Question 1

Chasen's friends ask him to come out to the lake house this weekend, but he politely passes. He is in the process of analyzing his employer's investments to ensure that their risk is translating to their expected level of return. This examplebest describes the concept of

Accepted Answer

The concept of analyzing investments to ensure that the risk taken is translating to the expected level of return directly relates to the risk-return trade-off. This principle states that the potential return on any investment is related to the amount of risk the investor is willing to accept. Higher risks are typically associated with higher potential returns.

Question 2

Tra's Tree Trimming Company is always able to pay its bills on time or before they are due. Thisbest demonstrates the concept of

Accepted Answer

Solvency refers to the ability of a company to meet its long-term financial obligations, which includes paying bills on time or before they are due.

Question 3

Shan is responsible for managing the accounts payable team for her Signal Signage Company. She ensures the team does not make payments immediately after receiving an invoice, while also ensuring that payment due dates are not missed. Why would Shan manage the accounts payable process in this manner?

Accepted Answer

Shan's strategy of not paying invoices immediately but ensuring they are paid by the due date allows the company to retain cash longer, potentially earning interest or investing it for returns, without incurring late fees or interest charges. This approach does not directly relate to minimizing taxes, eliminating trade credit, decreasing solvency, or specifically increasing leverage, but rather focuses on optimizing cash flow to benefit from holding onto cash as long as possible without penalty.

Question 4

Kiley is reviewing her company's projected sales and its planned expenses. This data would bebest suited for which of the following forecasts?

Accepted Answer

Cash flow forecasts are used to predict the inflow and outflow of cash, which involves analyzing projected sales and planned expenses.

Question 5

Dex is the CFO for Trask Enterprises. He is meeting with the CEO and other members of the leadership team to create a formal plan for helping Trask to meet its financial objectives. Dex ismost likely assisting with a

Accepted Answer

A financial plan is a comprehensive statement of an entity's long-term objectives for securing its financial future, including the strategies for achieving those objectives. As the CFO, Dex would be instrumental in creating a financial plan to help Trask Enterprises meet its financial objectives.

Question 6

Brazen Manufacturing is planning to build a new factory in 5 years. It is also planning to expand sales outside of the United States in 10 years. The financial management team is preparing a report that will estimate how cash will enter and exit the firm during the time leading up to the two milestones. What type of report is the financial management team preparing?

Accepted Answer

The answer of Brazen Manufacturing is planning to build a...

Question 7

Brewster needs to purchase a new company car for his sales manager within the next year. He wants a clear forecast of the potential money that his company will collect and pay during that period. What would be hisbest approach?

Accepted Answer

A short-term forecast is the most appropriate approach for Brewster as it will provide a detailed view of the company's cash inflows and outflows over the next year, helping him understand the financial capacity to purchase a new company car.

Question 8

Ellison is responsible for taking care of her elderly parents. She also is a small business owner. As her bills mount for caring for her parents, she is forced to tap into her savings account. She then decides to borrow money from the bank to pay bills related to her business. Which of the reasons a firm borrows money does thisbest demonstrate?

Accepted Answer

The answer of Ellison is responsible for taking care of...

Question 9

Meister Mixers is planning to build a new production facility next year. The owners visit their bank to borrow the money needed to begin the construction process. Which of the reasons a firm borrows money does thisbest demonstrate?

Accepted Answer

Building a new production facility is a significant capital expenditure, which is a major investment for the company. This type of activity typically requires substantial funds that go beyond the scope of daily business operations, making option E the correct choice.

Question 10

Dolan's Detailing is purchasing another company in order to obtain the patent to its luxury car cleaning system. A patent is described as a ________ expenditure.

Accepted Answer

A patent is considered a capital expenditure because it is an investment in a long-term asset that will provide benefits to the company over several years.

Question 11

Fine Art Framing wanted to spur business, so it ran a three-month stretch of promotions where customers were given six months with zero interest and no payments. Unfortunately, the company found itself short on money as it waited for payments to roll in, so it was forced to borrow money from the bank to stay in business. Which of the reasons firms borrow money does thisbest demonstrate?

Accepted Answer

Fine Art Framing needed to borrow money to cover the gap created by offering customers a period of zero interest and no payments, which is an example of borrowing funds to extend credit to customers.

Question 12

I'SCream makes a variety of healthy alternatives to dairy-based ice cream. One of its most popular styles of ice cream utilizes avocado milk for the main ingredient. Avocados take a long time to ship, so I'SCream will often borrow money from its bank to facilitate larger orders of avocados. Which of the reasons firms borrow money does thisbest demonstrate?

Accepted Answer

I'SCream borrows money to ensure they have enough avocados available for production, demonstrating the need to keep enough product available.

Question 13

Elemental Flags has a three-year loan agreement with its bank. It can borrow anything up to $300,000 and is charged interest on any unpaid balance. Thisbest describes a

Accepted Answer

The answer of Elemental Flags has a three-year loan agreement...

Question 14

Mogul Gaming negotiates a written contract with its main supplier to pay half of its invoice within 30 days and the other half within 90 days. This agreement is most likely ________, a form of ________.

Accepted Answer

The agreement described is a promissory note, which is a written promise to pay a specified amount of money at a future date, and it involves trade credit, as it is an arrangement to buy goods or services on account, paying the supplier at a later date.

Question 15

Samurai Generators makes a purchase of resistors for next quarter's production run. Its supplier emails an invoice with the total amount owed. Next to the total is a reminder that states, "2/10, net 30." What would happen if Samurai pays its bill the next day?

Accepted Answer

The term "2/10, net 30" means that the buyer can take a 2 percent discount off the total if the invoice is paid within 10 days; otherwise, the full amount is due within 30 days. Paying the next day would qualify Samurai Generators for the 2 percent discount.

Question 16

ProStar Desks needs to double the size of its fleet of delivery vehicles. Its bank provides the owners with a $500,000 credit to use for their vehicle order. This credit isbest described as

Accepted Answer

A transaction loan is a short-term loan used to finance a specific transaction, such as the purchase of a fleet of vehicles.

Question 17

Precision Trucking has an outstanding credit rating and decides to approach its bank about financing a new factory it wants to build. The bank agrees to lend money to Precision Trucking over a 15-year period using Precision's fleet of vehicles as collateral. Precision will need to pay monthly installments during the life of the agreement. This agreement is best described as which of the following terms?

Accepted Answer

This agreement is best described as a term-loan agreement, which is a loan from a bank for a specific amount that has a specified repayment schedule and a fixed or floating interest rate. In this case, Precision Trucking is borrowing money with its fleet of vehicles as collateral, to be repaid over a 15-year period through monthly installments.

Question 18

BlueDot Training just finished paying annual dividends to its stockholders. It uses the remaining money to fund the purchase of the acquisition of a smaller competitor. Thisbest describes an example of

Accepted Answer

The answer of BlueDot Training just finished paying annual dividends...

Question 19

Deluge Writing is preparing to launch a new product. The CFO has been asked to present a financing plan to the Board. What would be hisbest approach if he wants to keep the company from being heavily leveraged?

Accepted Answer

The answer of Deluge Writing is preparing to launch a...

Question 20

Algorithm Computers needs to borrow money to pay for an addition to its training facility. The owners approach their bank, but their application for a long-term loan is denied. They decide to issue corporate bonds to the public instead. The company has a strong reputation but is unable to provide collateral for the bonds it sells. The bonds in this example are most likely ________ and would be described as a form of ________.

Accepted Answer

Debenture bonds are a type of bond that is not secured by collateral, meaning if the company fails to make payments, the bondholders do not have a claim to any specific asset as security. Issuing bonds is a form of debt financing because it involves borrowing money from investors that the company agrees to repay, typically with interest, at a later date.

Quiz 3: Fundamentals of Economics and Types of Markets