Exam 8: Finance: Acquiring and Using Funds to Maximize Value

Long-term capital budgeting proposals are normally expected to incur negative cash flows in the initial time period,but eventually they should generate positive cash flows.

Flying High Inc.is trying to decide whether to invest in a new robot for its packaging line.The new robot will cost $370 000 and is expected to significantly increase efficiency and thus save the company $67 000 per year for the next eight years.At that time,the robot will be completely depreciated and may not have any salvage value.As part of the financial management team for Flying High,you are assigned to evaluate this proposal.A key part of your analysis will probably consist of a computation.What do you need to compute about the proposal?

Although they may be prepared for a shorter time period,how often are cash budgets usually prepared?

What is a key difference between a line of credit and a revolving credit agreement?

Financial managers must perform a number of functions,including which of the following?

Tucker Enterprises has $100 000 worth of debt financing and $200 000 in equity financing.This year it paid $8000 in interest on its debt and paid $8000 in dividends to shareholders.Its tax rate is 25%.This suggests which of the following?

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

Which ratio measures how effectively a firm uses its assets to generate revenue?

Jane Allgood 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.

One disadvantage of equity financing is that it locks the firm into making fixed payments.

The current ratio is calculated by dividing the firm's current liabilities by its total assets.

Covenants are restrictions placed on firms seeking to obtain debt financing.They are intended to protect the interests of the lenders.

The following questions must be answered when setting credit terms: How long should the firm extend credit? What type of cash discount should the firm offer to encourage early payments?

The burn rate is used to track how quickly a firm is increasing its current asset balances.

Net present value (NPV)is the sum of the present values of expected future cash flows from an investment minus the net cost of that investment.It measures the increase in shareholder value expected to result from an investment.

Financial leverage is the use of debt in a firm's capital structure.

Corporations sell commercial paper at a lower price than the amount the company will pay the holder when the paper comes due.The difference between the initial price and the price paid to the holder when the paper matures represents the interest earned on the note.

Bigbux and Lottadoe are two very similar businesses in all respects except that Bigbux relies mainly on equity financing,while Lottadoe 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 Bigbux than for Lottadoe.

Financial managers face a challenge in accurately forecasting cash flows as they must analyze only relevant cash flows.

Which of the following projects the types and amounts of assets a firm will require to carry out its future plans and forecasts the amount of additional funds that will be needed to acquire those assets?