Exam 9: Finance: Acquiring Using Funds to Maximize Value

Financial managers determine whether riskier proposals generate high enough expected returns to justify the risk. One way they try to do this is by using a lower discount rate when they compute the present values of cash flows for risky projects than when they compute present values for less risky projects.

The Tuckerverse Corporation just received a shipment of parts from a supplier that contained the terms 2/15 net 30. Under these terms, the firm has no financial incentive to pay this bill earlier than its due date.

A line of credit is a financial arrangement between a firm and a bank in which the bank pre­approves credit up to a specified limit, provided that the firm maintains an acceptable credit rating.

Companies with rapidly growing sales do not experience cash flow problems.

A large, well­established company with an impeccable financial record considers borrowing money to meet its short­term financing needs. The company hopes to borrow money using _____ since this form of financing typically carries a lower interest rate than that charged by commercial banks.

Financial managers use _____ to assess the financial strengths and weaknesses of their firm.

Which of the following is uncharacteristic of a capital budgeting proposal evaluation process?

Which of the following statements is true about cash budgets?

Deleveraging is a strategy that involves replacing much of the debt in a firm's capital structure with more equity.

Money market mutual funds often include large holdings of commercial paper and T­bills.

The net present value of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum.

U.S. Treasury Bills are safe and highly liquid assets issued by the U.S. federal government.

The debt­to­asset ratio is calculated by dividing a firm's total liabilities by its total assets.

When the goals of stakeholders conflict with each other, financial managers usually adopt the view that the preferences of internal stakeholders, such as managers and employees, should be given the most weight.

Earnings per share is a profitability ratio measuring how much a firm earns per share of common stock outstanding.

The _____ measures how effectively a firm uses its assets to generate net income.

_____ represent funds that arise during the natural course of a firm's business operations without the need for special arrangements.

Violet Shades and Raindew are two companies that are identical in every respect, except that Violet Shades uses only equity financing while Raindew relies heavily on debt financing. Over the past year, the firms had identical earnings before interest and taxes. If net income for both firms was high:

What role does a factor play in providing short­term financing to a firm? Why would firms that rely heavily on credit sales find factoring attractive?

Spontaneous financing is granted when a firm places its orders without the need for special arrangements.