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

As part of the financial planning process planners would create projected financial statements. What is another name for these statements?

What does the firm's master budget do?

Long-term capital budgeting proposals often incur negative cash flows in the initial time period, but eventually they often generate positive cash flows.

How are lines of credit and revolving credit arrangements similar? How are they different?

When an invoice lists the terms as 3/15 net 45, the "net 45" means that the seller requires payment in full within 45 days.

Define capital budgeting, and explain how it is used to evaluate business proposals.

When the goals of stakeholders conflict with each other, financial managers usually adopt the view that the preferences of internal stakeholders, such as managers and employees, should be given the most weight.

Retained earnings are considered a form of equity financing.

Managing current assets involves tradeoffs. Give two examples of current assets, and specify the tradeoffs involved a manager needs to consider when managing those assets.

Which of the following might be a form of collateral that lenders often require the firm to pledge?

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.

One key reason commercial paper is popular with companies is that it typically carries a lower interest rate than banks charge on short-term loans.

Financial capital is used to finance long-term investments and NOT short-term obligations.

A pro forma balance sheet projects the types and amounts of revenues a firm will need to execute future plans and shows the amount of additional financing needed to acquire those assets.

Budgets help managers evaluate progress and performance.

The manager of Timmy's Timbers, the local landscape company, realizes that he runs a seasonal business. For example, although his sales do not start coming in until April and May, he needs to be well-stocked in March in anticipation of the spring sales. What should he create to help plan for when the firm will need to arrange for additional funds in order to avoid a cash crunch?

Define accounts receivable. What are the advantages and disadvantages of having a large accounts receivable? Describe the policy corporations create to manage their accounts receivable accounts.

An advantage of debt financing is that the firm acquires additional shareholders.

Alison has $5000 to invest and is trying to decide between two investment opportunities. One investment offers her future cash flows of $2000 for each of the next five years. Another investment offers her future cash flows of $5000 in year five and $7500 in year six. In order for her to compare the future cash flows of these two investments, what will she need to calculate?

What do we call the conditions lenders place on firms that seek long-term financing?