Question 1

provide financing to new or emerging companies with high profit potential. In return,these organizations expect a share of ownership in return for the financing they provide.
A)Investment bankers
B)Commercial banks
C)Venture capital firms
D)Loansharks

Accepted Answer

Venture capital firms provide financing to new or emerging companies with high profit potential and expect a share of ownership in return for the financing they provide. Investment bankers also provide financing, but they focus more on underwriting and facilitating the sale of securities. Commercial banks provide loans and other financial services, but they typically do not take an ownership stake in the companies they lend to. Loansharks provide illegal and predatory loans with high interest rates.

Question 2

Which of the following is the most popular way of raising cash among small businesses?
A)factoring
B)line of credit
C)revolving credit agreement
D)commercial paper

Accepted Answer

A

Question 3

offers financially stable corporations a technique to raise short-term funds by issuing unsecured promissory notes to the general public.
A)Trade credit
B)A line of credit
C)Commercial paper
D)Factoring

Accepted Answer

Commercial paper is a short-term, unsecured promissory note issued by financially stable corporations to raise short-term funds. It is usually sold at a discount and is a cost-effective way for corporations to obtain short-term funding without having to pledge collateral. Trade credit is a type of credit extended by one business to another for purchases of goods and services. A line of credit is a revolving credit facility that allows a borrower to repeatedly draw, repay, and redraw funds up to a pre-approved limit. Factoring is the sale of accounts receivable to a third party at a discount to raise immediate cash.

Question 4

Rebecca intends to major in business in college.She has never had much interest in subjects with numbers and so she'd like to avoid taking any finance courses if possible.Rebecca should:
A)avoid finance courses and focus on subjects that she enjoys.
B)realize that her success in business requires an understanding of financial issues.
C)change majors and go into nuclear engineering.
D)take a finance course to satisfy graduation requirements.

Accepted Answer

While Rebecca may not enjoy finance courses, it is important to recognize that financial literacy and understanding plays a crucial role in success in the business field. By avoiding finance courses, she may miss out on important knowledge and skills that can ultimately hinder her success in the future. It is better for her to push herself out of her comfort zone and gain a working knowledge of financial concepts.

Question 5

Murray is the manager of Oh! Canada Sporting Goods.He is concerned that his cash expenditures have been exceeding his cash receipts for the last six months.Oh! Canada is suffering from a(n)______problem.
A)accounting
B)exchange rate
C)undercapitalization
D)cash flow

Accepted Answer

The fact that Oh! Canada's cash expenditures have been exceeding cash receipts indicates a cash flow problem. This means that the company is not generating enough cash to cover its expenses, which could eventually cause financial distress if not addressed.

Question 6

A(n)______allocates dollars to various costs and expenses needed to operate a business at an estimated level of sales revenue.
A)budget
B)balance sheet
C)income statement
D)forecast

Accepted Answer

A budget is a financial plan that outlines expected expenses and revenue over a certain period of time. It is used as a tool to allocate resources and make informed financial decisions. The budgeting process involves estimating sales revenue and then allocating funds to various costs and expenses needed to operate the business.

Question 7

Which of the following represents a capital expenditure?
A)Issuing paycheques to workers.
B)Purchasing a building to be used for office space.
C)Paying for advertising on a local radio station.
D)Purchasing raw materials to be used in the production of a firm's product.

Accepted Answer

Capital expenditures are investments in long-term assets that are used in the production of goods or services. Purchasing a building to be used for office space is a long-term asset that will benefit the company for an extended period, making it a capital expenditure. The other options are operating expenses as they are expenses incurred in the day-to-day operations of the company. Issuing paychecks to workers is a compensation expense, paying for advertising on a local radio station is a marketing expense, and purchasing raw materials is a direct cost of goods sold.

Question 8

Which of the following statements is most accurate?
A)Financial managers keep the books for a firm.
B)Accounting and finance are not related.
C)Financial managers need to understand accounting.
D)Non-profit organizations must choose between accounting and finance.

Accepted Answer

Financial managers are responsible for making financial decisions and managing the financial operations of a firm. In order to make informed decisions, they need to have a good understanding of accounting principles and financial statements. Therefore, Choice C is the most accurate statement. Choices A, B, and D are incorrect as financial managers do more than just keeping the books, accounting and finance are related, and non-profit organizations need both accounting and finance.

Question 9

Charging interest on past due customer accounts reflects that:
A)credit customers receive preferential treatment.
B)government regulations protect customers who are late in making payments.
C)money has a time value.
D)credit sales cost more to manage than they are worth.

Accepted Answer

Charging interest on past due customer accounts reflects that money has a time value, meaning that the longer it takes for the customer to pay, the more it costs the company in terms of lost opportunities to use that money in other ways, such as investing or paying down debt.

Question 10

A loan that requires the borrower to provide collateral represents a(n):
A)debenture loan.
B)secured loan.
C)unsecured loan.
D)bond trust.

Accepted Answer

A secured loan is a loan that is backed by collateral, which can be seized by the lender if the borrower fails to repay the loan. Collateral can include real estate, vehicles, or other valuable assets. Debenture loans, unsecured loans, and bond trusts do not require collateral.

Question 11

Lancer Wholesale Company wants to improve cash flow provided by accounts receivable collections.Which of the following strategies would be most likely to help Lancer achieve this objective?
A)Offering cash discounts to buyers who pay their accounts promptly.
B)Offering extended payment plans to qualified buyers.
C)Accepting IOUs from customers who buy in large quantities.
D)Relaxing its credit policy for new customers.

Accepted Answer

Offering cash discounts to buyers who pay their accounts promptly will incentivize customers to pay their bills on time, therefore improving cash flow provided by accounts receivable collections. Offering extended payment plans would delay collections, accepting IOUs may not result in actual payment, and relaxing credit policies could lead to increased risk of default.

Question 12

The rate of return a company must earn in order to meet the demands of its lenders and the expectations of its equity holders is known as what?
A)cost of capital
B)preferred stock
C)retained earnings.
D)debenture

Accepted Answer

The rate of return that a company must earn in order to satisfy both its debt holders and equity holders is known as the cost of capital. This is the minimum rate of return that the company must earn in order to justify the resources that have been invested in the business. Preferred stock is a type of equity security that has a fixed dividend and priority over common stock dividend payments. Retained earnings are profits that have been reinvested back into the company. A debenture is a type of debt security that is not secured by any specific asset or collateral.

Question 13

The financial manager of Caroline Graphics negotiated a ______with her bank that allows Caroline to borrow up to $50,000 without collateral.This arrangement eliminates the need to renegotiate the terms of the loan and complete new paper work each time Caroline borrows money.The preapproved loan agreement is contingent upon the bank having the funds available.
A)line of credit
B)renewable income option
C)cash flow conversion
D)factor agreement

Accepted Answer

A line of credit is a preapproved loan agreement that allows the borrower to borrow up to a certain limit without needing to provide collateral. This arrangement also eliminates the need to complete new paperwork each time the borrower needs to borrow money. The availability of funds is contingent upon the lender having the necessary funds to lend. A renewable income option and factor agreement are not relevant to this scenario. Cash flow conversion is a process of converting non-cash assets into cash, which is also not relevant to this scenario.

Question 14

Which of the following companies faces the problem of undercapitalization?
A)A large corporation that has been hit with a major lawsuit because one of its products has a design flaw that has led to serious injuries.
B)An electric utility that has recently experienced a significant increase in the cost of coal and labour.
C)A medium-sized company that has decided to buy out a smaller competitor.
D)A small new company struggling because it has insufficient start-up funds.

Accepted Answer

Undercapitalization is when a company has insufficient capital or funds to support its operations or growth. Option D describes a small new company that is struggling due to insufficient start-up funds, which is a clear indication of undercapitalization.

Question 15

Manitoba Supply offers their customers trade credit with terms 2/15 net 30.This implies that:
A)the annual financing cost of failing to pay within 15 days is about 48%.
B)most customers will pay their bill within 2 days in order to take the maximum discount.
C)Manitoba's customers have very little incentive to pay within the discount period.
D)paying within 30 days will let a customer deduct 15% off the invoice price.

Accepted Answer

The terms 2/15 net 30 imply that customers can take a 2% discount if they pay within 15 days, but if they don't, they are required to pay the full amount within 30 days. Therefore, the annual financing cost of not paying within 15 days is roughly (((1-0.02)/0.98)^(365/15)-1)*100%=47.78%, which is close to 48%. So choice A is correct. Choices B and D are incorrect because they are not consistent with the terms. Choice C is incorrect because it overlooks the value of the 2% discount, which can be significant for businesses.

Question 16

Acquiring funds through borrowing represents:
A)speculative capital.
B)venture capital.
C)equity financing.
D)debt financing.

Accepted Answer

Acquiring funds through borrowing is called debt financing, where the borrower takes a loan and agrees to pay back the principal amount along with interest over a specific time period.

Question 17

In comparing the roles of accounting and finance:
A)accounting gathers information,while finance interprets this information.
B)finance gathers information,while accounting interprets this information.
C)they are virtually the same,as the terms can be used interchangeably.
D)they are very different from each other,and never would have the same boss.

Accepted Answer

Accounting is responsible for collecting and recording financial transactions, while finance is responsible for analyzing and interpreting this financial information to make strategic decisions. Therefore, option A is the correct answer.

Question 18

______represents funds acquired for major purchases that will be repaid over a year or longer.
A)Long-term financing
B)Short-term financing
C)Asset funding
D)Liability funding

Accepted Answer

Long-term financing represents funds acquired for major purchases that will be repaid over a year or longer, such as acquiring property, buying equipment, or launching a new product line. Short-term financing, on the other hand, is used for short-term needs, such as paying for inventory or covering operational expenses. Asset funding and liability funding are broader terms that encompass both long-term and short-term financing options.

Question 19

Obtaining long-term financing:
A)is generally not available to small businesses.
B)is normally provided by trade credit.
C)occupies the majority of a finance manager's day.
D)is available through pledging accounts receivable.

Accepted Answer

The answer of Obtaining long-term financing:
A)is generally not available to...

Question 20

Equity financing comes from the______ of the firm.
A)owners
B)employees
C)suppliers
D)creditors

Accepted Answer

Equity financing comes from the owners of the firm, who provide funds in exchange for ownership shares or stocks.

Quiz 17: Financial Management Appendix C Managing Risk

provide financing to new or emerging companies with high profit potential. In return,these organizations expect a share of ownership in return for the financing they provide.

Which of the following is the most popular way of raising cash among small businesses?

offers financially stable corporations a technique to raise short-term funds by issuing unsecured promissory notes to the general public.

Rebecca intends to major in business in college.She has never had much interest in subjects with numbers and so she'd like to avoid taking any finance courses if possible.Rebecca should:

Murray is the manager of Oh! Canada Sporting Goods.He is concerned that his cash expenditures have been exceeding his cash receipts for the last six months.Oh! Canada is suffering from a(n) ______problem.

A(n) ______allocates dollars to various costs and expenses needed to operate a business at an estimated level of sales revenue.

Which of the following represents a capital expenditure?

Which of the following statements is most accurate?

Charging interest on past due customer accounts reflects that:

A loan that requires the borrower to provide collateral represents a(n) :

Lancer Wholesale Company wants to improve cash flow provided by accounts receivable collections.Which of the following strategies would be most likely to help Lancer achieve this objective?

The rate of return a company must earn in order to meet the demands of its lenders and the expectations of its equity holders is known as what?

Which of the following companies faces the problem of undercapitalization?

Manitoba Supply offers their customers trade credit with terms 2/15 net 30.This implies that:

Acquiring funds through borrowing represents:

In comparing the roles of accounting and finance:

______represents funds acquired for major purchases that will be repaid over a year or longer.

Obtaining long-term financing:

Equity financing comes from the______ of the firm.