Exam 18: Financial Management

A less-established company, or a company with a high debt to equity ratio, would be considered a riskier investment to the lender. Which of the following principles attests to this axiom?

Portable Pet Care, a mobile veterinary service, wants to expand. After thoroughly reviewing the possibility of expansion, Portable Pet Care plans to offer a similar service in the Indianapolis metropolitan area as it does in its original Columbus, Ohio area. This will require a large capital expenditure. Due to the nature of this project, the firm will consider only equity financing.

Rock Solid Concrete Company relies on factoring to meet its short-term financing needs. This means that Rock Solid borrows money from a finance company and pledges its accounts receivable as collateral.

According to the Not What the Doctor Ordered! box, a just-in-time inventory system allows a firm to

Accepting credit cards, such as MasterCard or Visa, enables a firm to decrease the expense of extending credit to customers.

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

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)

Which of the following statements represents good advice prior to making capital expenditures?

A cash budget helps managers anticipate borrowing, debt repayment, operating expenses, and short-term investment opportunities.

The first step in the financial planning process is

A line of credit from a bank guarantees a firm that a specified amount of financing will be available when it is needed.

Factoring refers to the process of selling inventory to generate short-term funds.

Short-term financing refers to borrowed funds that must be repaid in a year or less.

Business organizations always use long-term financing for (both) short-term and long-term needs, but they never use short-term financing for (both) short-term and long-term needs.

Some suppliers hesitate to offer trade credit to firms with a poor credit history. In these cases, the supplier may insist that the customer sign a(n)

As financial manager for Marshall Manufacturing, Elena evaluates the purchase of expensive machinery and the construction of new facilities. Elena is analyzing capital expenditure proposals.

The concept of the time value of money is based on the interest-earning power of money.

Offering cash discounts to customers who pay their bills by a certain date represents an effective technique to manage accounts receivable.

The importance of financial managers to firms with large cash inflows is greater than for firms with smaller cash flows.

The duties and responsibilities of a financial manager are virtually identical to the duties and responsibilities of an accountant.