Question 1

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

Accepted Answer

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 
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

Question 2

Which of the following is not an advantage that promissory notes have over trade credit from the perspective of the seller?

Accepted Answer

A)  Notes are legally binding agreements. 
B)  Most notes earn interest for the seller. 
C)  Notes are negotiable instruments. 
D)  The company extending credit can sell the note and receive the money quickly. 
E)  The seller may demand payment from the buyer at any time. 
A)  Notes are legally binding agreements. 
B)  Most notes earn interest for the seller. 
C)  Notes are negotiable instruments. 
D)  The company extending credit can sell the note and receive the money quickly. 
E)  The seller may demand payment from the buyer at any time.

Question 3

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

Accepted Answer

A)  credit policy. 
B)  capital budget. 
C)  operational plan. 
D)  financing agreement. 
E)  financial plan. 
A)  credit policy. 
B)  capital budget. 
C)  operational plan. 
D)  financing agreement. 
E)  financial plan.

Question 4

To raise capital, Financial Fusion sold

Accepted Answer

A)  stock to family members and friends. 
B)  stock to stockholders by using an IPO. 
C)  bonds to a few close associates. 
D)  commercial paper certificates to clients. 
E)  promissory notes to a few trustworthy investors. 
A)  stock to family members and friends. 
B)  stock to stockholders by using an IPO. 
C)  bonds to a few close associates. 
D)  commercial paper certificates to clients. 
E)  promissory notes to a few trustworthy investors.

Question 5

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?

Accepted Answer

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. 
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.

Question 6

Trustee bonds refer to corporate bonds that are secured by various assets of the issuing firm.

Accepted Answer

A) True 
 B)False

Question 7

The maturity date is the date on which the corporation is to repay the money borrowed from bondholders.

Accepted Answer

A) True 
 B)False

Question 8

Compare the relative costs of using long-term equity financing and those of using long-term debt financing.

Accepted Answer

Long-term equity financing involves rais

Question 9

The cost of borrowing money that is reserved for large corporations with excellent credit ratings is called the

Accepted Answer

A)  prime interest rate. 
B)  bank discount. 
C)  discount factor. 
D)  add-on interest rate. 
E)  compound interest rate. 
A)  prime interest rate. 
B)  bank discount. 
C)  discount factor. 
D)  add-on interest rate. 
E)  compound interest rate.

Question 10

At Furman Company, managers go through a lengthy budgeting process wherein each department manager is required to provide documentation justifying every expected expense. Furman uses ____ budgeting.

Accepted Answer

A)  zero-base 
B)  cash 
C)  recurring 
D)  traditional 
E)  response 
A)  zero-base 
B)  cash 
C)  recurring 
D)  traditional 
E)  response

Question 11

Surf 'N' Sun Shop sells ski boats and other boating accessories. It receives most of its inventory about three months in advance of the summer season, but it is not able to pay for the inventory up front. Instead, its suppliers allow Surf 'N' Sun to use its inventory as collateral. This type of agreement is called

Accepted Answer

A)  unsecured short-term financing. 
B)  long-term lending. 
C)  factoring. 
D)  secured short-term financing 
E)  a promissory note. 
A)  unsecured short-term financing. 
B)  long-term lending. 
C)  factoring. 
D)  secured short-term financing 
E)  a promissory note.

Question 12

Suppose IBM decided to issue commercial paper in denominations of $5,000 to raise a large sum of money. Since the commercial paper is secured only by IBM's reputation,

Accepted Answer

A)  IBM does not have to pay back the principal. 
B)  IBM has to pay interest rates higher than those charged by commercial banks for short-term loans. 
C)  no interest is paid. 
D)  no collateral is involved. 
E)  the commercial paper can be issued only in $1,500 or $10,000 denominations. 
A)  IBM does not have to pay back the principal. 
B)  IBM has to pay interest rates higher than those charged by commercial banks for short-term loans. 
C)  no interest is paid. 
D)  no collateral is involved. 
E)  the commercial paper can be issued only in $1,500 or $10,000 denominations.

Question 13

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

Accepted Answer

A)  financial plan. 
B)  cash flow plan. 
C)  resources plan. 
D)  resource allocation statement. 
E)  budget. 
A)  financial plan. 
B)  cash flow plan. 
C)  resources plan. 
D)  resource allocation statement. 
E)  budget.

Question 14

The NYSE, along with other NYSE Euronext exchanges, lists over 8,500 different issues.

Accepted Answer

A) True 
 B)False

Question 15

Trade credit is the most popular form of short-term financing available for most businesses.

Accepted Answer

A) True 
 B)False

Question 16

In the ____, Kia Corporation describes the basics of the bond issue, who the trustee is, when the bonds mature, and how the bonds will be paid off.

Accepted Answer

A)  bond indenture 
B)  trustee agreement 
C)  bond prospectus 
D)  term-loan agreement 
E)  bond contract 
A)  bond indenture 
B)  trustee agreement 
C)  bond prospectus 
D)  term-loan agreement 
E)  bond contract

Question 17

Morgan's Transition
Morgan is currently a manager of a small financial planning firm. He is seeking a new career with a large corporation in the banking industry. He recently applied for the financial manager opening at G & T Bank. He is concerned that the transition from his small firm to a large corporation will be difficult. To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance. The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing. Morgan now believes he has strengthened his competitive advantage in his quest for the job.
-Refer to Morgan's Transition. When Morgan creates a financial plan, his first step should be which of the following?

Accepted Answer

A)  Identify available sources of financing. 
B)  Decide which goals to finance. 
C)  Describe which type of financing to use. 
D)  Establish a set of valid goals. 
E)  Determine how much money is needed to accomplish each goal. 
A)  Identify available sources of financing. 
B)  Decide which goals to finance. 
C)  Describe which type of financing to use. 
D)  Establish a set of valid goals. 
E)  Determine how much money is needed to accomplish each goal.

Question 18

The use of borrowed funds to increase the return on owner's equity is called

Accepted Answer

A)  financial planning. 
B)  investment management. 
C)  management leverage. 
D)  financial leverage. 
E)  return on leverage. 
A)  financial planning. 
B)  investment management. 
C)  management leverage. 
D)  financial leverage. 
E)  return on leverage.

Question 19

If Sunbelt Computers were to take out a short-term loan from Chase for $5 million and were required to keep $500,000 of that in its Chase account, this would be called a(n)

Accepted Answer

A)  compensating balance. 
B)  security deposit. 
C)  commercial-paper arrangement. 
D)  reserve requirement. 
E)  insurance policy. 
A)  compensating balance. 
B)  security deposit. 
C)  commercial-paper arrangement. 
D)  reserve requirement. 
E)  insurance policy.

Question 20

When would a company be likely to call its preferred stock?

Accepted Answer

A)  If it decides it would rather have corporate bonds 
B)  When it needs additional long-term financing 
C)  As the preferred stock matures and must be redeemed 
D)  When the call premium becomes high enough to justify the call 
E)  When it can issue new common stock to replace the preferred stock 
A)  If it decides it would rather have corporate bonds 
B)  When it needs additional long-term financing 
C)  As the preferred stock matures and must be redeemed 
D)  When the call premium becomes high enough to justify the call 
E)  When it can issue new common stock to replace the preferred stock

Exam 19: Mastering Financial Management

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

Which of the following is not an advantage that promissory notes have over trade credit from the perspective of the seller?

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

To raise capital, Financial Fusion sold

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?

Trustee bonds refer to corporate bonds that are secured by various assets of the issuing firm.

The maturity date is the date on which the corporation is to repay the money borrowed from bondholders.

Compare the relative costs of using long-term equity financing and those of using long-term debt financing.

The cost of borrowing money that is reserved for large corporations with excellent credit ratings is called the

At Furman Company, managers go through a lengthy budgeting process wherein each department manager is required to provide documentation justifying every expected expense. Furman uses ____ budgeting.

Suppose IBM decided to issue commercial paper in denominations of $5,000 to raise a large sum of money. Since the commercial paper is secured only by IBM's reputation,

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

The NYSE, along with other NYSE Euronext exchanges, lists over 8,500 different issues.

Trade credit is the most popular form of short-term financing available for most businesses.

In the ____, Kia Corporation describes the basics of the bond issue, who the trustee is, when the bonds mature, and how the bonds will be paid off.

The use of borrowed funds to increase the return on owner's equity is called

If Sunbelt Computers were to take out a short-term loan from Chase for $5 million and were required to keep $500,000 of that in its Chase account, this would be called a(n)

When would a company be likely to call its preferred stock?

Exploring the World of Business and Economics

A: Being Ethical and Socially Responsible

B: Being Ethical and Socially Responsible

A: Exploring Global Business

B: Exploring Global Business

Choosing a Form of Business Ownership

Small Business, Entrepreneurship, and Franchises

Understanding the Management Process

Creating a Flexible Organization

Producing Quality Goods and Services

Attracting and Retaining the Best Employees

Motivating and Satisfying Employees and Teams

Enhancing Union-Management Relations

Building Customer Relationships Through Effective Marketing

A: Creating and Pricing Products That Satisfy Customers

B: Creating and Pricing Products That Satisfy Customers

Wholesaling, Retailing, and Physical Distribution

Developing Integrated Marketing Communications

Social Media, E-Business, and Accounting

Using Management and Accounting Information

Understanding Money, Banking, and Credit

A: Understanding Personal Finances and Investments

B: Understanding Personal Finances and Investments

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