Exam 9: Finance: Acquiring Using Funds to Maximize Value

The risk­return tradeoff suggests that sources and uses of funds that offer the potential for high rates of return tend to be less risky than sources and uses of funds that offer lower returns.

Jasmine started a small business two years ago. Her business has now made some profit, and Jasmine notes that she has savings of a few thousand dollars in her bank account. She wants to invest this amount, but is doubtful because of the uncertainty of cash flows in her new business. Jasmine is concerned that she may need access to these funds on fairly short notice in the future. If she wants to get into the market for highly liquid securities, she should:

The main disadvantage of financial leverage is that it:

Historically, the most widely accepted goal of financial management is to:

Omni Shades and Raindew are two very similar businesses in all aspects except that Omni Shades relies mainly on equity financing, while Raindew relies heavily on debt financing. This year both firms have enjoyed strong growth in net income. This is likely to result in a higher return on equity for Omni Shades than for Raindew.

When a firm reinvests some of its net income rather than distributing it to owners, the result is an increase in the firm's _____.

Financial managers at O'Hally Corporation have computed the net present value for a capital budgeting proposal and found the value to be $1,500. Based on this value,the financial managers are likely to approve this proposal.

When financial managers compare different investments with cash flows over a period of time, they take the time value of these cash flows into account by converting them into their present values.

The Chief Financial Officer of Violet Motors Inc. recently mentioned in an interview that a dollar received today is worth more than a dollar received in the future because the sooner you receive a sum of money, the quicker you can put that money to work. The Chief Financial Officer was speaking about the _____.

Customers of Jerry's Equipment Manufacturing Unit who buy equipment on credit and then delay making payments will receive a bill from Bonneville, a collection agency. What relationship does Bonneville have with Jerry's?

Identify the key issues managers consider when determining a firm's capital structure.

In which scenario can being socially responsible be a good strategy to achieve the goal of wealth maximization?

Jane Ally runs a seasonal nursery business in the Midwest. Given the uneven nature of her cash payments and cash receipts, she probably wouldn't receive much benefit from developing a cash budget.

Financing provided by a firm's owners is classified as _____ financing.

Timber Woods Inc. has just arranged a $300,000 line of credit with its banker for the next year. Which of the following statements is true of this scenario?

In a revolving credit agreement, the commitment fee on funds not borrowed is lower than the interest on the borrowed funds.

A wealthy relative offers to give you $1,000 today, but doesn't actually give you the money until a year later. The delay in receiving the money causes you to lose the opportunity to earn a year's worth of interest. This example illustrates the rationale for the time value of money.

The debt­to­asset ratio is classified under _____ ratios.

Since the use of leverage can benefit a firm when times are good, a high degree of leverage is typically considered optimal by firms.

When a firm provides its employees with a good work environment, those employees are likely to have better morale and greater loyalty, resulting in higher productivity and lower employee turnover.