Question 1

Melissa feels confident about obtaining short-term financing for her art gallery because, like many companies, she has a(n)

Accepted Answer

A)  unlimited source of financing available to her. 
B)  relatively large amount of money she can borrow. 
C)  stockpile of cash to use in place of short-term financing. 
D)  relationship with the friend of her banker. 
E)  close working relationship with a lender. 
A)  unlimited source of financing available to her. 
B)  relatively large amount of money she can borrow. 
C)  stockpile of cash to use in place of short-term financing. 
D)  relationship with the friend of her banker. 
E)  close working relationship with a lender. E

Question 2

Downing, Inc., issues bonds to purchase new machinery for its factories. These bonds are secured by the machinery purchased with the proceeds of the bond issue. These are ____ bonds.

Accepted Answer

A)  debenture 
B)  mortgage 
C)  convertible 
D)  indenture 
E)  sinking fund 
A)  debenture 
B)  mortgage 
C)  convertible 
D)  indenture 
E)  sinking fund B

Question 3

Which of the following statements is true?

Accepted Answer

A)  Financial leverage should not be considered when a firm borrows money. 
B)  Under the right circumstances, the use of borrowed money can improve a firm's return on owners' equity. 
C)  There is no good reason for a firm to borrow money when it has cash to finance expansion. 
D)  The use of borrowed money always reduces a firm's return on owners' equity. 
E)  Return on owners' equity is not an important financial calculation. 
A)  Financial leverage should not be considered when a firm borrows money. 
B)  Under the right circumstances, the use of borrowed money can improve a firm's return on owners' equity. 
C)  There is no good reason for a firm to borrow money when it has cash to finance expansion. 
D)  The use of borrowed money always reduces a firm's return on owners' equity. 
E)  Return on owners' equity is not an important financial calculation. B

Question 4

Debbie purchases a corporate bond from Safeway. She has the option of redeeming her bond for 55 shares of Safeway common stock at any time. This is a ____ bond.

Accepted Answer

A)  callable 
B)  subordinated 
C)  debenture 
D)  mortgage 
E)  convertible 
A)  callable 
B)  subordinated 
C)  debenture 
D)  mortgage 
E)  convertible

Question 5

A term-loan agreement requires a borrower to repay the loan

Accepted Answer

A)  in monthly, quarterly, semiannual, or annual installments. 
B)  at the end of the second year. 
C)  at the end of the third year. 
D)  at the end of the fourth year. 
E)  at the end of the fifth to seventh year. 
A)  in monthly, quarterly, semiannual, or annual installments. 
B)  at the end of the second year. 
C)  at the end of the third year. 
D)  at the end of the fourth year. 
E)  at the end of the fifth to seventh year.

Question 6

Ms. Thomas has received an invoice from the manufacturer for which she distributes products. The invoice states credit terms of 3/10, net/30. Puzzled by this, she calls on you to explain. You indicate that the notation 3/10 means that

Accepted Answer

A)  she may take a 30 percent discount if she pays the invoice within three days. 
B)  she must pay the entire amount in three days. 
C)  after three days, she must pay the new amount in ten days. 
D)  her line of credit is equivalent to three-tenths of the dollar value of her business. 
E)  she may take a 3 percent discount if she pays the invoice within ten days. 
A)  she may take a 30 percent discount if she pays the invoice within three days. 
B)  she must pay the entire amount in three days. 
C)  after three days, she must pay the new amount in ten days. 
D)  her line of credit is equivalent to three-tenths of the dollar value of her business. 
E)  she may take a 3 percent discount if she pays the invoice within ten days.

Question 7

Describe the characteristics and traits required for a successful career in financial management.

Accepted Answer

Successful financial management requires

Question 8

What is a budget? How is it used by a business firm?

Accepted Answer

A budget is a financial plan that outlin

Question 9

The lowest rate of interest charged by a bank for a short-term loan is known as

Accepted Answer

A)  the discount rate. 
B)  dividends. 
C)  add-on interest. 
D)  the compound interest rate. 
E)  the prime interest rate. 
A)  the discount rate. 
B)  dividends. 
C)  add-on interest. 
D)  the compound interest rate. 
E)  the prime interest rate.

Question 10

The lowest interest rate charged by a bank for a short-term loan is called the discount rate.

Accepted Answer

A) True 
 B)False

Question 11

Harlen Manufacturing is hesitant to extend trade credit to Brendan Drake. Instead, Brendan agrees to sign a promissory note. Harlen prefers this note because

Accepted Answer

A)  it specifies when the goods will be delivered. 
B)  the money will still be paid if Brendan declares bankruptcy. 
C)  it is a legally binding and enforceable agreement. 
D)  it is a form of commercial paper. 
E)  it will receive the money from Brendan much sooner. 
A)  it specifies when the goods will be delivered. 
B)  the money will still be paid if Brendan declares bankruptcy. 
C)  it is a legally binding and enforceable agreement. 
D)  it is a form of commercial paper. 
E)  it will receive the money from Brendan much sooner.

Question 12

During 2011, Bedford Technology sold common stock for the first time to whoever wanted to buy it. This was the ____ for Bedford.

Accepted Answer

A)  public stock sale 
B)  preferred stock offering 
C)  initial public offering 
D)  stock dividend 
E)  par value 
A)  public stock sale 
B)  preferred stock offering 
C)  initial public offering 
D)  stock dividend 
E)  par value

Question 13

Financial leverage is the use of borrowed funds to increase the return on owners' equity.

Accepted Answer

A) True 
 B)False

Question 14

The costs of selling stock to the general public are referred to as flotation costs.

Accepted Answer

A) True 
 B)False

Question 15

What right do most common stockholders have that most preferred stockholders do not have?

Accepted Answer

A)  First claim to company distributions 
B)  Voting rights 
C)  Ability to sell stock in the open market 
D)  Dividend guarantees 
E)  Authority over daily business decisions 
A)  First claim to company distributions 
B)  Voting rights 
C)  Ability to sell stock in the open market 
D)  Dividend guarantees 
E)  Authority over daily business decisions

Question 16

Bonds that can be exchanged for a specified number of shares of common stock are called convertible bonds.

Accepted Answer

A) True 
 B)False

Question 17

Assume that the First State Bank of Chicago requires a 20 percent compensating balance on short-term loans. If you borrow $50,000, at least ____ of the loan amount must be kept on deposit at the bank.

Accepted Answer

A)  $4,000 
B)  $10,000 
C)  $1,000 
D)  $20,000 
E)  $50,000 
A)  $4,000 
B)  $10,000 
C)  $1,000 
D)  $20,000 
E)  $50,000

Question 18

Morgan's Transition
Morgan is currently a manager of a small financial planning firm. He is seeking a new career with a large corporation in the banking industry. He recently applied for the financial manager opening at G & T Bank. He is concerned that the transition from his small firm to a large corporation will be difficult. To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance. The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing. Morgan now believes he has strengthened his competitive advantage in his quest for the job.
-Refer to Morgan's Transition. Morgan's business classes taught him that the financial manager should do which of the following?

Accepted Answer

A)  Ensure that funds are available when needed 
B)  Ensure the business success of the company 
C)  Ensure that obtained funds are used efficiently 
D)  Both A and B 
E)  Both A and C 
A)  Ensure that funds are available when needed 
B)  Ensure the business success of the company 
C)  Ensure that obtained funds are used efficiently 
D)  Both A and B 
E)  Both A and C

Question 19

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO. Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO. Derrick shadowed his father for months in order to learn every aspect of the business. Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them. The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing. Derrick learned about the type of bonds that the company usually offered to raise capital. These bonds allow the purchasers of the bond to keep them until maturity. Derrick also learned the process of obtaining bonds and the various types of long-term financing methods. Job shadowing was indeed a worthwhile experience for Derrick.
-Refer to McGines, Inc. At one point, Derrick was not sure about which type of bond was backed only by the reputation of the issuing corporation. Which of the following would you suggest?

Accepted Answer

A)  Mortgage bond 
B)  Convertible bond 
C)  Debenture bond 
D)  Registered bond 
E)  Corporate bond 
A)  Mortgage bond 
B)  Convertible bond 
C)  Debenture bond 
D)  Registered bond 
E)  Corporate bond

Question 20

The least expensive form of short-term financing is

Accepted Answer

A)  trade credit. 
B)  promissory notes. 
C)  unsecured bank loans. 
D)  secured bank loans. 
E)  factoring. 
A)  trade credit. 
B)  promissory notes. 
C)  unsecured bank loans. 
D)  secured bank loans. 
E)  factoring.

Exam 19: Mastering Financial Management

Melissa feels confident about obtaining short-term financing for her art gallery because, like many companies, she has a(n)

Downing, Inc., issues bonds to purchase new machinery for its factories. These bonds are secured by the machinery purchased with the proceeds of the bond issue. These are ____ bonds.

Which of the following statements is true?

Debbie purchases a corporate bond from Safeway. She has the option of redeeming her bond for 55 shares of Safeway common stock at any time. This is a ____ bond.

A term-loan agreement requires a borrower to repay the loan

Ms. Thomas has received an invoice from the manufacturer for which she distributes products. The invoice states credit terms of 3/10, net/30. Puzzled by this, she calls on you to explain. You indicate that the notation 3/10 means that

Describe the characteristics and traits required for a successful career in financial management.

What is a budget? How is it used by a business firm?

The lowest rate of interest charged by a bank for a short-term loan is known as

The lowest interest rate charged by a bank for a short-term loan is called the discount rate.

Harlen Manufacturing is hesitant to extend trade credit to Brendan Drake. Instead, Brendan agrees to sign a promissory note. Harlen prefers this note because

During 2011, Bedford Technology sold common stock for the first time to whoever wanted to buy it. This was the ____ for Bedford.

Financial leverage is the use of borrowed funds to increase the return on owners' equity.

The costs of selling stock to the general public are referred to as flotation costs.

What right do most common stockholders have that most preferred stockholders do not have?

Bonds that can be exchanged for a specified number of shares of common stock are called convertible bonds.

Assume that the First State Bank of Chicago requires a 20 percent compensating balance on short-term loans. If you borrow $50,000, at least ____ of the loan amount must be kept on deposit at the bank.

The least expensive form of short-term financing is

Exploring the World of Business and Economics

A: Being Ethical and Socially Responsible

B: Being Ethical and Socially Responsible

A: Exploring Global Business

B: Exploring Global Business

Choosing a Form of Business Ownership

Small Business, Entrepreneurship, and Franchises

Understanding the Management Process

Creating a Flexible Organization

Producing Quality Goods and Services

Attracting and Retaining the Best Employees

Motivating and Satisfying Employees and Teams

Enhancing Union-Management Relations

Building Customer Relationships Through Effective Marketing

A: Creating and Pricing Products That Satisfy Customers

B: Creating and Pricing Products That Satisfy Customers

Wholesaling, Retailing, and Physical Distribution

Developing Integrated Marketing Communications

Social Media, E-Business, and Accounting

Using Management and Accounting Information

Understanding Money, Banking, and Credit

A: Understanding Personal Finances and Investments

B: Understanding Personal Finances and Investments

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