Deck 18: Finance

Question 1

In finance, what is the potential for loss?

A) leverage
B) risk
C) business chance
D) factoring

Answer 1

B

Question 2

What are short-term forecasts that project revenues, costs of goods, and operating expenses over a one-year period?

A) supervised plans
B) internal plans
C) operating plans
D) strategic plans

Answer 2

C

Question 3

In seeking a balance between the opportunity for profit and the potential for loss, a financial manager is dealing with which of the following concepts?

A) potential profit trade-off
B) sales-profit trade-off
C) risk-return trade-off
D) profit-loss trade-off

Answer 3

C

Question 4

Which of the following enables the company to estimate the amount and timing of its investment and financing needs?

A) financial forecasts
B) financial plan
C) projections
D) budgeting

Question 5

Which type of management is used to determine the most effective ways to acquire and use funds to achieve the company's goals?

A) corporate management
B) operations management
C) financial management
D) accounting management

Question 6

Financial managers constantly strive for a balance between which of the following?

A) common and preferred shares
B) economic responsibility and social responsibility
C) cash and marketable securities
D) the opportunity for profit and the potential for loss

Question 7

To maximize the company's value, the financial manager has to constantly strive for a balance between which of the following?

A) shareholder and board of directors demands
B) short-term gains over long-term goals
C) tolerance for debt and investments in assets
D) balance sheet and income statement

Question 8

Financial management is best described by which of the following?

A) It is typically performed by a company's CEO.
B) It uses financial statements prepared by accountants to make financial decisions.
C) Its purpose is to collect and present financial data.
D) It is completely different from accounting.

Question 9

As part of the task of managing cash flows, financial managers perform which of the following activities?

A) They collect financial data.
B) They present financial data.
C) They oversee the collection of accounts receivable.
D) They hire accountants.

Question 10

Lowell Arden bought and sold shares for a profit. What is the profit Arden earned on his investment in shares?

A) investment return
B) investment certainty
C) investment risk
D) investment probability

Question 11

European Airlines forecast that its profits will increase by 2-4 percent for flights between Europe and Canada during the next 12 months. This prediction is part of which of the following activities?

A) the company's economic forecast
B) the company's marketing plan
C) the company's production budget
D) the company's operating budget

Question 12

The financial planning process begins with which of the following?

A) budgeting
B) expert systems
C) financial forecasts
D) brainstorming

Question 13

Hannah Perez keeps track of day-to-day operational data to make sure her employer has enough cash to run the business. She will determine if and when the company she works for should open a second distribution centre. Which type of manager is Perez?

A) accounting
B) financial
C) operations
D) analysis

Question 14

The concept of risk-return trade-off is best described by which of the following?

A) It is important only at the lowest management levels.
B) It relates to higher risk requiring greater return.
C) It will be more likely to influence the financial activities in an international company than a national one.
D) It will be more likely to influence the financial activities in a service provider than a manufacturer.

Question 15

The primary goal of financial managers is best described by which of the following?

A) They concentrate on short-term growth strategies.
B) They develop new goods and services for the company.
C) They ensure all employees are paid on a regular schedule.
D) They maximize the value of the company to its owners.

Question 16

Financial managers are best described by which of the following?

A) They focus on profit maximization.
B) They track how money is flowing into and out of the company.
C) They play such an important organizational role that they often are called operations managers.
D) They are not typically involved in long-term strategic planning.

Question 17

In finance, what is the opportunity for profit?

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

Question 18

Which of the following do financial managers use to describe the inflow and outflow of cash?

A) cash flows
B) financial flows
C) revenue streams
D) sales revenues

Question 19

One of the key activities of the financial manager is to obtain funding for the company's operations and investments. In doing this, the financial manager has to constantly strive for a balance between which of the following?

A) debt and equity
B) private or public funding
C) internal and external funding
D) government and business

Question 20

Which of the following is NOT one of the three key activities of the financial manager?

A) risk assessment
B) investment (spending money)
C) financing (raising money)
D) financial planning

Question 21

Which of the following is a type of company that needs good cash management and more cash available as it has seasonal pattern of sales and receipts?

A) toy company
B) juice company
C) shoe company
D) cereal company

Question 22

The Four Seasons hotel chain has purchased an existing hotel in Mumbai. To forecast how much it needs to spend to bring the facilities in line with Four Seasons' other five-star hotels, what will it use?

A) managerial budget
B) tactical budget
C) capital budget
D) operating budget

Question 23

Earth Worm is an independent bookstore that went bankrupt due to an unexpected demand for cash to fix a leaking roof. Which of the following activities might have allowed the business to continue operation?

A) better cash maintenance
B) better cash targeting
C) better cash management
D) better cash capitalization

Question 24

Which of the following are forecasts for outlays for fixed assets, usually covering a period of several years?

A) tactical budgets
B) operating budgets
C) capital budgets
D) monetary-policy budgets

Question 25

Which of the following is a short-term unsecured debt issued by a financially strong corporation?

A) treasury bill
B) certificate of deposit
C) money market deposit
D) commercial paper

Question 26

What are short-term investments that are easily converted back to cash and are used by financial managers to achieve higher returns than those offered by chequing accounts?

A) corporate securities
B) marketable securities
C) management vehicles
D) corporate equities

Question 27

The financial manager's goal is to effectively manage which of the following so that a company has enough cash to pay its bills and to support its accounts receivable and inventory?

A) strategic budgets
B) bad debt expenses
C) current assets
D) current liabilities

Question 28

Esselte is one of the world's leading producers of office supplies. The company forecasts that its profits will double by the year 2020, and its financial manager will need to determine what should be done with the increased earnings. This forecast is part of which of the following activities?

A) the company's marketing plan
B) the company's strategic plan
C) the company's operating plan
D) the company's production budget

Question 29

The three most popular types of marketable securities are Treasury bills, certificates of deposit, and which of the following?

A) money market funds
B) corporate bonds
C) Treasury notes
D) commercial paper

Question 30

Chez Dove is an independent coffeehouse/bookstore. In order to predict how much coffee it would serve, how many cups it would need, and how much staff it will require during July, which type of budget would the company use?

A) cash budget
B) operating budget
C) centralized budget
D) strategic budget

Question 31

Financial managers often shift temporary funds from chequing accounts to which of the following to earn higher interest returns?

A) administrative securities
B) commercial securities
C) marketable securities
D) strategic securities

Question 32

Commercial paper is best described by which of the following?

A) It is the same thing as accounts receivable recorded in the ledger.
B) It is a type of IOU.
C) It is typically issued by stakeholders.
D) It is a type of secured debt.

Question 33

Which of the following is NOT one of the three most popular types of marketable securities?

A) certificates of deposit
B) treasury bills
C) stocks
D) commercial paper

Question 34

What are short-term expenses used to support current production and selling expenses?

A) operating expenses
B) managerial expenses
C) administrative expenses
D) general expenses

Question 35

Which of the following are forecasts of the company's inflows and outflows of cash?

A) fiscal budgets
B) revenue budgets
C) operating budgets
D) cash budgets

Question 36

What are long-term forecasts that cover two to ten years and take a broader view of the company's financial activities?

A) tactical plans
B) operating plans
C) strategic plans
D) projected plans

Question 37

What are budgets that combine sales forecasts with estimates of production costs and operating expenses to forecast profits?

A) operating budgets
B) centralized budgets
C) strategic budgets
D) cash budgets

Question 38

Linda's Kitchen is a bakery. Flour, sugar, eggs, milk, and chocolate would be included in which type of expenses?

A) operating expenses
B) general expenses
C) managerial expenses
D) administrative expenses

Question 39

Which of the following are formal written forecasts of revenues and expenses that set spending limits based on operational forecasts?

A) profit and loss statements
B) business predictions
C) budgets
D) financial forecasts

Question 40

What is the term for making sure that enough cash is on hand to pay bills as they come due and to meet unexpected expenses?

A) cash targeting
B) cash management
C) cash maintenance
D) cash capitalization

Question 41

What is the term for the extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them?

A) revolving credit
B) supplier's credit
C) trade credit
D) line of credit

Question 42

Short-term loans are best described by which of the following?

A) They are always secured.
B) They have a maturity of one year or longer.
C) They do not require any collateral.
D) They are shown as a liability on the balance sheet.

Question 43

Grainger Distribution Company sold Long Electronics 10 circuit breakers for $169.00 each. Long Electronics will be allowed 30 days to pay the bill. Grainger will carry the $1690.00 on its books as which of the following?

A) account receivable
B) account payable
C) current liability
D) fixed liability

Question 44

Which of the following is NOT a technique for reducing the investment in inventory?

A) just-in-time system
B) inventory management
C) allocation analysis
D) materials requirement planning

Question 45

Capital budgeting is best described by which of the following?

A) It analyzes production costs.
B) It helps select new products.
C) It selects asset proposals for maximum profitability.
D) It combines all budgets into a master budget.

Question 46

What is an agreement between a bank and a person or business that specifies the maximum amount of short-term borrowing the bank will make available to that person or business?

A) credit-line loan
B) line of credit
C) unsecured loan
D) commercial paper loan

Question 47

Which of the following is the process of selecting the capital expenditures that offer the best returns and meet the goal of maximizing the company's value?

A) capital evaluation
B) capital allocation
C) budget analysis
D) capital budgeting

Question 48

When Magna Manufacturing sells hand screwdriver sets to Malloy Building Supply Company, Magna bills the tool manufacturer for the screwdriver purchase with terms of payment, which specify when the account is due. What is this type of unsecured?

A) trade credit
B) borrower's credit
C) product credit
D) revolving credit

Question 49

What are sales for which a company has not yet been paid?

A) bad debts
B) account payables
C) liabilities owing
D) accounts receivable

Question 50

What are the three main types of unsecured short-term loans?

A) trade credit, bank loans, and commercial paper
B) treasury bills, certificates of deposit, and accounts payable
C) trade credit, accounts payable, and bank loans
D) accounts payable, notes payable, and loans payable

Question 51

Which of the following is a type of loan often used to finance buildup of inventory for seasonal (cyclical) businesses just before its strongest sales period?

A) collateral loan
B) unsecured bank loan
C) trade credit
D) secured bank loan

Question 52

What are funds invested in long-lived assets, such as land, buildings, machinery, and equipment?

A) operating expenses
B) production costs
C) manufacturing expenses
D) capital expenditures

Question 53

Which of the following managers wants to keep the least amount of inventory on hand?

A) production
B) marketing
C) operations
D) finance

Question 54

The financial manager's goal is to collect money owed to the company as quickly as possible while offering customers credit terms attractive enough to do which of the following?

A) increase sales
B) keep existing customers
C) have enough cash flow
D) prevent write-offs

Question 55

Which of the following businesses would be most likely to require an unsecured bank loan, such as a line of credit or a revolving credit agreement?

A) Christmas tree farm
B) envelope manufacturer
C) manufacturer of integrated circuits
D) poultry producer

Question 56

As the Toronto-based Four Seasons hotel chain remodels an existing hotel in Mumbai to bring it to the five-star hotel's exacting standards, it is building a magnificent revolving restaurant overlooking the Arabian Sea. The restaurant structure is an example of which of the following?

A) material cost
B) account receivable
C) operating cost
D) capital expenditure

Question 57

Which of the following would be an example of a capital expenditure for a superstore that specializes in outdoor grills and other items needed for outside dining?

A) parking lot
B) cardboard sale signs
C) pens and markers
D) handheld calculator

Question 58

Which of the following are specific repayment conditions as to how long customers have to pay bills and the amount of cash discount allowed?

A) revolving accounts
B) credit credentials
C) credit terms
D) liability procedures

Question 59

Toronto Pneumatic Tools has changed its credit terms to encourage its buyers to pay their accounts receivable more quickly. Which of the following represents the policy that the financial manager has changed?

A) credit ratings
B) account flexibility
C) credit terms
D) collection policy rate

Question 60

Which of the following is NOT one of the three main types of unsecured short-term loans?

A) commercial paper
B) accounts payable
C) bank loans
D) trade credit

Question 61

What are long-term debts (liabilities) for corporations and governments?

A) common shares
B) equity funds
C) bonds
D) preferred shares

Question 62

In which of the following industries are you most likely to find factoring being used?

A) tire industry
B) fast-food industry
C) soft drink industry
D) appliance industry

Question 63

What is a loan that requires the borrower to pledge specific assets as collateral?

A) amortized loan
B) promissory loan
C) unsecured loan
D) secured loan

Question 64

What are three important forms of long-term debt?

A) trade credit, accounts payable, and bank loans
B) term loans, mortgage loans, and bonds
C) accounts payable, notes payable, and commercial paper
D) treasury bills, certificates of deposit, and accounts payable

Question 65

What is one of the advantages of debt financing?

A) variability of interest rates
B) number of different sources from which it is available
C) no loss of ownership
D) no concern about swings in the stock market

Question 66

Long-term debt would be used to finance which of the following activities?

A) replace broken glass in a window
B) buy new tablecloths for a restaurant
C) provide customer with a cash discount
D) pay for a few pieces of equipment

Question 67

A company sells its accounts receivable to a financial institution that is in the business of buying accounts receivable at a discount. This sale is known as which of the following activities?

A) pledging
B) bartering
C) factoring
D) collateralizing

Question 68

A secured loan requires that the borrower pledge specific assets to secure the loan. These assets are known as which of the following?

A) negotiable assets
B) intangible assets
C) pledges
D) collateral

Question 69

What are secured or unsecured business loans available from commercial banks with terms generally 5-12 years?

A) collateral loans
B) mortgage loans
C) term loans
D) line of credit loans

Question 70

Which of the following is NOT one of the three important forms of long-term debt?

A) trade credit
B) bonds
C) mortgage loans
D) term loans

Question 71

C.W. Beauregard is an Atlantic salmon farmer. He produces and sells salmon to satisfy the growing demand for fish. He has arranged a business loan with terms that guarantee that he can borrow up to $12,000 whenever he needs it within the next year. He must pay interest only on the unpaid loan balance. Beauregard has arranged which type of credit?

A) credit-line loan
B) line of credit
C) single-payment note
D) collateralized loan

Question 72

Which statement best describes the major drawback to the use of debt financing?

A) Debt financing gives common shareholders a voice in company management.
B) Debt financing is a form of permanent financing.
C) The interest paid in debt financing is not tax-deductible.
D) Financial risk is always a possibility with debt financing.

Question 73

Which of the following statements describes an advantage inherent in equity financing?

A) The company is not required to repay equity.
B) Interest is tax-deductible.
C) A company has an obligation to pay dividends.
D) Equity has a maturity date.

Question 74

Term loans are best described by which of the following?

A) They are loans with a maturity of less than one year.
B) They are available from commercial banks, insurance companies, pension funds, commercial finance companies, and manufacturers' financing subsidiaries.
C) They must be secured.
D) They must be repaid on an annual schedule only.

Question 75

Which of the following is NOT one of the 6 C's of credit to determine the risk that the borrower will default on the debt?

A) conditions
B) collateral
C) co-payers
D) confidence

Question 76

Albee Construction Company, a financially strong corporation that builds roads and bridges, finances its equipment leases by issuing unsecured short-term debt. This is known as which of the following?

A) revolving credit
B) collateralized loans
C) commercial paper
D) corporate issues

Question 77

Shameika Olson owns a bookstore and has arranged a business loan with the bank where she has her business account. The terms of the loan allow her to borrow up to $12,000 within the next year. She must pay interest only on the unpaid loan balance. What has Olson arranged?

A) line of credit
B) secured loan
C) collateralized loan
D) mortgage loan

Question 78

How are secured short-term loans usually secured?

A) by accounts receivable and inventory
B) by equipment and accounts payable
C) by accounts payable and accounts receivable
D) by inventory and equipment

Question 79

What is the major advantage of debt financing?

A) absence of factoring
B) number of different sources from which it is available
C) deductibility of interest expenses
D) lack of dependence on collateral

Question 80

An IOU is most similar to which type of bank loan?

A) business trade credit
B) revolving credit
C) collateralized credit
D) commercial paper