Deck 17: Financial Management

Question 1

Explain what can be indicated by the growing importance of financial professionals.

Answer 1

The growing importance of financial professionals is reflected in the growing number of CEOs who have been promoted from financial positions. Indra Nooyi, CEO of PepsiCo, and John Watson, CEO of Chevron, both served as their firm's CFO prior to assuming the top job. The importance of finance professionals is also reflected in how much CFOs earn today. According to a survey by the executive compensation consulting firm Equilar, the median annual salary for CFOs depends largely on the size of the company.

Question 2

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
A(n) _____ is a sale of assets by a company.

Answer 2

j

Question 3

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
_____ raise money from wealthy individuals and institutional investors, and invest these funds in small, start-up companies.

Answer 3

a

Question 4

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
Certificates of indebtedness sold to raise long-term funds for a corporation or government agency are known as _____.

Question 5

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
Funds obtained through borrowing are _____.

Question 6

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
Stocks or bonds that are sold exclusively to a small group of large investors are known as _____.

Question 7

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
Similar to venture capitalists, _____ are investment companies that raise money to invest in all types of promising companies, including mature firms.

Question 8

Explain each role in the hierarchy of financial management at a large firm.

Question 9

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
A transaction in which public shareholders are bought out and the firm reverts to private status is known as a(n) _____.

Question 10

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
The technique of increasing the rate of return on an investment by financing it with borrowed funds is called _____.

Question 11

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
_____ consists of funds provided by a firm's owners when they reinvest earnings, make additional contributions, liquidate assets, issue stock, or raise capital.

Question 12

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
Selling receivables to another party for cash is _____.

Question 13

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
A mix of a firm's debt and equity capital is _____.

Question 14

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
A(n) _____is a document that specifies the funds a firm will need for a period of time, the time of inflows and outflows, and the most appropriate uses of funds.

Question 15

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
_____ is the amount of assets needed to generate a given level of sales.

Question 16

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
The process by which decisions are made regarding investments in long-lived assets is _____.

Question 17

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
A(n) _____ is an executive who develops and implements a firm's financial plan and determines the most appropriate sources and uses of funds.

Question 18

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
An offer made by an outside investor or firm to the target firm's shareholders is a(n) _____.

Question 19

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
_____ is extended by suppliers when a firm receives goods or services, agreeing to pay them at a later date.

Question 20

MATCHING
Complete the following using the terms listed.
a.Venture capitalists
b.private placements
c.factoring
d.capital investment analysis
e.debt capital
f.Equity capital
g.financial plan
h.leveraged buyout
i.private equity funds
j.divestiture
k.Marketable securities
l.financial manager
m.tender offer
n.Trade credit
o.leverage
p.capital structure
q.Asset intensity
r.bonds
_____ are low-risk securities that either have short maturities or can easily be sold in secondary markets.

Question 21

List the major sources of short-term and long-term funds.

Question 22

Which of the following individuals has the direct responsibility for shareholder relations?

A) The controller
B) The chief financial officer
C) The chief executive officer
D) The treasurer

Question 23

Explain the concept of risk-return trade-off.

Question 24

Describe hedge funds.

Question 25

What is the purpose of a financial plan?

Question 26

Explain how the cash inflows and outflows of a business are similar to those of a household.

Question 27

Explain the difference between an expansion decision and a replacement decision.

Question 28

The gain or loss that results from an investment over a specified period of time is known as _____.

A) risk
B) return
C) probability
D) value

Question 29

Explain why companies frequently choose to use debt.

Question 30

In the context of the role of the financial manager, who among the following reports directly to the chief financial officer?

A) The CEO
B) The COO
C) The treasurer
D) The investor

Question 31

The financial manager for a typical corporation is responsible for _____.

A) designing the accounting system
B) gathering, recording, and reporting financial information
C) determining the most appropriate sources and uses of funds
D) preparing operating budgets for various departments

Question 32

Why do firms divest assets?

Question 33

Explain the concept of leverage.

Question 34

A(n) _____ is a document that specifies the funds a firm will need for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds.

A) asset management plan
B) leverage plan
C) strategic plan
D) financial plan

Question 35

Which of the following is the best definition of financial risk?

A) It is the uncertainty regarding the gain or loss from an investment.
B) It is the uncertainty that an investment's actual return will be less than its expected return.
C) It is the possibility that an investment will earn a negative return.
D) It is the possibility that an investment will lose money.

Question 36

Randy works in the financial division of his company and is responsible for preparing monetary forecasts and analyzing major investment decisions. What is Randy's title?

A) Treasurer
B) Chief financial officer
C) Vice president for financial management
D) Controller

Question 37

Describe a disadvantage of equity capital.

Question 38

In a typical firm, the _____ is the chief accounting manager.

A) chief executive officer
B) controller
C) treasurer
D) chief financial officer

Question 39

What is an LBO?

Question 40

The process that periodically checks actual revenues and expenses against forecast values is _____.

A) strategic planning
B) leveraging
C) budgeting
D) financial control

Question 41

Borrowing money _____.

A) creates leverage
B) increases equity
C) decreases risk
D) reduces liquidity

Question 42

Britt raises money from wealthy individuals and institutional investors, and invests them in a variety of promising new companies. In exchange, he will become part owner of those businesses. Britt is a(n) _____.

A) angel investor
B) underwriter
C) entrepreneur
D) venture capitalist

Question 43

Most private placements are _____.

A) U.S. government securities
B) corporate debt issues
C) corporate equity issues
D) municipal debt issues

Question 44

_____ are investment companies that raise funds from wealthy individuals and institutional investors and use the funds to make investments in both public and private companies.

A) Venture capitalists
B) Private placements
C) Hedge funds
D) Private equity funds

Question 45

A company would most likely finance _____ using short-term sources of funds.

A) inventory
B) buildings
C) land
D) machinery

Question 46

Short-term assets are expected to be converted into cash within _____.

A) a month
B) a year
C) four months
D) six months

Question 47

A(n) _____ is a transaction in which one company buys another.

A) acquisition
B) merger
C) takeover
D) synergy

Question 48

Grace is the financial manager for Branson Inc. and has decided to raise additional funds for the company by raising equity capital. She might do so by _____.

A) selling bonds
B) persuading existing owners to contribute additional funds
C) selling marketable securities
D) establishing a line of credit with a local bank

Question 49

Which of the following assets would a firm most likely finance using long-term sources?

A) Inventory
B) Accounts receivable
C) Marketable securities
D) Another company

Question 50

Major current assets include all of the following EXCEPT_____.

A) accounts receivable
B) stockholders' equity
C) marketable securities
D) cash

Question 51

Rexton Pharmaceuticals needs to raise funds to buy new production equipment. The financial manager would probably suggest that his company raise debt capital by _____.

A) using accumulated earnings
B) selling stock
C) selling marketable securities
D) borrowing money from a bank

Question 52

_____ would be the LEAST likely to obtain a private placement.

A) Small individual investors
B) Life insurance companies
C) Commercial banks
D) Pension fund managers

Question 53

When a firm receives goods or services from a supplier and agrees to pay for them at a later date, this arrangement is called _____.

A) a short-term loan
B) a repurchase agreement
C) trade credit
D) commercial credit

Question 54

The sovereign wealth fund is a variation of _____.

A) market securities
B) private equity fund
C) private placements
D) debt capital

Question 55

All of the following actions result in equity capital EXCEPT _____.

A) issuing bonds
B) liquidating assets
C) issuing stock
D) reinvesting earnings

Question 56

A company's financial plan should answer all of the following questions EXCEPT _____.

A) What is the contingency plan in case of bankruptcy?
B) What funds will the firm require during the appropriate period of operations?
C) How will it obtain the necessary money?
D) When will it need more cash?

Question 57

The term used to describe the benefits produced by a merger or acquisition is _____.

A) partnership
B) leverage
C) synergy
D) profit

Question 58

Leverage _____ the return to shareholders and _____ the risk of their investment.

A) lowers; lowers
B) lowers; increases
C) increases; lowers
D) increases; increases

Question 59

All of the following are sources of short-term funds EXCEPT _____.

A) commercial paper
B) trade credit
C) corporate bonds
D) bank loans

Question 60

Kevin's company needs to obtain funds in order to keep the business going; however, she does not want stockholders influencing the direction of her company. What type of financing should Kevin acquire?

A) Angel investment
B) Venture capital
C) Debt capital
D) Equity capital

Question 61

The major purpose of cash is to pay day-to-day expenses.

Question 62

Two types of divestitures are _____.

A) sell-offs and trade-offs
B) trade-offs and spin-offs
C) buy-offs and spin-offs
D) sell-offs and spin-offs

Question 63

In a sense, a(n) ________ is the reverse of a merger.

A) tender offer
B) leverage buyout
C) divestiture
D) acquisition

Question 64

Financial managers are responsible for increasing profits to shareholders.

Question 65

Investments that promise the highest returns tend to involve the lowest amount of risk.

Question 66

Financial plans that focus on projections no more than a year or two in the future are known as strategic plans.

Question 67

Risk is defined as the uncertainty of a profit or a loss.

Question 68

Altitel Inc. has difficulties with managing operating costs of their company due to shortage of short-term finance. The company needs liquid assets and some capital to improve its performance in the market. Damon, an established businessman, raises money from wealthy individuals and invests it in the company. He also gives the company critical advice about managing their processes effectively. In exchange, Damon owns a small part of the company. In the context of the sources of financing, Damon is a _____.

A) leverage advisor
B) risk-return trader
C) venture capitalist
D) hedge fund consultant

Question 69

In many companies, the CEO is promoted to the position of CFO.

Question 70

Virtually, all financial decisions involve a trade-off between risk and return.

Question 71

Managing assets for an international company creates several new challenges for a financial manager.

Question 72

The balance sheet hedge is often one of the most difficult activities for minimizing the challenges that come with exchange rates.

Question 73

Ben has three subordinates that report to him. They include the treasurer, the controller, and the vice president for financial management. In the context of the role of a financial manager, Ben is the _____ of his organization.

A) CEO
B) COO
C) CFO
D) CRO

Question 74

The treasurer is the chief financial officer of most firms.

Question 75

In a quarterly meeting, Rand, a financial manager at InVest Inc., states that the company will benefit in the long term by utilizing a mix of debentures than focusing only on issuing shares. He states that this strategy will give his company a positive _____, which will increase the rate of return of the firm.

A) risk-return trade-off
B) leverage
C) hedge fund advantage
D) divestiture

Question 76

Paul, a financial manager at Faxeltel Inc., holds a meeting to discuss various aspects of investment in long-lived assets. The meeting takes into consideration the buying of new assets and the replacement of old assets. In the context of financial management, this type of decision making is called _____.

A) capital investment analysis
B) risk-return trade-off
C) leveraged buyout analysis
D) divestiture planning

Question 77

Rhonda, a financial manager at TRM Inc., has to organize the finances of her company for one to two years. In the context of financial planning, she should develop a(n) _____ plan to accomplish this purpose.

A) strategic
B) operating
C) security
D) leverage

Question 78

In most firms, the controller is the chief accounting manager.

Question 79

A balance sheet hedge provides a method for global companies to reduce risks associated with exchange rate fluctuations.

Question 80

ZeChems, a chemical manufacturer, has approximately $0.68 in assets for every dollar in sales. According to asset intensity, for every $100 increase in sales, the firm would need about $100 of additional assets.