Question 1

Investors and entrepreneurs should have an understanding of financial issues.

Accepted Answer

A) True 
 B)False  True

Question 2

Which of the following situations represents a successful use of financial leverage?

Accepted Answer

A) A firm issues new shares of stock and uses the proceeds from the sale to retire its outstanding debt. 
B) A firm borrows money at 8% and earns an 11% return on its investment of these funds. 
C) A firm attracts the interest of two venture capitalists,and plays one against the other to gain the best deal. 
D) A retail firm purchases merchandise at $10 and sells it for $15. 
A) A firm issues new shares of stock and uses the proceeds from the sale to retire its outstanding debt. 
B) A firm borrows money at 8% and earns an 11% return on its investment of these funds. 
C) A firm attracts the interest of two venture capitalists,and plays one against the other to gain the best deal. 
D) A retail firm purchases merchandise at $10 and sells it for $15. B

Question 3

Lancer Wholesale Company wants to improve cash flow.Which of the following strategies would be most likely to help Lancer achieve this objective?

Accepted Answer

A) Relaxing its credit policy for new customers 
B) Offering cash discounts to buyers who pay their accounts promptly 
C) Accepting IOUs from customers who buy in large quantities 
D) Offering extended payment plans to qualified buyers 
A) Relaxing its credit policy for new customers 
B) Offering cash discounts to buyers who pay their accounts promptly 
C) Accepting IOUs from customers who buy in large quantities 
D) Offering extended payment plans to qualified buyers B

Question 4

Accountants truly represent the financial managers of a business.

Accepted Answer

A) True 
 B)False

Question 5

Through equity financing,stockholders become _________ of the firm.

Accepted Answer

A) creditors 
B) employees 
C) suppliers 
D) owners 
A) creditors 
B) employees 
C) suppliers 
D) owners

Question 6

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 7

An unsecured corporate bond is known as a debenture bond.

Accepted Answer

A) True 
 B)False

Question 8

As John considers approaching a venture capital firm to provide funding for his new software firm,he should realize that a venture capital firm will:

Accepted Answer

A) offer no more than 20 percent of the funding he needs. 
B) charge a higher interest rate than a commercial bank. 
C) expect the company to provide a steady dividend income. 
D) probably want an ownership interest in the business. 
A) offer no more than 20 percent of the funding he needs. 
B) charge a higher interest rate than a commercial bank. 
C) expect the company to provide a steady dividend income. 
D) probably want an ownership interest in the business.

Question 9

An example of a firm using leverage to its advantage is a firm that borrows funds at 9% and invests those funds to earn 14%.

Accepted Answer

A) True 
 B)False

Question 10

Acquiring funds through borrowing represents:

Accepted Answer

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

Question 11

With plans to build a $50 million theme park,Extreme Entertainment,Inc.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 
A) retained 
B) debt 
C) initial offering 
D) equity

Question 12

Jackson Plumbing,a medium-sized company,wants to guarantee that it can obtain short-term funds to meet unexpected future cash needs.Which of the following strategies would best meet the financing needs of Jackson Plumbing? Financial managers at Jackson Plumbing should:

Accepted Answer

A) issue commercial paper as needed. 
B) request that the firm's board of directors approve an issue of additional shares of common stock. 
C) arrange for a revolving credit agreement with Jackson Plumbing's commercial bank. 
D) eliminate credit sales to improve their cash inflows and reduce the firm's investment in accounts receivable. 
A) issue commercial paper as needed. 
B) request that the firm's board of directors approve an issue of additional shares of common stock. 
C) arrange for a revolving credit agreement with Jackson Plumbing's commercial bank. 
D) eliminate credit sales to improve their cash inflows and reduce the firm's investment in accounts receivable.

Question 13

Preferred Pet Care,Inc.plans to purchase a second mobile unit next year that will cost an estimated $55,000.The finance manager will include this projected purchase in the company's capital budget.

Accepted Answer

A) True 
 B)False

Question 14

There is actually a stronger relationship between finance and marketing than there is between finance and accounting.

Accepted Answer

A) True 
 B)False

Question 15

The most widely used source of short-term funding is trade credit.

Accepted Answer

A) True 
 B)False

Question 16

Chunky Chicken,Inc.announced yesterday that it plans to issue $100 million in debenture bonds to fund the expansion of its fast food chain of restaurants.In financial terms,this means:

Accepted Answer

A) The corporation will borrow $100 million worth of long-term financing.The bond issue will not carry any collateral. 
B) The corporation will issue $100 million worth of equity financing.The bond issue will be backed by the property and buildings purchased with the funds. 
C) The corporation will borrow $100 million worth of long-term financing.The issue will be backed by the property and buildings purchased with the funds. 
D) The corporation will issue $100 million worth of interest free bonds.Financiers will be paid from the revenues created by the individual franchises. 
A) The corporation will borrow $100 million worth of long-term financing.The bond issue will not carry any collateral. 
B) The corporation will issue $100 million worth of equity financing.The bond issue will be backed by the property and buildings purchased with the funds. 
C) The corporation will borrow $100 million worth of long-term financing.The issue will be backed by the property and buildings purchased with the funds. 
D) The corporation will issue $100 million worth of interest free bonds.Financiers will be paid from the revenues created by the individual franchises.

Question 17

Which of the following activities is most likely to be performed by a financial manager?

Accepted Answer

A) design of a marketable product that satisfies an unmet need 
B) identification of specific target markets for a firm's goods 
C) preparation of the balance sheet and income statement for the firm 
D) analysis of the tax implications of various managerial decisions 
A) design of a marketable product that satisfies an unmet need 
B) identification of specific target markets for a firm's goods 
C) preparation of the balance sheet and income statement for the firm 
D) analysis of the tax implications of various managerial decisions

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Long-term financing would normally be used to purchase:

Accepted Answer

A) supplies. 
B) inventory. 
C) buildings. 
D) highly liquid assets. 
A) supplies. 
B) inventory. 
C) buildings. 
D) highly liquid assets.

Question 20

As a financial manager for a very profitable manufacturer of specialty steel,Kurt has been asked to investigate sources of long-term funds to finance the construction of a new facility.Kurt would prefer a funding source that does not require interest payments or involve major underwriting fees.Kurt will consider using retained earnings to fund the construction project.

Accepted Answer

A) True 
 B)False

Exam 18: Financial Management

Investors and entrepreneurs should have an understanding of financial issues.

Which of the following situations represents a successful use of financial leverage?

Lancer Wholesale Company wants to improve cash flow.Which of the following strategies would be most likely to help Lancer achieve this objective?

Accountants truly represent the financial managers of a business.

Through equity financing,stockholders become _________ of the firm.

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

An unsecured corporate bond is known as a debenture bond.

As John considers approaching a venture capital firm to provide funding for his new software firm,he should realize that a venture capital firm will:

An example of a firm using leverage to its advantage is a firm that borrows funds at 9% and invests those funds to earn 14%.

Acquiring funds through borrowing represents:

With plans to build a $50 million theme park,Extreme Entertainment,Inc.intends to finance this project through the sale of additional shares of ownership in their firm.Selling new shares of stock represents ___________ financing.

Jackson Plumbing,a medium-sized company,wants to guarantee that it can obtain short-term funds to meet unexpected future cash needs.Which of the following strategies would best meet the financing needs of Jackson Plumbing? Financial managers at Jackson Plumbing should:

Preferred Pet Care,Inc.plans to purchase a second mobile unit next year that will cost an estimated $55,000.The finance manager will include this projected purchase in the company's capital budget.

There is actually a stronger relationship between finance and marketing than there is between finance and accounting.

The most widely used source of short-term funding is trade credit.

Chunky Chicken,Inc.announced yesterday that it plans to issue $100 million in debenture bonds to fund the expansion of its fast food chain of restaurants.In financial terms,this means:

Which of the following activities is most likely to be performed by a financial manager?

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

Long-term financing would normally be used to purchase:

Taking Risks and Making Profits Within the Dynamic Business Environment

Understanding Economics and How It Affects Business

Doing Business in Global Markets

Demanding Ethical and Socially Responsible Behavior

How to Form a Business

Entrepreneurship and Starting a Small Business

Management and Leadership

Structuring Organizations for Todays Challenges

Production and Operations Management

Motivating Employees

Human Resource Management: Finding and Keeping the Best Employees

Dealing With Union and Employeemanagement Issues

Marketing: Helping Buyers Buy

Developing and Pricing Goods and Services

Distributing Products

Using Effective Promotions

Understanding Accounting and Financial Information

Using Securities Markets for Financing and Investing Opportunities

Money,financial Institutions,and the Federal Reserve

test Planning Table for Bonus Chapter A

Using Technology to Manage Information

Managing Risk

Managing Personal Finances

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