Question 1

A key difference between a line of credit and a revolving credit agreement is that under a line of credit:

Accepted Answer

A)  the bank agrees to make funds available as long as the borrower's credit rating doesn't deteriorate, while in a revolving credit agreement, the bank guarantees that the funds will be available. 
B)  the funds are available for up to a year, while under a revolving credit agreement the funds are available for no more than 90 days. 
C)  the interest rate on the borrowed funds is stated in advance, while in a revolving credit agreement the interest rate is allowed to "float" based on agreed upon criteria. 
D)  the borrower must secure the funds by pledging collateral, but with a revolving credit agreement, the bank agrees to make additional funds available as long as the principal and interest are paid. 
A)  the bank agrees to make funds available as long as the borrower's credit rating doesn't deteriorate, while in a revolving credit agreement, the bank guarantees that the funds will be available. 
B)  the funds are available for up to a year, while under a revolving credit agreement the funds are available for no more than 90 days. 
C)  the interest rate on the borrowed funds is stated in advance, while in a revolving credit agreement the interest rate is allowed to "float" based on agreed upon criteria. 
D)  the borrower must secure the funds by pledging collateral, but with a revolving credit agreement, the bank agrees to make additional funds available as long as the principal and interest are paid.

Question 2

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as risk­return tradeoff.

Accepted Answer

A) True 
 B)False

Question 3

_____ consists of the stocks of goods, materials, parts, and work­in­process that firms hold as part of doing business.

Accepted Answer

A)  Capital 
B)  Account receivable 
C)  Account payable 
D)  Inventory 
A)  Capital 
B)  Account receivable 
C)  Account payable 
D)  Inventory

Question 4

Firms can acquire the financial capital they need through newly­issued stocks or bonds.

Accepted Answer

A) True 
 B)False

Question 5

A corporation can raise additional equity financing by taking out long­term loans from a bank.

Accepted Answer

A) True 
 B)False

Question 6

Kyle is the credit manager for Timber Trails Inc., a local landscaping company. Just recently, his supplier noted the terms on his invoice: 3/15 net 30. Which of the following statements best reflects the meaning of those terms?

Accepted Answer

A)  Timber Trails will get a 3 percent cash discount if the balance owed to the supplier is paid within 15 days; otherwise the entire balance is due in 30 days. 
B)  The entire amount is due in 30 days, but the 3 percent late penalty will be imposed only if payment is more than 15 days late. 
C)  Timber Trails must pay 15 percent of the amount due in 3 days; the remaining 85 percent is due in 30 days. 
D)  Timber Trails has to pay the invoice within 30 days; late payment penalties are 3 percent if the bill is paid in less than 60 days, but they rise to 15 percent if payment is not made within 60 days. 
A)  Timber Trails will get a 3 percent cash discount if the balance owed to the supplier is paid within 15 days; otherwise the entire balance is due in 30 days. 
B)  The entire amount is due in 30 days, but the 3 percent late penalty will be imposed only if payment is more than 15 days late. 
C)  Timber Trails must pay 15 percent of the amount due in 3 days; the remaining 85 percent is due in 30 days. 
D)  Timber Trails has to pay the invoice within 30 days; late payment penalties are 3 percent if the bill is paid in less than 60 days, but they rise to 15 percent if payment is not made within 60 days.

Question 7

_____ ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.

Accepted Answer

A)  Activity 
B)  Leverage 
C)  Liquidity 
D)  Profitability 
A)  Activity 
B)  Leverage 
C)  Liquidity 
D)  Profitability

Question 8

Return­on­equity is a profitability ratio that is computed by dividing net income by total owner's equity.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is characteristic of a certificate of deposit?

Accepted Answer

A)  It is a flexible investment option, funds can be withdrawn whenever required. 
B)  It results in a financial penalty if the funds are withdrawn before the term expires. 
C)  It is completely opposite to a savings account. 
D)  It does not provide any interest on the invested amount. 
A)  It is a flexible investment option, funds can be withdrawn whenever required. 
B)  It results in a financial penalty if the funds are withdrawn before the term expires. 
C)  It is completely opposite to a savings account. 
D)  It does not provide any interest on the invested amount.

Question 10

mthaant yth fei rfmirsm lso:oked for ways to deleverage. The term deleveraging implies

Accepted Answer

A)  avoided equity financing. 
B)  borrowed money at lower interest rates. 
C)  bought back their own stock to reduce the stock outstanding. 
D)  replaced much of the debt in their capital structure with equity. 
A)  avoided equity financing. 
B)  borrowed money at lower interest rates. 
C)  bought back their own stock to reduce the stock outstanding. 
D)  replaced much of the debt in their capital structure with equity.

Question 11

Covenants are terms included in long­term loan agreements that are intended to protect borrowers from unfair restrictions imposed by lenders.

Accepted Answer

A) True 
 B)False

Question 12

The mix of equity and debt financing a firm uses to meet long­term financing needs is known as the firm's _____.

Accepted Answer

A)  capital ratio 
B)  forecasted spectrum 
C)  forecasted budget 
D)  capital structure 
A)  capital ratio 
B)  forecasted spectrum 
C)  forecasted budget 
D)  capital structure

Question 13

Historically, commercial paper issued by corporations has been unsecured­ meaning it is not backed by a pledge of collateral.

Accepted Answer

A) True 
 B)False

Question 14

Describe the various key ratios managers rely on and briefly explain what each type of ratio tells the financial manager.

Accepted Answer

Financial managers look at four basic ty

Question 15

Define the two primary sources of equity financing.

Accepted Answer

The two primary sources of equity financ

Question 16

At a local convenience store, an increase in the inventory turnover ratio would indicate that it is:

Accepted Answer

A)  at risk of holding too much inventory. 
B)  selling out its merchandise quickly. 
C)  relying heavily on credit sales. 
D)  more likely to face a cash flow problem. 
A)  at risk of holding too much inventory. 
B)  selling out its merchandise quickly. 
C)  relying heavily on credit sales. 
D)  more likely to face a cash flow problem.

Question 17

Treasury bills and commercial paper are both considered to be cash equivalents and are normally included in the cash holdings on a firm's balance sheet.

Accepted Answer

A) True 
 B)False

Question 18

Thomas is ready to launch his catering business, but is in need of start­up financing. The best funding source for Thomas's business would be a bank or other established lenders.

Accepted Answer

A) True 
 B)False

Question 19

Financial ratio analysis involves computing ratios that compare values of key accounts listed on the firm's financial statements, mainly its balance sheet and income statement.

Accepted Answer

A) True 
 B)False

Question 20

Key numbers that financial managers use to calculate ratios usually come from the firm's:

Accepted Answer

A)  prospectus and operating budget. 
B)  statement of cash flows. 
C)  balance sheet and income statement. 
D)  cost budget statements. 
A)  prospectus and operating budget. 
B)  statement of cash flows. 
C)  balance sheet and income statement. 
D)  cost budget statements.

A key difference between a line of credit and a revolving credit agreement is that under a line of credit:

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as riskreturn tradeoff.

_____ consists of the stocks of goods, materials, parts, and workinprocess that firms hold as part of doing business.

Firms can acquire the financial capital they need through newlyissued stocks or bonds.

A corporation can raise additional equity financing by taking out longterm loans from a bank.

Kyle is the credit manager for Timber Trails Inc., a local landscaping company. Just recently, his supplier noted the terms on his invoice: 3/15 net 30. Which of the following statements best reflects the meaning of those terms?

_____ ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.

Returnonequity is a profitability ratio that is computed by dividing net income by total owner's equity.

Which of the following is characteristic of a certificate of deposit?

mthaant yth fei rfmirsm lso:oked for ways to deleverage. The term deleveraging implies

Covenants are terms included in longterm loan agreements that are intended to protect borrowers from unfair restrictions imposed by lenders.

The mix of equity and debt financing a firm uses to meet longterm financing needs is known as the firm's _____.

Historically, commercial paper issued by corporations has been unsecured meaning it is not backed by a pledge of collateral.

Describe the various key ratios managers rely on and briefly explain what each type of ratio tells the financial manager.

Define the two primary sources of equity financing.

At a local convenience store, an increase in the inventory turnover ratio would indicate that it is:

Treasury bills and commercial paper are both considered to be cash equivalents and are normally included in the cash holdings on a firm's balance sheet.

Thomas is ready to launch his catering business, but is in need of startup financing. The best funding source for Thomas's business would be a bank or other established lenders.

Financial ratio analysis involves computing ratios that compare values of key accounts listed on the firm's financial statements, mainly its balance sheet and income statement.

Key numbers that financial managers use to calculate ratios usually come from the firm's:

Business Now: Change Is the Only Constant

Economics: the Framework of Business

The World Marketplace: Business Without Borders

Business Ethics Social Responsibility: Doing Well by Doing Good

Business Communication: Creating Delivering Messages That Matter

Business Formation: Choosing the Form That Fits

Small Business Entrepreneurship: Economic Rocket Fuel

Accounting: Decision Making by the Numbers

Securities Markets: Trading Financial Resources

Marketing: Building Profitable Customer Connections

Product and Promotion: Creating and Communicating Value

Distribution and Pricing: Right Product, Right Person, Right Place, Right Price

Management, Motivation, and Leadership: Bringing Business to Life

HRM: Building a Top Quality Workforce

Managing Information Technology: Finding New Ways to Learn and Link

Om: Putting It All Together Endnotes

Appendix Studentinstructor Review Cards

Online Appendix

Filters

Exam 9: Finance: Acquiring Using Funds to Maximize Value

A key difference between a line of credit and a revolving credit agreement is that under a line of credit:

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as risk­return tradeoff.

_____ consists of the stocks of goods, materials, parts, and work­in­process that firms hold as part of doing business.

Firms can acquire the financial capital they need through newly­issued stocks or bonds.

A corporation can raise additional equity financing by taking out long­term loans from a bank.

Kyle is the credit manager for Timber Trails Inc., a local landscaping company. Just recently, his supplier noted the terms on his invoice: 3/15 net 30. Which of the following statements best reflects the meaning of those terms?

_____ ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.

Return­on­equity is a profitability ratio that is computed by dividing net income by total owner's equity.

Which of the following is characteristic of a certificate of deposit?

mthaant yth fei rfmirsm lso:oked for ways to deleverage. The term deleveraging implies

Covenants are terms included in long­term loan agreements that are intended to protect borrowers from unfair restrictions imposed by lenders.

The mix of equity and debt financing a firm uses to meet long­term financing needs is known as the firm's _____.

Historically, commercial paper issued by corporations has been unsecured­ meaning it is not backed by a pledge of collateral.

Describe the various key ratios managers rely on and briefly explain what each type of ratio tells the financial manager.

Define the two primary sources of equity financing.

At a local convenience store, an increase in the inventory turnover ratio would indicate that it is:

Treasury bills and commercial paper are both considered to be cash equivalents and are normally included in the cash holdings on a firm's balance sheet.

Thomas is ready to launch his catering business, but is in need of start­up financing. The best funding source for Thomas's business would be a bank or other established lenders.

Financial ratio analysis involves computing ratios that compare values of key accounts listed on the firm's financial statements, mainly its balance sheet and income statement.

Key numbers that financial managers use to calculate ratios usually come from the firm's:

Business Now: Change Is the Only Constant

Economics: the Framework of Business

The World Marketplace: Business Without Borders

Business Ethics Social Responsibility: Doing Well by Doing Good

Business Communication: Creating Delivering Messages That Matter

Business Formation: Choosing the Form That Fits

Small Business Entrepreneurship: Economic Rocket Fuel

Accounting: Decision Making by the Numbers

Securities Markets: Trading Financial Resources

Marketing: Building Profitable Customer Connections

Product and Promotion: Creating and Communicating Value

Distribution and Pricing: Right Product, Right Person, Right Place, Right Price

Management, Motivation, and Leadership: Bringing Business to Life

HRM: Building a Top Quality Workforce

Managing Information Technology: Finding New Ways to Learn and Link

Om: Putting It All Together Endnotes

Appendix Studentinstructor Review Cards

Online Appendix

Filters

Financial managers strategically plan the amount of risk they are willing to take with shareholders' investments to ensure an attractive rate of return. Financial managers refer to this decision as riskreturn tradeoff.

_____ consists of the stocks of goods, materials, parts, and workinprocess that firms hold as part of doing business.

Firms can acquire the financial capital they need through newlyissued stocks or bonds.

A corporation can raise additional equity financing by taking out longterm loans from a bank.

Returnonequity is a profitability ratio that is computed by dividing net income by total owner's equity.

Covenants are terms included in longterm loan agreements that are intended to protect borrowers from unfair restrictions imposed by lenders.

The mix of equity and debt financing a firm uses to meet longterm financing needs is known as the firm's _____.

Historically, commercial paper issued by corporations has been unsecured meaning it is not backed by a pledge of collateral.

Thomas is ready to launch his catering business, but is in need of startup financing. The best funding source for Thomas's business would be a bank or other established lenders.