Question 1

Henry has received notice from a supplier that all invoices must be paid within 30 days rather than 60 days as previously given. Which of the following will be impacted by this change?

Accepted Answer

The change in payment terms from 60 days to 30 days will impact Henry's cash flow, as he will need to pay invoices sooner, affecting the timing and availability of cash.

Question 2

The three basic areas of responsibility for financial managers are

Accepted Answer

Cash flow management involves ensuring that there is enough cash available to meet the company's short-term obligations. Financial control involves monitoring and managing the company's financial resources to ensure that they are being used efficiently and effectively. Financial planning involves creating a long-term financial strategy that will help the company achieve its goals. These three areas are essential for effective financial management. Options B, C, and D are not accurate descriptions of the three basic areas of responsibility for financial managers.

Question 3

The business activity that is concerned with determining a firm's long-term investments, obtaining the funds to pay for those investments, and conducting the firm's everyday financial activities is

Accepted Answer

Corporate finance is concerned with long-term investments, funding sources, and day-to-day financial activities of a firm. Bookkeeping is more focused on record-keeping and tracking transactions, investment brokers facilitate transactions in financial markets, chartered banks provide financial services and products to individuals and businesses, and money markets involve short-term borrowing and lending of funds.

Question 4

Which of the following represents the overall objective of financial managers?

Accepted Answer

The overall objective of financial managers is to increase the value of the firm which would, in turn, lead to an increase in shareholder wealth. This is achieved through various financial decisions and strategies that aim to maximize profits and create sustainable growth for the company. Options A, B, C, and E are all important tasks that financial managers need to handle, but they do not represent the overall objective of financial managers.

Question 5

Jenex Corp. has a credit policy that reads "2/10, net 30." This means that

Accepted Answer

The correct interpretation of "2/10, net 30" is that the company offers a 2 percent discount if the customer pays within 10 days, and the full payment is due within 30 days. None of the provided options accurately describe this policy.

Question 6

Why is it necessary for a business firm to establish a credit policy?

Accepted Answer

A credit policy is necessary to determine the expected dates of payment from buyers of the firm's products and services. This helps financial managers to plan and manage cash flow effectively. A credit policy also sets guidelines for extending credit to customers, which helps to minimize the risk of bad debts and improves the overall creditworthiness of the business. A credit policy also helps to establish clear payment terms and ensures consistency in credit decisions.

Question 7

Sellers adjust credit terms in order to influence

Accepted Answer

Sellers adjust credit terms in order to influence when customers pay their bills. This can help the seller improve their cash flow and manage their working capital. By offering shorter payment terms, the seller can incentivize customers to pay quicker, while longer payment terms can provide more flexibility and potentially attract more customers.

Question 8

All of the following are responsibilities of the financial manager except

Accepted Answer

The responsibility of developing the firm's financial statements typically falls under the jurisdiction of the accounting department, rather than the financial manager. Therefore, choice C is the correct answer as it is not a responsibility of the financial manager.

Question 9

When managers at Kraft Foods anticipate how much cheddar cheese Safeway supermarkets will buy each month and when Safeway will pay for those purchases, Kraft is managing its

Accepted Answer

Kraft is anticipating how much cheese Safeway will buy and when they will pay, which relates to Kraft's accounts receivable.

Question 10

A credit policy of "2/10, net 30" means

Accepted Answer

The credit policy of "2/10, net 30" means that a customer can receive a 2 percent discount if they pay their bill within 10 days, otherwise the full amount is due within 30 days.

Question 11

When a firm ensures that it always has enough funds on hand to purchase the materials and human resources that it needs to produce goods and services, it is exercising

Accepted Answer

Cash flow management involves managing the inflow and outflow of funds to ensure that a company has enough cash on hand to meet its financial obligations, such as purchasing materials and human resources necessary to produce goods and services. This is achieved through tactics such as monitoring cash flow projections, negotiating favorable payment terms with suppliers, and effective debtor management. Therefore, the correct choice is A) cash flow management.

Question 12

Which of the following terms would a firm use to speed up cash flow?

Accepted Answer

Offering a larger discount (3%) for early payment (within 10 days) encourages customers to pay sooner, thus speeding up cash flow.

Question 13

What does a credit policy of "2/10, net 30" mean?

Accepted Answer

"2/10, net 30" means that the selling company offers a 2 percent discount if the customer pays within 10 days. The customer has 30 days to pay the regular price.

Question 14

Scott is managing a company and he has been advised by his financial manager that his largest source of short-term debt is too high. What source of funding is Scott's financial manager probably talking about?

Accepted Answer

Accounts payable is typically the largest source of short-term debt for companies, as it represents money owed to suppliers and vendors for goods and services received but not yet paid for.

Question 15

In 2012, Canadian Pacific Railway Ltd. announced that it would make investments totaling $1.2 billion in order to improve its operating ratio, which in 2011 was the worst among North America's Big Six railways. This activity is CPR's

Accepted Answer

The investment plan of Canadian Pacific Railway Ltd. to improve its operating ratio can be categorized as a financial plan. A financial plan outlines a company's financial objectives and strategies over a specified period to achieve those objectives. In this case, CPR's objective was to improve its operating ratio, and it planned to do so by investing $1.2 billion.

Question 16

The "measuring stick" against which performance is evaluated is provided by

Accepted Answer

A budget provides specific targets for revenue, expenses, and overall financial performance that can be used to evaluate actual performance.

Question 17

Tony is responsible for planning and controlling the acquisition and dispersal of the company's financial assets. What is Tony's job title?

Accepted Answer

The job responsibilities mentioned in the question match those of a financial manager.

Question 18

Sally is looking at an invoice dated July 1st for $1000 that has terms of 2/10; net 30. If she pays the bill on July 3rd how much should she write the cheque for?

Accepted Answer

The terms 2/10 mean that there is a 2% discount if the bill is paid within 10 days. Therefore, if Sally pays on July 3rd, which is within 10 days, she can take advantage of the discount. To calculate the discount, we take 2% of $1000, which is $20. Then we subtract that from the total amount due: $1000 - $20 = $980. Therefore, Sally should write the cheque for $980.

Question 19

David is looking at a bill for supplies his company bought. It is dated May 1st and the terms are 2/10; net 30. In order to pay the least amount, when should he pay the bill?

Accepted Answer

The terms 2/10; net 30 mean that David can take a 2% discount if he pays within 10 days of the invoice date (May 1st), which would be by May 11th. Therefore, the latest he should pay to take advantage of the discount and pay the least amount is May 10.

Question 20

Which of the following is correct with respect to chief financial officers (CFOs)?

Accepted Answer

While A, C, and D have some merit and contain elements of truth, they are not entirely accurate or supported by available data. B is the most accurate statement, as CFOs often have a wide range of responsibilities beyond just financial reporting and analysis.

Quiz 15: Finacial Decisions and Risk Management