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

A guaranteed line of credit in which a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement. Which of the following describes these arrangements?

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 the firms faced a rough year with very low earnings, what would be the result?

Which approach to budget preparation is being applied when organizations allow middle and supervisory managers to actively participate in the creation of the budget?

Timmy's Timbers has just arranged a $300,000 line of credit with its banker for the next year. What does this mean for Timmy's Timbers?

What type of budgeting is it when top management prepares the budget with little or no input from middle and supervisory managers?

For corporations, equity financing comes from two major sources: bank loans and retained earnings.

Seema Parvani runs a seasonal nursery business in British Columbia. Given the uneven nature of her cash payments and cash receipts, she probably wouldn't receive much benefit from developing a cash budget.

The development of pro forma income statements and balance sheets is an important step in the financial planning function performed by financial managers.

Jason, the regional manager for a large electronics firm, is trying to determine whether a new warehouse is a good investment. After working with his firm's financial managers, he concludes that the project carries a negative net present value. What should Jason do-and why?

When a firm reinvests some of its net income rather than distributing it all to owners, what is the result?

What is net working capital? Describe the key components of net working capital.

Which type of budgeting would investing in fixed assets be classified as?

Which type of budget identifies projected sales and production goals and the various costs the firm will incur in order to meet these goals?

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.

A wealthy relative promises to give you $5000 when you complete all of the college courses needed to earn a degree in business. What must the present value of this future sum be?

Financial capital refers to the funds a firm uses to acquire its assets and finance its operations.

Money market mutual funds are a way for small investors to get into the market for securities that would otherwise be too expensive for them to afford.

Rather than borrowing from banks or other lenders, corporations sometimes issue their own formal IOUs, called corporate bonds.

Companies have a variety of ways to acquire the financial capital they need, which includes direct contributions by owners.

Historically, the most widely accepted goal of financial management has been to acquire new shareholders.