Deck 17: Financial Management

Question 1

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

Answer 1

B

Question 2

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

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

Answer 2

B

Question 3

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 company require during the appropriate period of operations?
C)How will it obtain the necessary money?
D)When will it need more cash?

Answer 3

A

Question 4

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

A)It is the uncertainty about 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 5

Which of these specifies the funds a company 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 6

Major current assets include all of the following EXCEPT

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

Question 7

Which business function is responsible for planning,obtaining,and managing a company's funds to accomplish its objectives as effectively and efficiently as possible?

A)Marketing
B)Operations
C)Finance
D)Human resources

Question 8

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 9

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

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

Question 10

What is the first step in preparing a financial plan?

A)Determine the expected level of profits for future periods
B)A forecast of revenue over some future time period
C)Estimate the funds needed to implement the strategies
D)Estimate how many additional assets the company will need

Question 11

______ are executives who develop and implement the firm's financial plan and determine the most appropriate sources and uses of funds.

A)Financial managers
B)Chief Executive Officers
C)Chief Operating Officers
D)Board of Directors

Question 12

What is the second step in preparing a financial plan?

A)Determine the expected level of profits for future periods
B)A forecast of revenue over some future time period
C)Estimate the funds needed to implement the strategies
D)Estimate how many additional assets the company will need

Question 13

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

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

Question 14

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

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

Question 15

______ has the direct responsibility for shareholder relations.

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

Question 16

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 17

What is the final step in preparing a financial plan?

A)Determine the expected level of profits for future periods
B)A forecast of revenue over some future time period
C)Estimate the funds needed to implement the strategies
D)Estimate how many additional assets the company will need

Question 18

Which of these are short-term in nature,focusing on projections no more than a year or two in the future?

A)Asset management plan
B)Leverage plan
C)Strategic plan
D)Operating plans

Question 19

All of the following actions result in equity capital EXCEPT

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

Question 20

Which of these have a much longer time horizon,perhaps up to 5 or 10 years?

A)Inventory management plan
B)Current liability plan
C)Strategic plan
D)Operating plan

Question 21

ABC Tools received 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 22

Jermaine 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.Jermaine is a(n)

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

Question 23

Divestitures are of two types:

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 24

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

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

Question 25

Selma,a financial manager at AJS 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 26

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

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

Question 27

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

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

Question 28

Team-All 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 29

Allen 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,Allen is the _____ of his organization.

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

Question 30

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 31

Which of the following is true of short-term funds?

A)They are more expensive than long-term funds.
B)They are less risky than long-term funds.
C)They have volatile interest rates.
D)They include equity and exclude current liabilities.

Question 32

_____ 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 33

Which of these 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 34

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

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

Question 35

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

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

Question 36

The sovereign wealth fund is a variation of

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

Question 37

Most private placements are

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

Question 38

Melissa 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 39

Borrowing money

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

Question 40

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

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

Question 41

Government-owned companies that invest in a range of financial and real assets together make up the

A)factors.
B)private equity fund.
C)target markets.
D)sovereign wealth fund.

Question 42

Which of the following is true of compensating balances?

A)Compensating balances increase the effective cost of a loan.
B)Compensating balances allow firms to convert their receivables into cash quickly.
C)Only a small percentage of businesses can issue compensating balances.
D)Most compensating balances are unsecured.

Question 43

Heath is hired as the chief accounting manager in an automobile company.Which of the following is likely to be included in his list of functions?

A)Conducting internal audits
B)Analyzing major investment decisions
C)Preparing financial forecasts
D)Planning and preparing tax

Question 44

Identify a true statement about commercial paper.

A)Access to the commercial paper market is restricted to small and medium enterprises.
B)Commercial paper has a maturity that ranges from 10 to 27 years.
C)Most commercial paper is secured.
D)Commercial paper is typically sold in multiples of $100,000 to $1 million.

Question 45

A start-up is being financed by a long-standing and established company.This company takes financial support from wealthy investors.In this context,the company that is financing the start-up is a(n)

A)finance manager.
B)borrower.
C)angel investor.
D)venture capitalist.

Question 46

Time Warner's decision to separate itself from America Online is an example of

A)divestiture
B)angel capitalism
C)venture capitalism
D)factoring

Question 47

Which of these is a calculation that determines the difference in revenue of a retailer's existing supplies over a certain period of time,usually quarterly,compared to the identical period of time,in a prior year?

A)Asset intensity
B)Risk-return tradeoff
C)Same-store sales
D)Capital investment analysis

Question 48

To purchase two electronic retailers,SoundTrak Inc.borrows $40 million from banks and raised $8 million through preferred stock.After the deal closes,SoundTrak Inc.uses $20 million of cash and assets from one of the acquired retailer to clear $25 million of the bank loan.This is an example of

A)trade credit.
B)leveraged buyout.
C)angel capitalism.
D)venture capitalism.

Question 49

An automobile manufacturer,Diamond Securities Inc.offers to purchase 58% shares of a mid-sized start-up that deals with digital accessories for automobiles.However,Diamond Securities Inc.does not specify the price or the form of payment.According to the contract,the price of the purchase will be determined based on the market value of the share on the day of the purchase.This deal is an example of

A)a tender offer.
B)factoring.
C)a spin-off.
D)venture capitalism.

Question 50

If an automobile company purchases an accessory manufacturing division from another automobile company,then the latter company's transaction with the former is an example of a

A)consignment
B)wharfage
C)sell-off
D)spin-off

Question 51

Commercial paper is an attractive short-term financing option because of its

A)discount size.
B)maturity period.
C)interest rates.
D)availability.

Question 52

Liquid Asset,Inc.(LAI)is a beverage company.Three years ago,LAI split its wine business into an entirely separate business called WineYard Treasure.Which of the following concepts does this scenario exemplify?

A)Spin-offs
B)Sell-offs
C)Angel capitalism
D)Venture capitalism

Question 53

Which of these deals with the process of planning,obtaining,and managing a company's funds to accomplish its objectives as effectively and efficiently as possible?

A)Accounting
B)Finance
C)Knowledge management
D)Business analytics

Question 54

In a quarterly meeting,Antonio,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 55

If a giant corporation puts up its under-performing or non-core brands for sale to other large corporations,then the former corporation is _____ companies that are not a part of the its core business.

A)acquiring
B)compensating
C)divesting
D)factoring

Question 56

The chief executive officer (CEO)of a retailer of clothes plans to expand business into the accessories market.For this expansion,the CEO asks the chief financial officer (CFO)of the company to calculate the amount of funds the company will have to borrow from the bank.Which of the following types of funding is the CEO planning to obtain?

A)Factoring
B)Trade credit
C)Equity capital
D)Debt capital

Question 57

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.Samuel,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,Samuel owns a small part of the company.In the context of the sources of financing,Samuel is a

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

Question 58

Which of the following types of funding is likely to help a large corporation acquire a small or medium enterprise?

A)Factoring
B)Trade credit
C)Commercial paper
D)Venture capital

Question 59

Daniel,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 60

Which of the following is true of the lines of credit type of short-term bank loans?

A)Banks typically charge a fee,on top of interest,for lines of credit agreements.
B)It specifies the maximum amount the firm can borrow over a period of time,usually a year.
C)The bank is obliged actually to lend the money,even if there is a shortage of funds.
D)The borrower compulsorily has to repay the original amount,plus interest,within six months.

Question 61

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

Question 62

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

Question 63

Garden Toys Ltd.pays dividends to its shareholders,irrespective of the market status.Which of the following can be inferred about Garden Toys Ltd.based on its dividend policy?

A)The company believes it can rebound from a recession.
B)The company wants to keep its shareholders satisfied.
C)The company is likely to adopt a "no dividend" policy.
D)The company has weak financial health.

Question 64

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

Question 65

Which of the following is TRUE of trade credit?

A)A company can borrow any amount of funds without restrictions.
B)Its availability is restricted to large corporations.
C)The rate of interest is relatively higher for trade credit.
D)It is free of cost if suppliers do not offer a cash discount.

Question 66

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

Question 67

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

Question 68

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

Question 69

When a company borrows money in addition to shares,it creates leverage.

Question 70

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

Question 71

A good financial plan also includes financial control,a process of comparing actual revenues,costs,and expenses with forecasts.

Question 72

The treasurer is the chief financial officer of most firms.

Question 73

Financial managers are responsible for increasing profits to shareholders.

Question 74

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

Question 75

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

Question 76

Debt is frequently the least costly method of raising additional financing dollars,one of the reasons it is so frequently used.

Question 77

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

Question 78

After coming up with the costs and expenses forecast,the CFO needs to estimate how many additional shifts the company will need to support projected sales.

Question 79

The first in preparing a financial plan is a forecast of sales or revenue over some future time period.

Question 80

Quarterly cash payments to shareholders are known as

A)trade credit.
B)special dividends.
C)regular dividends.
D)compensating balances.