Question 1

_____________ is the function in business that is responsible for acquiring funds for the firm, and managing funds within the firm

Accepted Answer

Finance is the function in business that is responsible for acquiring funds for the firm, and managing funds within the firm. Accounting (both managerial and financial) deals with the recording and reporting of financial transactions, while finance focuses on the acquisition and management of funds.

Question 2

Which of the following correctly identifies areas of authority and responsibility for a chief financial officer (CFO)?

Accepted Answer

The CFO is responsible for the financial management of the company, including accounting, financial reporting, budgeting, and financial analysis. They oversee the finance department and ensure the company's financial goals and objectives are being met. Marketing, Production, and research and development are typically overseen by different executives.

Question 3

Which of the following statements about taxes is accurate?

Accepted Answer

Profitable businesses usually pay taxes, as taxes are usually based on profits or income. In order to minimize the tax burden, businesses may engage in tax planning and management strategies. Tax management typically falls within the responsibility of finance or accounting departments, not marketing. While political policy can impact taxes, businesses can still engage in tax management within the context of the current tax laws and regulations.

Question 4

As a financial manager for a very profitable manufacturer of specialty steel, Kurt has been asked to investigate sources of long-term funds to finance the construction of a new facility. Kurt would prefer a funding source that does not require interest payments or involve major underwriting fees. Kurt will consider using retained earnings to fund the construction project.

Accepted Answer

Kurt prefers a funding source that does not require interest payments or involve major underwriting fees, and retained earnings can be used to fund the construction project without incurring any interest payments or underwriting fees, making it a viable option.

Question 5

Financial managers at Sasha Deal Electronics have always had a conservative attitude toward long-term financing. In particular, they are interested in keeping risk to a minimum. This philosophy suggests that managers at Sasha Deal consider the extensive use of leverage an attractive financial strategy.

Accepted Answer

The statement contradicts itself. A conservative attitude towards long-term financing suggests that managers would be hesitant to use extensive leverage as it would increase risk. Therefore, the statement is false.

Question 6

Central Vermont Power issued $200 million of bonds to finance a major upgrade of one of its largest power plants. The issuance of these bonds indicates that Central Vermont utilizes equity capital to meet its long-term financing needs.

Accepted Answer

The statement is not accurate. Issuing bonds indicates that Central Vermont utilizes debt capital to meet its long-term financing needs.

Question 7

Undercapitalization refers to the problem of:

Accepted Answer

Undercapitalization refers to a situation where a business starts up without sufficient funds to run operations smoothly. It may lead to financial strain and jeopardize the company's success if funds aren't sourced quickly to maintain consistent smooth operations.

Question 8

According to the Reaching Beyond Our Borders box, some of the largest sovereign wealth funds are operated by Norway, Saudi Arabia, and Singapore.

Accepted Answer

The Reaching Beyond Our Borders box states that Norway, Saudi Arabia, and Singapore operate some of the world's largest sovereign wealth funds.

Question 9

An example of a firm using leverage to its advantage is a firm that borrows funds at 9% and invests those funds to earn 14%.

Accepted Answer

This scenario describes a situation where the firm is using leverage to its advantage by borrowing at a lower rate (9%) and investing the funds for a higher rate of return (14%). This can help increase the firm's profits and improve its financial performance. However, it is important to note that leverage also comes with risks, as borrowing can amplify losses if investments do not perform as expected.

Question 10

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

Accepted Answer

Finance is a critical activity for both profit-seeking and nonprofit organizations, regardless of their size. Even nonprofit organizations need to manage their finances effectively to ensure that they are able to fulfill their mission and sustain their operations in the long run. Finance involves budgeting, forecasting, financial analysis, and other activities that are relevant to both profit-seeking and nonprofit organizations. While accountants and financial managers play important roles in finance, finance is not limited to these professionals alone.

Question 11

If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm realize a benefit from using leverage.

Accepted Answer

Leverage refers to the use of borrowed funds to increase the firm's rate of return. Borrowing at 15% interest (cost of capital) and using those funds to earn 10% decreases the return on investment for the firm.

Question 12

Which of the following is a primary area of concern for financial managers?

Accepted Answer

Undercapitalization, or not having enough funds to support business operations, is a significant concern for financial managers as it can lead to cash flow problems and even bankruptcy. Inability to recruit qualified workers, poor advertising messages, and inadequate market control may also be concerns for financial managers, but they are not primary areas of concern.

Question 13

Corporations that issue stock to raise long-term funds accept the legal obligation to repay the amount borrowed.

Accepted Answer

Corporations that issue stock are actually selling ownership or equity in the company, which does not come with the legal obligation to repay the amount borrowed. Instead, stockholders expect to receive a return on their investment through dividends or capital appreciation.

Question 14

Which business function involves credit management/collecting funds from customers?

Accepted Answer

Finance is the business function that involves credit management and collecting funds from customers. It deals with managing the financial resources of a company, including managing accounts receivable and collecting payments from customers. Accounting focuses on recording financial transactions and producing financial statements, while production involves creating the goods or services that the company offers. Marketing focuses on promoting and selling the company's products or services.

Question 15

As mentioned in the Reaching Beyond Our Borders box, sovereign wealth funds can easily purchase more than 10% of a U.S. company without investigation by the U.S. government.

Accepted Answer

Sovereign wealth funds purchasing significant stakes in U.S. companies are subject to review by the Committee on Foreign Investment in the United States (CFIUS) to assess any potential national security risks.

Question 16

One important consideration for a firm accepting funds from a venture capitalist is the ownership interest demanded by the venture capital firm.

Accepted Answer

Venture capitalists typically require a percentage of ownership in the company in exchange for their investment. This ownership interest may impact the control and decision-making power of the founders and existing shareholders.

Question 17

________ examine the data prepared by ________ and then make recommendations to top management regarding strategies for improving the firm

Accepted Answer

Financial managers are responsible for analyzing financial data and making strategic decisions based on that analysis. In this case, the data has been prepared by accountants, so it makes sense for financial managers to examine and interpret the data to make recommendations for the firm's improvement. Bankers may also be involved in providing financial advice, but they are not as directly connected to the firm's internal operations and financial data as financial managers are.

Question 18

Which of the following statements is most accurate?

Accepted Answer

Accounting is a subfield of finance, and financial managers need to have an understanding of accounting principles in order to make informed decisions about a firm's financial health. Option A and D are incorrect, as accounting and finance are related and nonprofit organizations do not necessarily have to choose between the two fields. Option B is also incorrect, as financial managers typically oversee financial operations but do not necessarily handle bookkeeping themselves.

Question 19

Unlike bonds, stocks offer the advantage of tax-deductible interest payments.

Accepted Answer

This statement is false. Stocks do not offer tax-deductible interest payments, as they do not involve interest payments like bonds do. However, certain expenses related to investing in stocks may be tax-deductible.

Question 20

A(n) __________ is responsible for verifying that the accounting procedures within a firm are consistent with established accounting principles

Accepted Answer

Internal auditors are responsible for verifying that the accounting procedures within a firm are consistent with established accounting principles. Managerial accountants are responsible for providing financial information to managers within a firm, tax accountants handle tax-related issues, and bookkeepers are responsible for maintaining financial records.

Quiz 18: Financial Management