Question 1

When each new budget is based on the dollar amounts contained in the budget from the preceding year,a company is using ____ budgeting.
A) zero-base
B) traditional
C) cash
D) capital
E) production

Accepted Answer

The description given is that each new budget is based on the dollar amounts contained in the budget from the preceding year, which is characteristic of traditional budgeting. In zero-based budgeting, each budget starts from scratch and justifies all expenses. Cash budgeting focuses on cash inflows and outflows, while capital budgeting deals with long-term investments. Production budgeting relates to determining the number of units of a product that need to be manufactured.

Question 2

To be successful while pursuing a career in finance,an employee must
A) graduate from a four-year university.
B) have a strong background in accounting or mathematics.
C) have fifteen years of experience.
D) be driven by a motive to become very rich.
E) start a career as a bank officer.

Accepted Answer

While a four-year university degree and experience can certainly be helpful, the most important factor for success in finance is having a strong background in accounting or mathematics. These skills are essential for understanding financial concepts and performing calculations, analysis, and forecasting. Being driven by a motive to become very rich or starting a career as a bank officer may be motivating, but they are not necessarily indicative of success or necessary qualifications for a career in finance.

Question 3

A statement that projects income and/or expenditures over a specified future period is called a
A) financial plan.
B) cash flow plan.
C) resources plan.
D) resource allocation statement.
E) budget.

Accepted Answer

The statement that projects income and/or expenditures over a specified future period is called a budget. A budget is a financial plan that outlines how much money a person or organization expects to earn and spend over a period of time. It helps to identify potential problems, allocate resources, and make informed decisions about spending and investments. Therefore, option E is the best choice for this question.

Question 4

During the recent economic crisis,many companies found that it was
A) accessible and easy to acquire and use many of the traditional sources of short- and long-term financing that they were accustomed to.
B) easy to shift their methods of financing from one traditional method to another.
C) an opportune time to acquire long-term loans and build their current inventory.
D) increasingly difficult to acquire and use many of the traditional sources of financing that they were accustomed to.
E) increasingly easy to sell stock for the first time to the general public.

Accepted Answer

The statement mentions that during the recent economic crisis, many companies found it "increasingly difficult" to acquire and use traditional sources of financing. Option D is the most appropriate choice as it correctly reflects this information. Options A, B, C, and E are incorrect as they suggest ease and accessibility in acquiring financing, which is not mentioned in the statement.

Question 5

Mia has been asked by top management to develop financial ____ that the company will achieve over the next one- to ten-year period.
A) strategies
B) directives
C) plans
D) objectives
E) goals

Accepted Answer

Goals refer to the broad, long-term outcomes that a company aims to achieve, which aligns with the one- to ten-year period mentioned.

Question 6

The steps in effective financial planning are
A) establishing organizational goals and objectives,identifying expenses,and budgeting.
B) establishing organizational goals and objectives,budgeting for financial needs,and identifying sources of financing.
C) developing a plan of action,monitoring the plan,and evaluating.
D) identifying sources of financing,budgeting,and evaluating.
E) None of these answers are correct.

Accepted Answer

Effective financial planning involves establishing organizational goals and objectives, creating a budget for financial needs, and identifying sources of financing to ensure that those needs can be met. Once these steps have been taken, the financial plan can be monitored and evaluated to identify any areas for improvement or adjustment. Therefore, option B provides the most comprehensive and accurate steps for effective financial planning.

Question 7

Bill's Manufacturing needs $450,000 to build a new plant.It must also spend $200,000 on new equipment for the plant.Both of these needs are examples of
A) equity-capital needs.
B) debt-capital needs.
C) short-term financing needs.
D) long-term financing needs.
E) cash-flow problems.

Accepted Answer

The need for $450,000 to build a new plant and $200,000 on new equipment indicates a capital expenditure for a long-term investment. Hence, Bill's Manufacturing requires long-term financing to fund their needs.

Question 8

Kliting Co.is concerned with whether or not it will be able to pay its bills with money coming in from sales.It would be helpful for Kliting to prepare a ____ to better understand its needs.
A) capital budget
B) zero-based budget
C) cash budget
D) loan application
E) revolving credit agreement

Accepted Answer

A cash budget would help Kliting Co. better understand its cash inflows and outflows to ensure it has enough money to pay its bills. A capital budget is focused on long-term investments, a zero-based budget involves justifying every budget item from scratch, a loan application and revolving credit agreement are financing options, which may be helpful in addressing cash flow issues but are not specific to understanding cash needs.

Question 9

For a department store such as JCPenney,the most likely need for short-term financing will be for
A) inventory.
B) employee wages.
C) extending credit policies.
D) new locations.
E) additional cash registers.

Accepted Answer

Inventory is a major expense for department stores like JCPenney, and they may need short-term financing to purchase inventory to stock their stores.

Question 10

Tidewater Distributors is successfully using short-term financing to buy inventory for resale.As sales climb,the managers realize that they must decide what to do with the money.Since you are the financial manager,they ask for your advice.You advise them to first
A) repay the short-term obligations out of the sales revenue.
B) use the money to buy a yacht for the managers.
C) increase all employees' wages.
D) enroll all the salespeople in a sales training course.
E) borrow more money.

Accepted Answer

Repaying the short-term obligations out of the sales revenue should be the first priority, as this will help to reduce the company's overall debt and improve its financial position. Using the money for other purposes, such as buying a yacht or increasing wages, may be tempting, but these actions will not address the underlying financial issue and could lead to further problems down the road. Additionally, enrolling salespeople in a training course or investing in other growth initiatives may be a good idea, but these actions should only be pursued after the company has addressed its short-term debt obligations. Borrowing more money could also be an option, but this should be done carefully and only if the company has a clear plan for how it will use the funds to generate additional sales and profits.

Question 11

Michelle Robinson is thinking about two different decisions.One decision is quite risky,while the other decision is more conservative.To help her make the right decision,she decides to calculate the
A) quick ratio.
B) management analysis.
C) money factor.
D) risk-return ratio.
E) entrepreneurial ratio.

Accepted Answer

The best choice for Michelle Robinson to help make the decision between a risky and conservative option is to calculate the risk-return ratio. This ratio will show her the potential return on investment compared to the level of risk involved in each option, allowing her to make a more informed decision.

Question 12

Which of the following is not a financial reform regulation proposed by the U.S.House of Representatives and Senate as a reaction to the economic crisis?
A) End taxpayer bailouts.
B) Tighten access to long-term financing by large corporations.
C) Tighten regulations for major financial firms.
D) Increase government oversight.
E) Make Wall Street firms accountable for their actions.

Accepted Answer

Tightening access to long-term financing by large corporations is not a financial reform regulation proposed by the U.S. House of Representatives and Senate as a reaction to the economic crisis. The other options, such as ending taxpayer bailouts, tightening regulations for major financial firms, increasing government oversight, and making Wall Street firms accountable for their actions, were proposed as financial reform regulations after the economic crisis.

Question 13

Inventory requires considerable investment for most manufacturers,wholesalers,and retailers.This problem is complicated by the fact that most goods are manufactured four to nine months before they are actually sold to consumers.Manufacturers that engage in this type of speculative production often need short-term financing to do all of the following except
A) buy materials.
B) pay wages.
C) pay rent.
D) buy equipment.
E) buy supplies.

Accepted Answer

The given options indicate expenses that are typically incurred by manufacturers. Short-term financing is usually required for these expenses, including buying materials, paying wages, paying rent, and buying supplies. However, buying equipment is a one-time cost that is not typically financed through short-term financing.

Question 14

All of the following are uses of long-term financing except
A) beginning a new business.
B) eliminating immediate cash-flow problems.
C) executing mergers and expansions.
D) developing and marketing new products.
E) replacing obsolete equipment.

Accepted Answer

Long-term financing is not typically used to eliminate immediate cash-flow problems, as this is usually addressed through short-term financing options such as a line of credit or a business loan with a shorter repayment period. The other uses listed, such as beginning a new business, executing mergers and expansions, developing and marketing new products, and replacing obsolete equipment, are common reasons for businesses to seek long-term financing options.

Question 15

Slater Co.has very old computers and manufacturing equipment and knows it needs to upgrade them or risk losing much of its business.Slater does not have the money to purchase the computers,so it will most likely need
A) a short-term loan.
B) to keep using the old computers.
C) to deduct the cost from employees' salaries.
D) long-term financing.
E) to use increased cash flow from sales.

Accepted Answer

Long-term financing is the best choice for a significant investment like upgrading the company's technology and manufacturing equipment. This will allow Slater Co. to make manageable payments over time while still being able to invest in the necessary upgrades. Using short-term loans or deducting costs from employees' salaries may create additional financial strain and using increased cash flow from sales may not be reliable or sufficient enough to cover the entire cost of the upgrades. Keeping old computers may also put Slater's business at risk in the long term.

Question 16

Charlie develops a plan for obtaining and using the money necessary for his company to implement its goals.This is called a(n)
A) credit policy.
B) capital budget.
C) operational plan.
D) financing agreement.
E) financial plan.

Accepted Answer

Charlie's plan involves obtaining and using money for his company's goals, which falls under financial management. The most appropriate option for this scenario is a financial plan, which outlines how the company will raise and allocate funds to achieve its objectives. A credit policy deals with how a company will extend credit to customers, while a capital budget pertains to the allocation of funds for long-term investments. An operational plan outlines the day-to-day activities of a business, and a financing agreement refers to a legal contract between parties that governs the terms of a loan or investment.

Question 17

Borrowed money that will be used for more than one year is called
A) trade credit.
B) long-term financing.
C) equity capital.
D) secured financing.
E) short-term financing.

Accepted Answer

Borrowed money that will be used for more than one year is considered long-term financing. Trade credit is a type of short-term financing, equity capital involves selling ownership in the company, secured financing refers to loans backed by collateral, and short-term financing is typically used for expenses that will be paid off quickly, typically within a year.

Question 18

Of the following,only ___ would not be considered proper financial management during both good and bad times.
A) investing excess cash in CDs,government securities,or conservative securities
B) making sure that funds are available to meet tax deadlines
C) paying bills promptly
D) investing all excess cash in long-term securities
E) planning for sufficient financing when needed

Accepted Answer

Investing all excess cash in long-term securities would not be considered proper financial management during both good and bad times as it could lead to a lack of liquidity in the short term, making it difficult to meet unexpected expenses or take advantage of potential investment opportunities. It is important to have a mix of short-term and long-term investments to maintain a balance between liquidity and return on investment.

Question 19

Long-term financing should be used to do which of the following?
A) Pay for speculative production
B) Purchase inventory for resale
C) Pay salaries
D) Pay utilities
E) Develop new products

Accepted Answer

Long-term financing should be used for investments in the business that are expected to generate future cash flows, such as developing new products. It is not typically used for day-to-day expenses such as salaries or utilities, and using it for speculative production or purchasing inventory for resale can be risky as there is no guarantee of future cash flows to repay the financing.

Question 20

The ____ ratio is based on the principle that a high-risk investment should generate higher financial returns for a business and more conservative decisions often generate lesser returns.
A) return on owners' equity
B) risk-return
C) earnings
D) investment-to-equity
E) quick return

Accepted Answer

The risk-return ratio is specifically based on the idea that higher risk investments should provide higher returns. The other ratios listed do not directly involve risk as a factor in determining financial returns.

Quiz 16: Mastering Financial Management

When each new budget is based on the dollar amounts contained in the budget from the preceding year,a company is using ____ budgeting.

To be successful while pursuing a career in finance,an employee must

A statement that projects income and/or expenditures over a specified future period is called a

During the recent economic crisis,many companies found that it was

Mia has been asked by top management to develop financial ____ that the company will achieve over the next one- to ten-year period.

The steps in effective financial planning are

Bill's Manufacturing needs $450,000 to build a new plant.It must also spend $200,000 on new equipment for the plant.Both of these needs are examples of

Kliting Co.is concerned with whether or not it will be able to pay its bills with money coming in from sales.It would be helpful for Kliting to prepare a ____ to better understand its needs.

For a department store such as JCPenney,the most likely need for short-term financing will be for

Tidewater Distributors is successfully using short-term financing to buy inventory for resale.As sales climb,the managers realize that they must decide what to do with the money.Since you are the financial manager,they ask for your advice.You advise them to first

Michelle Robinson is thinking about two different decisions.One decision is quite risky,while the other decision is more conservative.To help her make the right decision,she decides to calculate the

Which of the following is not a financial reform regulation proposed by the U.S.House of Representatives and Senate as a reaction to the economic crisis?

All of the following are uses of long-term financing except

Slater Co.has very old computers and manufacturing equipment and knows it needs to upgrade them or risk losing much of its business.Slater does not have the money to purchase the computers,so it will most likely need

Charlie develops a plan for obtaining and using the money necessary for his company to implement its goals.This is called a(n)

Borrowed money that will be used for more than one year is called

Of the following,only ___ would not be considered proper financial management during both good and bad times.

Long-term financing should be used to do which of the following?

The ____ ratio is based on the principle that a high-risk investment should generate higher financial returns for a business and more conservative decisions often generate lesser returns.