Question 1

________ refers to short-term promissory notes,or contractual agreements,to repay a borrowed amount by a specified time with a specified interest rate.

Accepted Answer

E) Commercial paper refers to short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate.

Question 2

Roder Industries is a multinational production firm.Invo Bank is the firm's major financier in the United States.The bank offers short-term loans to Roder at a very low rate and the bank considers Roder to be its best customer.The interest rate the Invo bank charges on these short-term loans are called ________ interest rate.

Accepted Answer

C) Prime interest rate is the lowest rate of interest that banks charge for short-term loans to their most creditworthy customers. Here prime interest rate is charged for Roder's loans.

Question 3

Equity financing refers to arranging funding by ________.

Accepted Answer

C) Equity financing refers to arranging funding by selling ownership shares in the company. Ownership shares can be sold publicly or privately.

Question 4

Short-term financing is used to cover ________ of a business.

Accepted Answer

A) Short-term financing is financing that will be repaid within one year. It is used to cover current expenses.

Question 5

Financing would cost more if ________.

Accepted Answer

C) Cost of financing is dependent on the quality and length of time of the venture. Long-term financing generally costs a company more than short-term financing.

Question 6

Which of the following sources of short-term debt is characterized by revolving credit terms?

Accepted Answer

D) Credit cards have revolving credit terms with no fixed repayment date. They create a short-term loan every time the cardholder makes purchases or gets a cash advance.

Question 7

________ budget is a budget that outlines expenditures for real estate,new facilities,major equipment,and other such investments.

Accepted Answer

D) Capital budget is a budget that outlines expenditures for real estate, new facilities, major equipment, and other capital investments. For smaller capital purchases, a company might designate a certain percentage of its annual operating budget for capital items every year.

Question 8

Short-term financing is financing that will typically be repaid within ________.

Accepted Answer

A) Short-term financing is financing that will typically be repaid within one year. It is used to cover current expenses.

Question 9

________ is the technique of increasing the rate of return on an investment by financing it with borrowed funds.

Accepted Answer

C) Leverage is the technique of increasing the rate of return on an investment by financing it with borrowed funds Leverage magnifies the power of the borrower to generate profits.

Question 10

Capital structure is ________.

Accepted Answer

D) Capital structure is a firm's mix of debt and equity financing. Capital structure helps firms identify how much should be raised, by what means, and when.

Question 11

4Learning is a firm that sells learning solutions to customers.The company identifies the training needs of organizations and designs flash-based online training programs for them.The company has recently received an order to create product training platforms for an electronic manufacturer.The company creates a budget specifically for this order to determine the pricing of the project.This budget is an example of a ________ budget.

Accepted Answer

C) Project budget identifies the costs needed to accomplish a particular project. Here the company is preparing a project-specific budget.

Question 12

Duromart is an American multinational retailer corporation that runs chains of large discount department stores and warehouse stores.Which of the following actions of Duromart is an example of availing short-term credit?

Accepted Answer

D) Short-term financing is financing that will typically be repaid within one year. It is used to cover current expenses. A trade credit account is a means of obtaining short-term debt.

Question 13

Boston Ceramics is a manufacturer of semiconductors.The company produces such parts as ceramic machine components.The company wants to raise $ 15 million to launch operations in a new country.The company decides to fund the launch entirely by using debt financing.Which of the following observations,if true,would most strengthen this financing decision?

Accepted Answer

E) Dividend payments are not tax deductible. Debt payments reduce taxable income. High levels of debt funding will reduce tax burden.

Question 14

Prime interest rate is the ________.

Accepted Answer

A) Prime interest rate is the lowest rate of interest that banks charge for short-term loans to their most creditworthy customers.

Question 15

________ budget identifies the costs needed to accomplish a particular assignment.

Accepted Answer

B) Project budget identifies the costs needed to accomplish a particular project. Project managers typically request funding based on their estimates of the cost to complete the project and its value to the company.

Question 16

________ is the average rate of interest a firm pays on its combination of debt and equity.

Accepted Answer

D) A company's cost of capital is the average rate of interest it must pay on its debt and equity financing. For any form of financing to make economic sense, the expected returns must exceed the cost of capital.

Question 17

Forter Consultants is a firm that provides cloud computing and remote storage services to firms in the United States.The company plans to buy more servers to increase its operating and storing capacity.It also creates a budget for the purchase and it estimates the total cost to be about $3 million.The budget created for this transaction is an example of a(n)________ budget.

Accepted Answer

E) Capital budget is a budget that outlines expenditures for real estate, new facilities, major equipment, and other capital investments. The given case describes budgeting for buying capital equipments.

Question 18

Albert is the financial manager of a manufacturing firm.Albert has been an integral part of the firm ever since it started business in 2006.Albert's job has transformed over the years and every year he is responsible for creating a budget to identify all sources of raising funds and coordinates the spending of those funds throughout the company.This budget is an example of a(n)________ budget.

Accepted Answer

E) After a company gets through the start-up phase, the financial manager's attention turns to the operating budget, sometimes known as the master budget, which identifies all sources of revenue and coordinates the spending of those funds throughout the coming year.

Question 19

Which of the following is a major difference between debt financing and equity financing?

Accepted Answer

B) The cost of debt financing is usually a recurring cost and usually fixed. Debt obligations must be repaid, regardless of whether the company is profitable or not. Based on management's discretion and if a company is profitable, shareholders may receive dividends after creditors have been paid. However, a company is not required to pay dividends.

Question 20

________ budget identifies all sources of revenue and coordinates the spending of those funds throughout the coming year.It is also known as the master budget.

Accepted Answer

E) Operating budget is a budget that identifies all sources of revenue and coordinates the spending of those funds throughout the coming year. It is also known as the master budget.

Quiz 18: Financial Management