 59

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 60

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) using trade credit.

Question 61

Common stock is a safer investment than preferred.

Question 62

An investment banker sells securities for corporations in secondary markets.

Question 63

The cash return as a percentage of a stock's price is called its

A) earnings yield.
B) dividend yield.
C) price-earnings ratio.
D) retained earnings.
E) par value.

Question 64

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

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

Question 65

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

Question 66

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

Question 67

Securities markets provide liquidity.

Question 68

The capital in excess of par account is usually significantly smaller than the par value account on a balance sheet.

Question 69

The last in line for the payment of profits are the

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

Question 70

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 71

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 72

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 73

The dollar amount printed on a stock certificate is known as its

A) dividend yield.
B) capital in excess of par value.
C) market value.
D) par value.
E) dividend value.

Question 74

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 75

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 76

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

Question 77

Explain the difference between common and preferred stock.

Question 78

The following are types of bonds except

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

Question 79

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

Question 80

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.