Question 1

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.

Accepted Answer

Trade credit is the correct term for an arrangement where a buyer receives goods or services from a supplier and agrees to pay for them at a later date.

Question 2

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.

Accepted Answer

Jermaine is acting as a venture capitalist because he raises money to invest in new companies in exchange for ownership, which is the core activity of venture capitalists. They provide capital to startups or small businesses with long-term growth potential.

Question 3

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.

Accepted Answer

Divestitures, which are strategies companies use to sell or spin off subsidiaries or divisions, are correctly categorized into two types: sell-offs, where a part of the company is sold to another company, and spin-offs, where a part of the company is separated to form a new independent entity.

Question 4

All of the following are sources of short-term funds EXCEPT
A)commercial paper.
B)trade credit.
C)corporate bonds.
D)bank loans.

Accepted Answer

Corporate bonds are typically used for long-term financing, not short-term funds.

Question 5

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

Accepted Answer

Operating plans are designed for short- to medium-term financial planning, typically covering a period of one to two years, which aligns with Selma's needs for organizing the company's finances.

Question 6

The term used to describe the benefits produced by a merger or acquisition is
A)partnership.
B)leverage.
C)synergy.
D)profit.

Accepted Answer

Synergy refers to the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts. This is a key reason why companies choose to merge or acquire others.

Question 7

Leverage _____ the return to shareholders and _____ the risk of their investment.
A)lowers; lowers
B)lowers; increases
C)increases; lowers
D)increases; increases

Accepted Answer

Leverage increases the return to shareholders by allowing them to invest less capital for a potentially higher return. However, it also increases the risk of their investment because if the investment does not perform well, the losses are magnified.

Question 8

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.

Accepted Answer

Borrowing money from a bank is a direct method of raising debt capital, which involves taking on a loan that the company is obligated to pay back with interest. Accumulated earnings (A) are internal funds, not debt. Selling stock (B) raises equity capital, not debt. Selling marketable securities (C) could generate cash but doesn't specifically raise debt capital.

Question 9

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

Accepted Answer

Allen's role as the supervisor of the treasurer, the controller, and the vice president for financial management indicates he is the Chief Financial Officer (CFO) of his organization, as these positions typically fall under the finance department.

Question 10

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

Accepted Answer

Financing the acquisition of another company typically involves a significant investment that is expected to provide returns or benefits over a long period. Therefore, it is most likely to be financed through long-term sources such as long-term loans, issuing bonds, or equity financing to ensure the repayment period aligns with the asset's benefit period.

Question 11

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.

Accepted Answer

Short-term funds typically have volatile interest rates due to their sensitivity to market conditions and economic changes.

Question 12

_____ 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

Accepted Answer

Small individual investors would be the least likely to obtain a private placement because private placements are typically offered to institutional investors or high-net-worth individuals due to the large minimum investment requirements and the need for the investor to have a certain level of financial sophistication.

Question 13

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

Accepted Answer

Private equity funds raise funds from wealthy individuals and institutional investors and use the funds to make investments in both public and private companies.

Question 14

A(n)_____ is a transaction in which one company buys another.
A)acquisition
B)merger
C)takeover
D)synergy

Accepted Answer

An acquisition is a transaction in which one company buys another.

Question 15

Short-term assets are expected to be converted into cash within
A)a month.
B)a year.
C)four months.
D)six months.

Accepted Answer

Short-term assets, also known as current assets, are expected to be converted into cash within one year or within the normal operating cycle of the business, whichever is longer.

Question 16

The sovereign wealth fund is a variation of
A)market securities.
B)private equity fund.
C)private placements.
D)debt capital.

Accepted Answer

Sovereign wealth funds are a type of state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, precious metals, or in alternative investments such as private equity fund or hedge funds. They are not market securities, private placements, or a form of debt capital themselves but can invest in these assets.

Question 17

Most private placements are
A)U.S.government securities.
B)corporate debt issues.
C)corporate equity issues.
D)municipal debt issues.

Accepted Answer

Corporate debt issues are typically private placements.

Question 18

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.

Accepted Answer

Raising equity capital involves increasing the company's capital through the contribution of new funds by the existing owners or by issuing new shares. Option B directly refers to persuading existing owners to contribute additional funds, which is a method of raising equity capital. Options A, C, and D refer to debt financing or other forms of financing that do not involve raising equity capital.

Question 19

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

Accepted Answer

Borrowing money creates leverage because it allows an entity to use borrowed funds to potentially increase its return on investment.

Question 20

In a sense,a(n)________ is the reverse of a merger.
A)tender offer.
B)leverage buyout.
C)divestiture.
D)acquisition.

Accepted Answer

A divestiture involves a company selling off a portion of its assets or a subsidiary, essentially the opposite of a merger where companies combine assets.

Quiz 17: Financial Management

ABC Tools received goods or services from a supplier and agrees to pay for them at a later date.This arrangement is called

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)

Divestitures are of two types:

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

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.

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

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

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

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.

Which of the following assets would a firm most likely finance using long-term sources?

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

_____ would be the LEAST likely to obtain a private placement.

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

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

The sovereign wealth fund is a variation of

Most private placements are

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

Borrowing money

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