Exam 15: Finacial Decisions and Risk Management

If you bought a corporation bond that was selling for 155 1/4, how much would it cost you?

What is financial control?

A ________ is the right to buy a particular stock at a certain price until a particular date, while a ________ gives the owner the right to sell a particular stock at a specified price until a particular date.

Sellers adjust credit terms in order to influence

Describe the primary short-term sources of funds.

From a company's perspective, which of the following is the riskiest mix of long-term funding?

Munschausen is a German-based appliance company that is preparing to begin international operations, wherein it plans to open several production facilities and sales centres abroad. The company needs a substantial amount of capital to start its international operations and needs to decide whether it should pursue debt financing by acquiring loans, or whether it can get equity financing from investors. Which of the following, if true, would weaken the case for Munschausen's seeking to acquire capital by equity financing?

The most important element in the bond indenture is the company's cash flow situation.

David is looking at a bill for supplies his company bought. It is dated May 1st and the terms are 2/10; net 30. In order to pay the least amount, when should he pay the bill?

A ________ is an organization of individuals formed to provide an institutional setting where stocks can be bought and sold.

Secured, short-term loans are usually secured by

Why is it necessary for a business firm to establish a credit policy?

Ryerson says: "Money is hard to come by, so when one has money one should make sure that, above all, one doesn't lose it. One hears a lot of success stories about people making a lot of money by investing, but of course you don't hear about the people who lose money investing. As risky as it is, based on so many unknown factors, investing your money really is like gambling. The only prudent plan is to keep money in a savings account where it can earn a predictable amount of interest. One can't lose money that way, at least, so with money in a savings account one can always count on it being there for future needs." Groh responds by saying: "Investing is inherently risky, but the risk need not be insurmountable. It is true that the more potential there is for a higher return, the higher the chance is also for more money to be lost. But there are more and less risky ways to invest, and even the less risky investments can give a significantly higher return than a simple savings account. When one diversifies one's stock holdings, one increases the chances of getting a good return among one's holdings, and decreases the damage from a loss in value. Also, even if stocks lose value temporarily, the value of stocks overall has always gone up over long periods of time. So a savings account, while it may seem prudent and safe, is probably not the best way to ensure that money is being saved in the most optimal way possible." Which of the following assumptions does Groh make?

Explain the Rule of 72.

Hedge funds are not allowed to engage in risky practices such as short selling and leveraging.

The two basic types of business risk are speculative risks and pure risks.

Accounts payable and accounts receivable are both part of the important category called "short-term expenditures."

What is the difference between par value, market value, and book value?

Which of the following is a financing method for short-term funds?

Mega Computer issued stock with a face value of one cent and then sold the shares to the public for $20.00 each. Ted bought 10 shares at that price. Today, Ted sold his shares to David for $25.00 each. What is the market value of the stock?