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

Which of the following is one drawback of offering credit customers more time to pay?

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

The sooner you receive a sum of money, the sooner you can put that money to work to earn even more money.

What do we call companies that provide short-term financing to firms by purchasing accounts receivable at a discount?

The risk-return trade-off suggests that the greater the risk, the lower the return.

What is a pro forma statement? Describe the two major types of pro forma statements, and explain the role they play in financial planning.

Which of the following represents an advantage of offering more lenient credit terms to a firm?

Anita Khan sells lawn and garden products in bulk to companies that do lawn and garden work. She extends credit to her customers for 60 days, but she is worried about cash flow problems. But this is a highly competitive business and most of her competitors also offer credit-some of them for up to 90 days. Anita is also concerned with the cost of billing and collecting money from her customers, some of whom make it a habit of paying late. Which of the following is the most useful advice to Anita?

Irene Panagiotou has recently completed this class. While attending her company's holiday party, she hears one of the executives mention that the company is heavily leveraged. Irene, who recently bought 300 shares in the company's stock, is very interested in this bit of information. What does Irene understand such leverage will do for her?

Which of the following consists of the stocks of goods, materials, parts, and work-in-process that firms hold as part of doing business?

Which of the following is granted by suppliers when they ship materials, parts, or goods to a firm without requiring immediate payment?

How does equity financing compare to debt financing?

One advantage of using factors as a source of short-term financing is that it allows the firm to outsource its collection efforts, thus avoiding the hassle of collecting accounts receivables from customers who pay late.

A factor is a company that provides long-term financing to firms by purchasing the firm's bonds and other long-term securities at a discount.

Financial managers typically seek more permanent funding to finance major investments and provide a secure financial base for their company. Discuss two forms of long-term financing available to firms.

Lentz-Tucker Incorporated reported net income of $3 million and paid no dividends to its shareholders. The shareholders have the legal right to sue the company for failure to provide a return on their investment.

Which of the following functions must financial managers perform?

A covenant is a restriction lenders impose on borrowers as a condition of providing long-term debt financing.

Which of the following are short-term, very safe, and highly liquid assets firms include in the cash holdings they report on their balance sheet?

What is the main goal of financial management? What considerations regarding diverse stakeholders do financial managers need to make when taking actions toward this goal? Provide an example. Explain your answer.