Question 1

Akiko realizes the importance of developing a ______for her interior design business. Akiko knows of no better way of establishing revenue expectations and allocating resources in order to achieve the goals of her firm.

Accepted Answer

A budget is a financial plan that helps in establishing revenue expectations and allocating resources to achieve business goals.

Question 2

When using ______financing,the company incurs a legal obligation to repay the amount borrowed.

Accepted Answer

Debt financing involves borrowing money and incurring a legal obligation to repay the amount borrowed, typically with interest. The other options listed (equity, commitment, and retained earnings) do not necessarily involve a legal obligation to repay.

Question 3

No matter the size,finance is a critical activity for:

Accepted Answer

Finance is a critical activity that affects both profit-seeking and non-profit organizations. Both types of organizations need to manage their financial resources effectively to achieve their goals and objectives. While accountants and financial managers play different roles in finance, both are essential in ensuring the financial health of an organization, regardless of its size or type. Therefore, option C is the correct answer.

Question 4

One of the challenges of effective financial management is:

Accepted Answer

Having sufficient cash on hand is essential for day-to-day operations and unexpected expenses. However, it's important to balance this with investing in growth opportunities. Having too much cash on hand can lead to missed investment opportunities, while having too little can result in financial instability. Effective financial management involves finding the right balance between the two. The other options are also challenges in financial management, but having sufficient cash is critical to the financial health of the organization.

Question 5

Rather than requiring cash payment for all sales,some firms offer credit to:

Accepted Answer

Offering credit helps maintain customer satisfaction and attract new customers by providing flexible payment options, which can lead to increased sales and customer loyalty.

Question 6

Vitale Jewelers obtains needed short-term funds by selling its accounts receivable to the Friendly Finance Company.Friendly Finance usually pays Vitale about 80% of the value of the receivables.Vitale Jewelers utilizes______ as a means of raising short-term funds.

Accepted Answer

Vitale Jewelers utilizes factoring as a means of raising short-term funds. Factoring involves selling accounts receivable to a third party, such as Friendly Finance Company, at a discount in exchange for immediate funds. This allows Vitale to access the cash it needs quickly and efficiently, without having to wait for clients to pay their invoices in full. The factoring company, in turn, collects payment from the clients and retains a fee for its services.

Question 7

Tiffany's work in the finance department of her firm consists of checking accounting records and financial statements to verify that proper procedures are followed.Tiffany's activities are those of a(n):

Accepted Answer

Tiffany's job duties align with those of an internal auditor, who is responsible for reviewing financial records and ensuring that proper procedures are being followed. A comptroller oversees the accounting and financial operations of a company, a CPA is a certified public accountant who may perform various financial tasks including auditing, and a financial advisor provides guidance and advice to clients regarding their personal finances.

Question 8

Which of the following suggests that higher interest rates are charged to high risk borrowers?

Accepted Answer

The risk/return tradeoff principle states that higher returns must be offered to compensate for higher risks. In the context of lending, this means that high risk borrowers would be charged higher interest rates to compensate for the higher risk of default.

Question 9

The most widely used source of short-term funding is:

Accepted Answer

The answer of The most widely used source of short-term...

Question 10

The budget that estimates a firm's projected cash inflows and outflows,and helps managers anticipate borrowing needs,debt repayment,operating expenses and short-term investments is called the______ budget.

Accepted Answer

The cash budget is used to estimate a firm's projected cash inflows and outflows. It helps managers to anticipate borrowing needs, debt repayment, operating expenses and short-term investments. The operating budget focuses on a company's revenues and expenses, while the capital budget is used to plan long-term investments in physical assets such as equipment and buildings. There is no such thing as a monetary budget.

Question 11

Which of the following is the most commonly used source of short-term financing for businesses?

Accepted Answer

Trade credit is the most commonly used source of short-term financing for businesses. This involves purchasing goods or services on credit from suppliers and paying for them at a later date, typically within 30-90 days. It is a convenient and flexible form of financing, as it does not require collateral or an application process, and can be negotiated with each supplier individually. Bank loans, factoring, and borrowing from family and friends are also options for short-term financing, but they may have more requirements or limitations.

Question 12

Which of these statements about corporate bonds is correct?

Accepted Answer

Interest paid to bondholders is tax deductible for the corporation, making it an attractive form of financing for companies. Choice B is incorrect because bonds represent debt financing, not equity financing. Choice C is incorrect because issuing new bonds does not dilute existing ownership in the firm, as bondholders do not have ownership rights like shareholders. Choice D is incorrect because debenture bonds are unsecured, meaning there is no collateral pledged to back the bond.

Question 13

Working in the finance department of a firm that operates a chain of dry cleaning and tailoring shops,Demonte discovered that tax management is:

Accepted Answer

Demonte discovered that tax management is an area of major concern in the finance department of the firm. This indicates that it is an important aspect of their operations and requires significant attention and resources to manage effectively.

Question 14

To secure financing for a planned expansion,JamesCo Electronics borrowed $400,000 from King Finance.The______ loan agreement requires that JamesCo Electronics provide the title to their factory as collateral.

Accepted Answer

A secured loan is a loan that is backed by collateral, such as property or inventory, that the lender can seize if the borrower defaults on the loan. In this case, JamesCo Electronics used the title to their factory as collateral to obtain the loan from King Finance.

Question 15

Which business function involves collecting payments from customers?

Accepted Answer

Finance involves collecting payments from customers through activities like invoicing, processing payments, and managing accounts receivable.

Question 16

Which of the following organizations would be most likely to acquire short-term funding by issuing commercial paper?

Accepted Answer

Commercial paper is a short-term unsecured promissory note issued by financially stable corporations to meet short-term funding needs. Small businesses may not qualify for commercial paper, and firms with significant accounts receivable may opt for factoring or asset-based lending instead. A company that prefers equity financing is unlikely to issue commercial paper.

Question 17

A firm negotiates a(n)______with its bank so the firm will have access to a specified amount of unsecured short-term funds,provided the bank has the funds available.

Accepted Answer

A line of credit is an agreement between a firm and its bank that allows the firm to access a specified amount of unsecured short-term funds, provided the bank has the funds available. A capital drawing agreement and an asset drawing account are not commonly used terms in banking. A reserve account typically refers to a fund that a company sets aside for a specific purpose, such as to cover bad debts or to invest in long-term projects.

Question 18

Which of the following represents a source of short-term funding?

Accepted Answer

Commercial paper is a type of short-term debt instrument that companies can use to raise funds for a period of up to 270 days. It is a common source of short-term funding for corporations. Common stock represents ownership in a company and is not a form of debt financing. Corporate bonds are debt securities with longer-term maturities and are not considered short-term funding. Retained earnings represent profits that a company has accumulated and are not a form of external financing.

Question 19

Victoria Nursery offers customers credit terms of 3/15 net 30.This gives customers a:

Accepted Answer

The credit terms of 3/15 net 30 mean that customers can receive a 3% discount if they pay within 15 days, but the full amount is due within 30 days. Therefore, the best choice is option A.

Question 20

is a source of long-term equity financing.

Accepted Answer

Venture capital is a source of long-term equity financing as it involves investors providing capital to startups and small businesses with high growth potential in exchange for equity ownership.

Quiz 17: Financial Management Appendix C Managing Risk