Question 1

Acquiring funds through debt financing enhances the firm's ability to increase profits.

Accepted Answer

A) True 
 B)False

Question 2

Financial managers are responsible for buying merchandise on credit and collecting payment from accounts receivable.

Accepted Answer

A) True 
 B)False

Question 3

Money has a time value because

Accepted Answer

A)  inflation increases the value of money over time. 
B)  money earns interest over time. 
C)  monetary systems are more automated than in the past. 
D)  a dollar received today is worth more than a dollar received yesterday.

Question 4

If you are at the Phoenix Sky Harbor International Airport, you will no longer get a pat-down if you go through the metal detector. The airport now has full body screening ports that scan the entire body and readily detect weapons or explosive devices that someone may want to take on board a plane. These expensive devices represent

Accepted Answer

A)  long-term assets. 
B)  short-term assets. 
C)  intangible assets. 
D)  interest-bearing assets.

Question 5

The rate of return a company must earn to meet the demands of its lenders and expectations of its equity holders is called

Accepted Answer

A)  opportunity rate. 
B)  retained earning. 
C)  cost of capital. 
D)  acquisition cost.

Question 6

Which of these statements about corporate bonds is correct?

Accepted Answer

A)  Bonds provide equity financing. 
B)  Issuing new bonds dilutes the existing ownership in the firm. 
C)  Interest paid to bondholders represents a tax-deductible business expense. 
D)  Debenture bonds require assets pledged as collateral.

Question 7

When Newport Industries renegotiated their loan agreement, they borrowed an additional $2 million. The new loan requires Liberty to repay the new amount in nine months. Liberty's activity represents ________ financing.

Accepted Answer

A)  equity 
B)  debt 
C)  revitalized 
D)  secured

Question 8

Commercial finance companies normally charge lower rates on short-term loans than those charged by commercial banks.

Accepted Answer

A) True 
 B)False

Question 9

The operating (master) budget identifies the funds (and the allocation of those funds) required to operate a business at a projected level of revenue.

Accepted Answer

A) True 
 B)False

Question 10

Theme Park Thrillers has plans to build a new $175 million theme park and intends to finance this project through the sale of additional shares of ownership in their firm. Selling new shares of stock represents ________ financing.

Accepted Answer

A)  retained 
B)  debt 
C)  initial offering 
D)  equity

Question 11

An effective budget requires

Accepted Answer

A)  a successful advertising campaign. 
B)  accurate forecasts. 
C)  management approval. 
D)  stakeholder consensus.

Question 12

Forecasting means determining how closely the actual revenue and expense results matched up with the predicted revenues and expenses.

Accepted Answer

A) True 
 B)False

Question 13

If a buyer is offered the terms of sale of "3/10, net 30" this means that the buyer can receive a 10 percent discount by making full payment within 30 days of the billing date.

Accepted Answer

A) True 
 B)False

Question 14

Burger Barn is a chain of hamburger restaurants on the West Coast. The corporation plans to expand to the Midwest and then along the East Coast. The acquisition of land and construction of new restaurants represent major capital expenditures.

Accepted Answer

A) True 
 B)False

Question 15

A capital budget highlights a firm's spending plans for major assets, such as property, buildings, and equipment.

Accepted Answer

A) True 
 B)False

Question 16

Inadequate expense control typically occurs as a result of undercapitalization.

Accepted Answer

A) True 
 B)False

Question 17

Venture capitalists expect lower than average returns on their investment since they are exposed to little risk.

Accepted Answer

A) True 
 B)False

Question 18

________ offer short-term secured loans to high-risk borrowers. These loans usually require collateral.

Accepted Answer

A)  Commercial finance companies 
B)  Reserve banks 
C)  Credit brokers 
D)  Investment bankers

Question 19

Jason manages credit and collections at Barkatorium Pet Supplies. He is responsible for accounts receivable and accounts payable. These activities suggest that Jason's job is in financial management.

Accepted Answer

A) True 
 B)False

Question 20

Lydia is a financial manager with Securitas Financial. She regularly compares actual revenues and expenses against their projected values. After identifying areas with significant deviations from planned values, she investigates to find the cause of these variances. Lydia's activities represent the steps involved in the preparation of Securitas's capital budget.

Accepted Answer

A) True 
 B)False

Exam 18: Financial Management

Acquiring funds through debt financing enhances the firm's ability to increase profits.

Financial managers are responsible for buying merchandise on credit and collecting payment from accounts receivable.

Money has a time value because

The rate of return a company must earn to meet the demands of its lenders and expectations of its equity holders is called

Which of these statements about corporate bonds is correct?

When Newport Industries renegotiated their loan agreement, they borrowed an additional $2 million. The new loan requires Liberty to repay the new amount in nine months. Liberty's activity represents ________ financing.

Commercial finance companies normally charge lower rates on short-term loans than those charged by commercial banks.

The operating (master) budget identifies the funds (and the allocation of those funds) required to operate a business at a projected level of revenue.

Theme Park Thrillers has plans to build a new $175 million theme park and intends to finance this project through the sale of additional shares of ownership in their firm. Selling new shares of stock represents ________ financing.

An effective budget requires

Forecasting means determining how closely the actual revenue and expense results matched up with the predicted revenues and expenses.

If a buyer is offered the terms of sale of "3/10, net 30" this means that the buyer can receive a 10 percent discount by making full payment within 30 days of the billing date.

Burger Barn is a chain of hamburger restaurants on the West Coast. The corporation plans to expand to the Midwest and then along the East Coast. The acquisition of land and construction of new restaurants represent major capital expenditures.

A capital budget highlights a firm's spending plans for major assets, such as property, buildings, and equipment.

Inadequate expense control typically occurs as a result of undercapitalization.

Venture capitalists expect lower than average returns on their investment since they are exposed to little risk.

________ offer short-term secured loans to high-risk borrowers. These loans usually require collateral.

Jason manages credit and collections at Barkatorium Pet Supplies. He is responsible for accounts receivable and accounts payable. These activities suggest that Jason's job is in financial management.