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

A corporation can raise additional equity financing by taking out a long-term loan from a bank.

Setting short credit periods increases sales.

Which of the following is most likely to be a main source of funding for a start-up firm?

What does the risk-return tradeoff suggest?

Budgeting is a management tool that explicitly shows how firms will acquire and use the resources needed to achieve its goals over a specific time period.

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?

Lottadoe and Bigbux are two companies that are identical in every respect except that Lottadoe uses only equity financing while Bigbux relies heavily on debt financing. Over the past year, the firms had identical net incomes before interest and taxes were taken into account. If this net income was very high, what would it mean for Bigbux?

Define NPV, and describe how it is used to evaluate capital budgeting proposals.

Which of the following provides a framework for analyzing the impact of the firm's plans on the financing needs of the company?

The time value of money is based on the idea that inflation erodes the purchasing power of the dollar.

When the economy is booming and profits are increase, retained earnings tend to decrease.

Which cash equivalent raises funds by selling shares to large numbers of investors and then pools these funds to purchase short-term, liquid securities?

The Lottadoe Corporation is considering financing some new long-term investments by issuing additional long-term debt. One disadvantage of this approach is that it locks the firm into making fixed payments that could create cash flow problems if the firm's earnings are lower than expected.

The interest payments a firm makes on debt are a tax-deductible expense.

A firm that extends credit for only 30 days is likely to receive its payments faster than a firm that allows customers 60 or 90 days, but such a policy is likely to cause a loss of sales.

What is the primary goal of financial management? Provide two examples of how being socially responsible may benefit a company and meet the primary goal of financial management. Explain your answer.

Which of the following is a disadvantage of debt financing?

Financial managers have a legal and ethical obligation to make decisions consistent with the financial interests of their firm's owners.

Historically, what has been the goal of financial management?

Financial managers have a legal and ethical obligation to make decisions consistent with the financial interests of their firm's owners.