Question 1

After enjoying increased sales of and profits from several popular products, Braggs & Stritton plans to expand their production facilities. The firm, a well-known producer of lawn care products, prefers financing this project with a funding source that avoids interest and dividend payments as well as underwriting costs. Which of the following best meets the needs of Braggs & Stritton?

Accepted Answer

Retained earnings are often the most favored source of meeting long-term capital needs since the company saves interest payments, dividend payments, and underwriting costs.

Question 2

To raise the funds for the major improvements needed at the funeral home, Mort has talked to two investors about incorporating his business and selling them shares of stock in the company. Mort is considering the use of

Accepted Answer

Equity financing is money raised from retained earnings or through the sale of ownership in the firm.

Question 3

Charlie Chicken Restaurants announced it plans to issue $300 million in debenture bonds to fund the expansion of its fast food chain of restaurants. In financial terms, this means

Accepted Answer

Debenture bonds are unsecured bonds that are not supported by collateral. The company is engaging in debt financing through the issuance of long-term bonds.

Question 4

Seedling Plant Science invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution worldwide, the company whose product produces lush green foliage needs a large amount of funding-fast! The handful of seed scientists that own the company decide to offer shares of stock to general investors. This first-time offering is a(n)

Accepted Answer

The first time a company offers to sell its stock to the general public, the event is called an initial public offering.

Question 5

Explain the role the operating budget, the capital budget, and the cash budget play in financial planning.

Accepted Answer

The answer of Explain the role the operating budget, the...

Question 6

What is equity financing? Identify and describe the major sources of equity financing.

Accepted Answer

The answer of What is equity financing? Identify and describe...

Question 7

Seedling Plant Science invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution worldwide, the company whose product produces lush green foliage needs serious funding. The handful of seed scientists that own the company are seeking ________, but understand that they will relinquish a sizeable share of ownership in order to obtain the funds.

Accepted Answer

Venture capital is money invested in new or emerging companies that have great profit potential. Venture capitalists usually demand a share of ownership in return for equity funding.

Question 8

Identify and describe the major steps involved in financial planning.

Accepted Answer

The answer of Identify and describe the major steps involved...

Question 9

After seeing Mort's advertisement: "You Aren't Gettin' Any Younger! Start Planning for Heaven Today!" a(n) ________ firm decided the aging population was a good investment. Although they typically look at start-ups with great promise, they approached Mort with $6 million dollars for his new idea of a major three-city expansion that included six new funeral homes, a crematory, and mausoleum. After researching the offer, Mort agreed to give up 50% ownership of the business in order to secure these funds. His last thoughts as he began to sign the papers were: "Now, I'll be able to compete with the big guys!"

Accepted Answer

Venture capital is money that is invested in new or emerging companies that are perceived as having great profit potential.

Question 10

Explain the term leverage. When is it more favorable for firms to use this strategy?

Accepted Answer

The answer of Explain the term leverage. When is it...

Question 11

Identify and describe three types of short-term financing.

Accepted Answer

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Question 12

Mort Tishian feels it's necessary to predict revenues, costs, and expenses on a six-month basis. "It's the only way you get an idea of what to expect," explains Mort. In order to obtain these predictions, Mort needs to develop a(n)

Accepted Answer

A short-term forecast is a prediction of revenue, costs, and expenses for a period of one year or less.

Question 13

What are two major forms of debt financing? Describe and differentiate between the two types.

Accepted Answer

The answer of What are two major forms of debt...

Question 14

What is financial management? Identify the duties and responsibilities of financial managers.

Accepted Answer

The answer of What is financial management? Identify the duties...

Question 15

Mort approached the chief lending officer at First Virginia Bank about obtaining a $75,000 loan. The banker said she would approve the loan provided that the funeral home's building was pledged as collateral. The banker was offering a(n)

Accepted Answer

A secured loan is one backed by something valuable, such as property.

Question 16

After much searching, Mort located an old banking friend of his father's. The banker offered Mort up to $25,000 in unsecured funds, which Mort's firm could borrow any time within a year, as long as the bank has the money available. Mort was offered a(n)

Accepted Answer

A line of credit is an agreement with a bank to provide a business a maximum amount of money in an unsecured, short-term loan. However, this agreement is subject to the bank having the necessary funds available.

Question 17

Mort is seriously considering a major expansion in the size of his funeral home. The money spent on this type of project would be classified as a(n)

Accepted Answer

A capital expenditure is a major investment in a long-term asset such as a building, land, and equipment, or intangible assets such as patents, trademarks, and copyrights.

Quiz 18: Financial Management