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

Cash budgets project cash inflows and outflows over a period of several years in order to help financial managers determine the best way to meet long-term financing needs.

What do we call short-term IOUs issued by the government that mature in 4, 13, and 26-week increments?

List and explain the benefits of two forms of short-term financing: trade credit and factoring.

A cash budget identifies short-term fluctuations in cash flows, helping managers identify times when the firm might face cash flow problems-or when it might have extra cash that it could invest.

The net present value of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum.

One disadvantage of equity financing is that it locks the firm into making fixed payments.

Unlike debt, equity financing imposes no required payments.

If an invoice contains the terms 2/10 net 30, the supplier is offering a 10 percent cash discount off the invoice price if the buyer pays quickly (within two days).

A revolving credit agreement is 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. In exchange for the bank's commitment, the firm pays a commitment fee on the unused funds.

Explain how a firm can increase shareholder value by acting in a socially responsible manner.

Commercial paper is a short-term unsecured promissory note issued by large corporations.

As a financial manager, Leonard wants to know when his firm will need to arrange for short-term financing and when the firm is likely to have surplus cash available to pay off loans or to invest in short-term liquid assets. Because of these concerns, which of the following should Leonard want to develop?

Tucker Enterprises has $100000 worth of debt financing and $200000 in equity financing. This year it paid $8000 in interest on its debt and paid $8000 in dividends to shareholders. Its tax rate is 25 percent. What does this suggest?

T-bills are long-term IOUs issued by corporations and regulated by the federal government.