Question 1

A promissory note that requires the borrower to repay the loan in specified installments is called a(n) :

Accepted Answer

A)   repayment scheduling.
B)   term loan agreement.
C)   amortization installment.
D)   revolving line of credit.E) A) and D)
F) None of the above

Question 2

Financial managers examine the data prepared by accountants and make recommendations to top management regarding strategies for improving the financial performance of the company.

Accepted Answer

A) True 
 B)False

Question 3

The long-term financial forecast gives top management some sense of the profit potential of various strategic decisions.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

The effective management of accounts receivable requires financial managers to:

Accepted Answer

A)   review the credit history of new customers.
B)   provide prompt cash payments to suppliers.
C)   allow customers more time in paying their past due accounts.
D)   refuse bank-issued credit cards.E) C) and D)
F) B) and D)

Question 6

The interest paid on ________ represents a tax-deductible business expense.

Accepted Answer

A)   bonds
B)   stock
C)   retained earnings
D)   depreciated assetsE) None of the above
F) B) and C)

Question 7

Corporations must comply with the Securities and Exchange Commission (SEC)requirements in order to sell their stock publicly.

Accepted Answer

A) True 
 B)False

Question 8

The owners of Preferred Pet Care,Inc. ,a mobile pet care company,have approached you about obtaining long-term financing.They must choose between debt financing and equity financing.Which of the following statements reflects accurate information that you share with this company?

Accepted Answer

A)   The sale of stock (equity financing) will result in a greater pool of funds.Debt financing is less risky and increases leverage,but it seldom results in the owners securing the total amount of funds needed.
B)   The sale of bonds is more risky because they always require collateral and an interest rate that exceeds the cost of capital.
C)   The interest paid to banks and bondholders is tax deductible.
D)   Equity financing usually comes with a lower cost of capital.E) All of the above
F) B) and D)

Question 9

Acquiring funds through borrowing represents:

Accepted Answer

A)   debt financing.
B)   venture capital.
C)   speculative capital.
D)   equity financing.E) C) and D)
F) A) and D)

Question 10

Factoring refers to the process of selling accounts receivable for cash.

Accepted Answer

A) True 
 B)False

Question 11

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

A) True 
 B)False

Question 12

Identify and describe the major steps involved in financial planning.

Accepted Answer

There are three major steps involved in ...

Question 13

To maximize the benefits of using financial leverage,a firm should:

Accepted Answer

A)   strive to minimize their cost of capital.
B)   avoid securing funds through long-term debt financing.
C)   limit their investments to projects with minimum risk levels.
D)   incorporate in states with relatively low tax rates.E) B) and D)
F) C) and D)

Question 14

Financial managers understand the time value of money.They try to maximize cash expenditures,as opposed to minimizing cash expenditures.

Accepted Answer

A) True 
 B)False

Question 15

Leverage refers to the use of borrowed funds to increase a firm's rate of return.

Accepted Answer

A) True 
 B)False

Question 16

________ is a form of short-term financing.Businesses buy merchandise from their suppliers,but are not required to pay for their purchases until some future date.

Accepted Answer

A)   Secured credit
B)   Trade credit
C)   Revolving credit
D)   FactoringE) C) and D)
F) All of the above

Question 17

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

Accepted Answer

A) True 
 B)False

Question 18

Big Bear Ski Lodge owners know that the lifts on the north slope will need replacing in the next two years.Three months prior to replacement,they will include the expenditure in their cash budget.

Accepted Answer

A) True 
 B)False

Question 19

To be effective,an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Accepted Answer

A) True 
 B)False

Question 20

___________ 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 bankersE) B) and D)
F) C) and D)

Exam 18: Financial Management

Identify and describe the major steps involved in financial planning.

Correct AnswerverifiedThere are three major steps involved in ...View AnswerShow Answer

The long-term financial forecast gives top management some sense of the profit potential of various strategic decisions.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Leverage refers to the use of borrowed funds to increase a firm's rate of return.

Correct AnswerverifiedShow Answer

Financial managers understand the time value of money.They try to maximize cash expenditures,as opposed to minimizing cash expenditures.

Correct AnswerverifiedShow Answer

Corporations must comply with the Securities and Exchange Commission (SEC)requirements in order to sell their stock publicly.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The effective management of accounts receivable requires financial managers to:

Correct AnswerverifiedShow Answer

The interest paid on ________ represents a tax-deductible business expense.

Correct AnswerverifiedShow Answer

Financial managers examine the data prepared by accountants and make recommendations to top management regarding strategies for improving the financial performance of the company.

Correct AnswerverifiedShow Answer

Factoring refers to the process of selling accounts receivable for cash.

Correct AnswerverifiedShow Answer

To maximize the benefits of using financial leverage,a firm should:

Correct AnswerverifiedShow Answer

Acquiring funds through borrowing represents:

Correct AnswerverifiedShow Answer

Big Bear Ski Lodge owners know that the lifts on the north slope will need replacing in the next two years.Three months prior to replacement,they will include the expenditure in their cash budget.

Correct AnswerverifiedShow Answer

The owners of Preferred Pet Care,Inc. ,a mobile pet care company,have approached you about obtaining long-term financing.They must choose between debt financing and equity financing.Which of the following statements reflects accurate information that you share with this company?

Correct AnswerverifiedShow Answer

________ is a form of short-term financing.Businesses buy merchandise from their suppliers,but are not required to pay for their purchases until some future date.

Correct AnswerverifiedShow Answer

A promissory note that requires the borrower to repay the loan in specified installments is called a(n) :

Correct AnswerverifiedShow Answer

To be effective,an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Correct AnswerverifiedShow Answer

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There are three major steps involved in ...
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