Exam 9: Finance: Acquiring Using Funds to Maximize Value

Angel is working on a project at Megahypertech Inc., a well­known multinational corporation. She is using capital budgeting to estimate the project's future cash flows. She finds that the present value of its estimated future cash flows is greater than the cost of the project. How likely is she to gain approval from the board?

Cash equivalents are long­term, unsecured but highly liquid assets that firms list in the fixed assets section on their balance sheet.

Financial capital refers to the funds a firm uses to acquire its assets and fund its operations.

Which of the following is a long­term financing option for a firm?

George's Car Repair Shop buys parts from a local parts distributor. The distributor delivers the parts promptly under terms stated on the invoice: 3/15 net 30. George has always paid the bill within 30 days and has never really worried about these invoice terms. Which of the following statements is true of this scenario?

The current ratio helps financial managers evaluate the ability of a firm to pay short­term liabilities as they come due.

The present value of a cash flow received in a future time period is the amount of money which, if invested today at an assumed rate of interest, would grow to become that future amount of money.

Define capital budgeting and explain how it is used to evaluate business proposals. What kinds and types of assets is this business process concerned with?

The budgeted income statement uses information from the sales budget and various cost budgets to develop a forecast of net income for the planning period.

Danielle, the regional manager of CDz Music Stores, is trying to determine if the store should invest in a new computerized inventory tracking system. Using financial analysis, she can decide that the investment is desirable if:

Alison has $5,000 to invest and is trying to decide between two investment opportunities. One investment offers her future cash flows of $2,000 for each of the next five years. Another investment offers her future cash flows of $5,000 in the fifth year and $7,500 in the sixth year. Alison will need to calculate the _____ of the future cash flows to compare these two investments.

One drawback of offering liberal credit to customers is that it can:

The _____ measures the extent to which a firm relies on debt to meet its financing needs.

Which of the following questions is excluded when determining whether a company has a sound financial plan?

_____ are very safe and highly liquid assets that firms list with their cash holdings on their balance sheet.

Jason, the regional manager for a large electronics firm, is trying to determine whether a new warehouse is a good investment. After working with his firm's financial managers, he concludes that the project carries a negative NPV (Net Present Value). What should Jason do and why?

_____ is granted by suppliers when they ship materials, parts, or goods to a firm without requiring payment at the time of delivery.

According to the time value of money, an amount of $1,000 received three years from today would have the same present value as a cash flow of $1,000 received two years from today.

The average collection period ratio is computed by dividing accounts payable by the total credit sales for the month.

Capital budgeting is the procedure a firm uses to plan its cash flow strategy for the next year.