Question 1

Harry Haddock is the Chief Financial Officer of a small construction company and has just been presented with the sales budget and other cost budgets. He uses this information to develop a forecast of the firm's net income for the next year. In this scenario, Harry is reviewing the company's:

Accepted Answer

Harry is reviewing the sales budget and other cost budgets to develop a forecast of the firm's net income, which indicates that he is reviewing the budgeted income statement. The cash budget focuses on cash inflows and outflows, the cash flow budget is a more detailed version of the cash budget, and the budgeted balance sheet presents a forecast of the company's assets, liabilities, and equity position at a specific point in time.

Question 2

Kyle is the credit manager for Timber Trails Inc., a local landscaping company. Just recently, his supplier noted the terms on his invoice: 3/15 net 30. Which of the following statements best reflects the meaning of those terms?

Accepted Answer

The terms 3/15 net 30 mean that Timber Trails Inc. can take a 3 percent cash discount if they pay the balance owed to the supplier within 15 days. Otherwise, the entire balance is due in 30 days.

Question 3

Which of the following statements is true about cash budgets?

Accepted Answer

Cash budgets are used by financial managers to estimate the timing and amount of cash inflows and outflows within a planning period, usually a year. They project both cash surpluses and cash shortages, allowing managers to anticipate and plan for these situations. They typically cover a shorter period, such as a year, rather than a ten-year period (option C). Lastly, option D is false as all firms do not experience even cash inflows and outflows throughout the year.

Question 4

As a short­term credit arrangement, banks sometimes extend _____, which are guaranteed lines of credit in which the borrowing firm pays a commitment fee on the unused portions of the funds the bank has committed.

Accepted Answer

The description matches the definition of revolving credit agreements, in which a commitment fee is paid on the unused portion of the funds committed by the bank. Term loans are not revolving, trade credits do not involve guaranteed lines of credit or commitment fees, and commercial papers are a type of short-term debt issued by corporations, not guaranteed lines of credit provided by banks.

Question 5

Sally McGregor sells lawn and garden products in bulk to various companies. She extends credit to her customers for 60 days, but often has to wait for months before she receives full payment. She cannot extend her credit limit any more because her business is still in the growing stage and she cannot afford it. Sally is willing to forego a small amount of the money, as long as she gets the rest of the amount immediately. Which of the following steps should she take to resolve her collection problems?

Accepted Answer

By selling her receivables to a factor, Sally will receive immediate payment for her sales, even if the customer takes longer to pay. While she may have to forgo a small percentage of the total amount, Sally can avoid the cash flow problems and risks associated with extended credit. This is a common solution for businesses that need to improve cash flow and reduce collection problems. Option A is not a sustainable solution and may reduce her profit margins. Option B may lead to a loss of business and revenue, and Option C may damage relationships with customers.

Question 6

George's Car Repair Shop buys parts from a local parts distributor. The distributor delivers the parts promptly under terms stated on the invoice: 3/15 net 30. George has always paid the bill within 30 days and has never really worried about these invoice terms. Which of the following statements is true of this scenario?

Accepted Answer

If George pays the bill within 15 days, he will receive a 3 percent discount, which can lead to significant savings over time if he frequently purchases parts from the distributor.

Question 7

Firms that would benefit from a factoring service are firms that:

Accepted Answer

Factoring services provide immediate cash for accounts receivable, which is beneficial for firms that rely heavily on credit sales and want to speed up their receipt of cash. Option A describes the benefits of long-term financing, while option B is about investing excess cash. Option D focuses on commercial paper issuance.

Question 8

A _____ is used to develop a forecast of net income for the planning period of the firm.

Accepted Answer

A budgeted income statement is specifically designed to project the income and expenses of a business over a future period of time, usually one year. It provides a comprehensive overview of the company's projected revenues, costs of goods sold, operating expenses, and taxes, allowing decision-makers to make strategic choices on how to allocate resources and manage the company's financial performance.

Question 9

_____ are companies that provide short­term financing to firms by purchasing their accounts receivables at a discount.

Accepted Answer

Factors are companies that provide short-term financing to firms by purchasing their accounts receivables at a discount. IOUs refer to a written promise to pay a debt, finance houses provide various financial services, and financial covenants are agreements between a borrower and a lender that outline certain financial requirements and restrictions.

Question 10

Funds for start­up firms are generally more limited than those available to mature firms. Which of the following is generally NOT included in the list of main source of funds for start­up firms?

Accepted Answer

Banks are generally a less common source of funds for start-up firms because they may require collateral and a track record of financial stability, which many start-up firms may not have. Family, friends, and the owner are often the main sources of funds for start-up firms, along with potential investors and government grants or loans.

Question 11

As part of the financial planning process, planners create budgeted income statements and budgeted balance sheets which are also known as _____ financial statements.

Accepted Answer

Pro forma financial statements are budgeted or projected financial statements that show anticipated future results based on assumptions and forecasts. They are commonly used in financial planning to help individuals or organizations make informed decisions about their finances.

Question 12

_____ represent funds that arise during the natural course of a firm's business operations without the need for special arrangements.

Accepted Answer

Trade credits represent funds that arise naturally during a firm's business operations without the need for special arrangements. Corporate bonds, commercial papers, and promissory notes are debt instruments that require specific agreements and arrangements for issuance and repayment.

Question 13

As a financial manager, Lisa wants to know when her firm will need to arrange for short­term financing and when the firm is likely to have surplus cash available to pay off loans or to invest in short­term liquid assets. These concerns suggest that Lisa would want to develop a:

Accepted Answer

A cash budget would allow Lisa to forecast the firm's cash inflows and outflows over a specific period of time, which would enable her to determine when the firm will need short-term financing and when it will have surplus cash available. A pro forma income statement would help Lisa forecast the firm's revenues, expenses, and profits, but it would not provide information about cash flows, which is critical when managing short-term financing. A sales forecast and a projected balance sheet could be useful for long-term planning, but they would not provide the specific information that Lisa needs to manage short-term financing.

Question 14

The _____ forecasts the types and amounts of assets a firm will need to implement its future plans as well as the amount of additional financing the firm must arrange in order to acquire those assets.

Accepted Answer

A budgeted balance sheet is a financial statement that forecasts a company's assets and liabilities at the end of a budget period. It can also show the types and amounts of assets a firm will need to implement its future plans and the additional financing the firm must arrange to acquire those assets. A cash budget only forecasts cash inflows and outflows, a statement of cash flows only shows the actual cash inflows and outflows during a period, and a query report is a type of report generated from a database search.

Question 15

_____ is granted by suppliers when they ship materials, parts, or goods to a firm without requiring payment at the time of delivery.

Accepted Answer

Trade credit is the granting of credit by a supplier to a customer, giving the customer the ability to delay payment for goods or services received. This is a common form of short-term financing and can help a company manage their cash flow. The other options listed, revolving credit agreement, commercial paper and promissory note, are all forms of financing but do not specifically relate to the granting of credit by a supplier.

Question 16

Timber Woods Inc. has just arranged a $300,000 line of credit with its banker for the next year. Which of the following statements is true of this scenario?

Accepted Answer

A line of credit allows Timber Woods to borrow up to $300,000 as needed, provided their creditworthiness remains stable and the bank has the funds available.

Question 17

Which of the following questions is excluded when determining whether a company has a sound financial plan?

Accepted Answer

Determining a pricing strategy is not directly related to the financial plan of a company. The other three questions are important for creating a sound financial plan as they relate to obtaining assets and financing.

Question 18

Customers of Jerry's Equipment Manufacturing Unit who buy equipment on credit and then delay making payments will receive a bill from Bonneville, a collection agency. What relationship does Bonneville have with Jerry's?

Accepted Answer

Bonneville is a collection agency, indicating that they are likely involved in factoring. Factoring is a financial arrangement in which a business sells its accounts receivable (i.e., unpaid invoices) to a third-party company at a discount. The third-party company, in this case Bonneville, then takes on the responsibility of attempting to collect on those unpaid invoices from the original customers.

Question 19

New Coffee Company uses JIT (just­in­time) logistical supply methods. This indicates that the company doesn't really keep large stocks of coffee on hand, which is cheaper, from the standpoint of operations, but more risky because of the potential havoc any significant under­ or over­supply of product could wreak. Which of the following ratios is of the utmost importance to New Coffee Company?

Accepted Answer

The inventory turnover ratio is the most important ratio for a company that uses JIT logistical supply methods because it measures how quickly the company sells and replaces its inventory. A high inventory turnover ratio indicates that the company is efficiently managing its inventory and reducing the risks associated with holding too much inventory on hand. Therefore, the inventory turnover ratio is the most important ratio for New Coffee Company.

Question 20

Doctor Williams is having trouble making ends meet. More often than not, his patients are covered by private insurers who tend to take a long time to settle the bills. His liquidity position has been deteriorating rapidly and he may need to choose between layoffs or closing the doors. How can he better manage his accounts receivables?

Accepted Answer

Contracting with a factor can help Doctor Williams by providing a lump sum payment upfront for outstanding payments, reducing the risk of bad debts and improving liquidity. It would not be wise to hire more staff or charge extremely high consultation fees since this could lead to fewer patients and ultimately, less revenue. Moving to a smaller facility may help reduce overhead costs, but it may not solve the underlying issue of slow payment from private insurers.

Quiz 9: Finance: Acquiring Using Funds to Maximize Value

Harry Haddock is the Chief Financial Officer of a small construction company and has just been presented with the sales budget and other cost budgets. He uses this information to develop a forecast of the firm's net income for the next year. In this scenario, Harry is reviewing the company's:

Kyle is the credit manager for Timber Trails Inc., a local landscaping company. Just recently, his supplier noted the terms on his invoice: 3/15 net 30. Which of the following statements best reflects the meaning of those terms?

Which of the following statements is true about cash budgets?

As a shortterm credit arrangement, banks sometimes extend _____, which are guaranteed lines of credit in which the borrowing firm pays a commitment fee on the unused portions of the funds the bank has committed.

Firms that would benefit from a factoring service are firms that:

A _____ is used to develop a forecast of net income for the planning period of the firm.

_____ are companies that provide shortterm financing to firms by purchasing their accounts receivables at a discount.

Funds for startup firms are generally more limited than those available to mature firms. Which of the following is generally NOT included in the list of main source of funds for startup firms?

As part of the financial planning process, planners create budgeted income statements and budgeted balance sheets which are also known as _____ financial statements.

_____ represent funds that arise during the natural course of a firm's business operations without the need for special arrangements.

As a financial manager, Lisa wants to know when her firm will need to arrange for shortterm financing and when the firm is likely to have surplus cash available to pay off loans or to invest in shortterm liquid assets. These concerns suggest that Lisa would want to develop a:

The _____ forecasts the types and amounts of assets a firm will need to implement its future plans as well as the amount of additional financing the firm must arrange in order to acquire those assets.

_____ is granted by suppliers when they ship materials, parts, or goods to a firm without requiring payment at the time of delivery.

Timber Woods Inc. has just arranged a $300,000 line of credit with its banker for the next year. Which of the following statements is true of this scenario?

Which of the following questions is excluded when determining whether a company has a sound financial plan?

Customers of Jerry's Equipment Manufacturing Unit who buy equipment on credit and then delay making payments will receive a bill from Bonneville, a collection agency. What relationship does Bonneville have with Jerry's?

Quiz 9: Finance: Acquiring Using Funds to Maximize Value

Harry Haddock is the Chief Financial Officer of a small construction company and has just been presented with the sales budget and other cost budgets. He uses this information to develop a forecast of the firm's net income for the next year. In this scenario, Harry is reviewing the company's:

Kyle is the credit manager for Timber Trails Inc., a local landscaping company. Just recently, his supplier noted the terms on his invoice: 3/15 net 30. Which of the following statements best reflects the meaning of those terms?

Which of the following statements is true about cash budgets?

As a short­term credit arrangement, banks sometimes extend _____, which are guaranteed lines of credit in which the borrowing firm pays a commitment fee on the unused portions of the funds the bank has committed.

Firms that would benefit from a factoring service are firms that:

A _____ is used to develop a forecast of net income for the planning period of the firm.

_____ are companies that provide short­term financing to firms by purchasing their accounts receivables at a discount.

Funds for start­up firms are generally more limited than those available to mature firms. Which of the following is generally NOT included in the list of main source of funds for start­up firms?

As part of the financial planning process, planners create budgeted income statements and budgeted balance sheets which are also known as _____ financial statements.

_____ represent funds that arise during the natural course of a firm's business operations without the need for special arrangements.

As a financial manager, Lisa wants to know when her firm will need to arrange for short­term financing and when the firm is likely to have surplus cash available to pay off loans or to invest in short­term liquid assets. These concerns suggest that Lisa would want to develop a:

The _____ forecasts the types and amounts of assets a firm will need to implement its future plans as well as the amount of additional financing the firm must arrange in order to acquire those assets.

_____ is granted by suppliers when they ship materials, parts, or goods to a firm without requiring payment at the time of delivery.

Timber Woods Inc. has just arranged a $300,000 line of credit with its banker for the next year. Which of the following statements is true of this scenario?

Which of the following questions is excluded when determining whether a company has a sound financial plan?

Customers of Jerry's Equipment Manufacturing Unit who buy equipment on credit and then delay making payments will receive a bill from Bonneville, a collection agency. What relationship does Bonneville have with Jerry's?

As a shortterm credit arrangement, banks sometimes extend _____, which are guaranteed lines of credit in which the borrowing firm pays a commitment fee on the unused portions of the funds the bank has committed.

_____ are companies that provide shortterm financing to firms by purchasing their accounts receivables at a discount.

Funds for startup firms are generally more limited than those available to mature firms. Which of the following is generally NOT included in the list of main source of funds for startup firms?

As a financial manager, Lisa wants to know when her firm will need to arrange for shortterm financing and when the firm is likely to have surplus cash available to pay off loans or to invest in shortterm liquid assets. These concerns suggest that Lisa would want to develop a: