Deck 18: Financial Management

Question 1

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.When Morgan creates a financial plan, his first step should be which of the following?

A) Identify available sources of financing.
B) Decide which goals to finance.
C) Describe which type of financing to use.
D) Establish a set of valid goals.
E) Determine how much money is needed to accomplish each goal.

Answer 1

D

Question 2

During the recent economic crisis, many companies found that it was

A) accessible and easy to acquire and use many of the traditional sources of short- and long-term financing that they were accustomed to.
B) easy to shift their methods of financing from one traditional method to another.
C) an opportune time to acquire long-term loans and build their current inventory.
D) increasingly difficult to acquire and use many of the traditional sources of financing that they were accustomed to.
E) increasingly easy to sell stock for the first time to the general public.

Answer 2

D

Question 3

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.From his work experience, Derrick should have learned that ____ has a repayment period of thirty to sixty days.

A) factoring
B) a promissory note
C) commercial paper
D) trade credit
E) a secured loan

Answer 3

D

Question 4

Money that will be used for one year or less is called

A) open credit.
B) equity capital.
C) short-term financing.
D) nonsecured financing.
E) long-term financing.

Question 5

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.If Derrick has learned and understood the business, he should know that today most corporate bonds are

A) convertible bonds.
B) mortgage bonds.
C) sinking fund bonds.
D) nonconvertible bonds.
E) registered bonds.

Question 6

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.At one point, Derrick was not sure about which type of bond was backed only by the reputation of the issuing corporation.Which of the following would you suggest?

A) Mortgage bond
B) Convertible bond
C) Debenture bond
D) Registered bond
E) Corporate bond

Question 7

Of the following, only ___ would not be considered proper financial management during both good and bad times.

A) investing excess cash in CDs, government securities, or conservative securities
B) making sure that funds are available to meet tax deadlines
C) paying bills promptly
D) investing all excess cash in long-term securities
E) planning for sufficient financing when needed

Question 8

All of the activities concerned with obtaining money and using it effectively are called

A) financial management.
B) long-term financing.
C) budgeting.
D) financial planning.
E) unsecured financing.

Question 9

Casey Broadway's responsibility at his company is overseeing all the activities concerned with obtaining money and using it effectively.Casey is a(n)

A) accountant.
B) financial manager.
C) financial planner.
D) investment advisor.
E) loan officer.

Question 10

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.If a client asks, Derrick should be able to identify that ____ is the type of stock the owner may exchange for a specified number of shares of ordinary share.

A) convertible ordinary share
B) convertible preferred stock
C) preferred stock
D) ordinary share
E) IPO

Question 11

MCB Company experienced a significant increase in sales as a result of its new promotional campaign.Yesterday, however, it realised that because most of those sales were on credit, it did not have enough money in the bank to pay this month's bills.MCB can take care of this situation temporarily by

A) obtaining long-term financing.
B) disallowing credit sales.
C) selling commercial drafts.
D) obtaining short-term financing.
E) issuing stock.

Question 12

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.When Morgan has to counsel clients on short-term versus long-term financing needs, which of the following should he identify as a short-term financing need?

A) Speculative production
B) Business start-up costs
C) Acquisitions and mergers
D) Replacement of equipment
E) Expansion of facilities

Question 13

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.Morgan's business classes taught him that the financial manager should do which of the following?

A) Ensure that funds are available when needed
B) Ensure the business success of the company
C) Ensure that obtained funds are used efficiently
D) Both A and B
E) Both A and C

Question 14

In regards to cash flow, a firm should ideally have

A) enough money coming into the firm to cover the expenses in that period.
B) more cash flowing out than in since this represents growth.
C) to use short-term financing only two to three times a year.
D) a constant need for short-term financing.
E) most of its cash going to its customers.

Question 15

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.Having taken the classes, Morgan should describe cash flow as which of the following?

A) The movement of money from one account to another
B) Money that will be used for one year or less
C) The movement of money into and out of an organisation
D) Money that will be used for longer than one year
E) Proceeds from any sales transactions only

Question 16

To be successful while pursuing a career in finance, an employee must

A) graduate from a four-year university.
B) have a strong background in accounting or mathematics.
C) have fifteen years of experience.
D) be driven by a motive to become very rich.
E) start a career as a bank officer.

Question 17

McGines, Inc.
Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick.
Refer to McGines, Inc.If Derrick were to offer advice to a client about obtaining a loan, which of the following would be the first step?

A) Get to know potential lenders before requesting debt financing.
B) Have the financial manager meet with the loan officer.
C) Fill out a loan application.
D) Show current business plan.
E) Have your CPA prepare financial statements.

Question 18

Morgan's Transition
Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job.
Refer to Morgan's Transition.During his job interview, Morgan was asked to talk about money received from the owners or from the sale of shares of ownership in a business.Which of the following would best describe these funds?

A) Debt capital
B) Equity capital
C) Proceeds from a merger or acquisition
D) Proceeds from the sale of assets
E) Sales revenue

Question 19

The movement of money into and out of an organisation is called

A) equity financing.
B) a revolving credit agreement.
C) factoring.
D) cash flow.
E) budgeting.

Question 20

Which of the following is not a financial reform regulation proposed by the U.S.House of Representatives and Senate as a reaction to the economic crisis?

A) End taxpayer bailouts.
B) Tighten access to long-term financing by large corporations.
C) Tighten regulations for major financial firms.
D) Increase government oversight.
E) Make Wall Street firms accountable for their actions.

Question 21

Todd develops a plan for obtaining and using the money necessary for his company to implement its goals.This is called a(n)

A) credit policy.
B) capital budget.
C) operational plan.
D) financing agreement.
E) financial plan.

Question 22

Tidewater Distributors is successfully using short-term financing to buy inventory for resale.As sales climb, the managers realise that they must decide what to do with the money.Since you are the financial manager, they ask for your advice.You advise them to first

A) repay the short-term obligations out of the sales revenue.
B) use the money to buy a yacht for the managers.
C) increase all employees' wages.
D) enroll all the salespeople in a sales training course.
E) borrow more money.

Question 23

Each year Caliente, Inc., follows a budgeting process.The first step is always to look at the previous year's budget and see if anything needs to be updated.Caliente uses ____ budgeting.

A) Cash
B) traditional
C) capital
D) zero-base
E) historical

Question 24

The ____ ratio is based on the principle that a high-risk investment should generate higher financial returns for a business and more conservative decisions often generate lesser returns.

A) return on owners' equity
B) risk-return
C) Earnings
D) investment-to-equity
E) quick return

Question 25

When each new budget is based on the amounts contained in the budget from the preceding year, a company is using ____ budgeting.

A) zero-base
B) traditional
C) Cash
D) capital
E) production

Question 26

All of the following are uses of long-term financing except

A) beginning a new business.
B) eliminating immediate cash-flow problems.
C) executing mergers and expansions.
D) developing and marketing new products.
E) replacing obsolete equipment.

Question 27

Slater Co.has very old computers and manufacturing equipment and knows it needs to upgrade them or risk losing much of its business.Slater does not have the money to purchase the computers, so it will most likely need

A) a short-term loan.
B) to keep using the old computers.
C) to deduct the cost from employees' salaries.
D) long-term financing.
E) to use increased cash flow from sales.

Question 28

Tom Jackson, president of Jackson Manufacturing, suspects that the managers of two departments have been padding their budgets for the last three years.To eliminate this problem, Tom would

A) fire the managers.
B) hire an efficiency expert.
C) hire a new accountant.
D) use zero-base budgeting.
E) use traditional budgeting.

Question 29

For a department store such as Macy's, the most likely need for short-term financing will be for

A) inventory.
B) employee wages.
C) extending credit policies.
D) new locations.
E) additional cash registers.

Question 30

Sally Overall is thinking about two different decisions.One decision is quite risky, while the other decision is more conservative.To help her make the right decision, she decides to calculate the

A) quick ratio.
B) management analysis.
C) money factor.
D) risk-return ratio.
E) entrepreneurial ratio.

Question 31

At Furman Company, managers go through a lengthy budgeting process wherein each department manager is required to provide documentation justifying every expected expense.Furman uses ____ budgeting.

A) zero-base
B) cash
C) recurring
D) traditional
E) response

Question 32

Jones Manufacturing needs €450,000 to build a new plant.It must also spend €200,000 on new equipment for the plant.Both of these needs are examples of

A) equity-capital needs.
B) debt-capital needs.
C) short-term financing needs.
D) long-term financing needs.
E) cash-flow problems.

Question 33

The steps in effective financial planning are

A) establishing organisational goals, identifying expenses, and budgeting.
B) establishing organisational goals, budgeting for financial needs, and identifying sources of financing.
C) developing a plan of action, monitoring the plan, and evaluating.
D) identifying sources of financing, budgeting, and evaluating.
E) None of these answers are correct.

Question 34

A statement that projects income and/or expenditures over a specified future period is called a

A) financial plan.
B) cash flow plan.
C) resources plan.
D) resource allocation statement.
E) budget.

Question 35

Maria has been asked by top management to develop financial ____ that the company will achieve over the next one- to ten-year period.

A) strategies
B) directives
C) Plans
D) objectives
E) Goals

Question 36

Borrowed money that will be used for more than one year is called

A) trade credit.
B) long-term financing.
C) equity capital.
D) secured financing.
E) short-term financing.

Question 37

Kliting Co.is concerned with whether or not it will be able to pay its bills with money coming in from sales.It would be helpful for Kliting to prepare a ____ to better understand its needs.

A) capital budget
B) zero-based budget
C) cash budget
D) loan application
E) revolving credit agreement

Question 38

Each of the following causes a cash flow problem except

A) a large proportion of credit sales.
B) embezzlement of company funds.
C) unexpected slow selling seasons.
D) slow-paying customers.
E) customers who pay early.

Question 39

Long-term financing should be used to do which of the following?

A) Pay for speculative production
B) Purchase inventory for resale
C) Pay salaries
D) Pay utilities
E) Develop new products

Question 40

Inventory requires considerable investment for most manufacturers, wholesalers, and retailers.This problem is complicated by the fact that most goods are manufactured four to nine months before they are actually sold to consumers.Manufacturers that engage in this type of speculative production often need short-term financing to do all of the following except

A) buy materials.
B) pay wages.
C) pay rent.
D) buy equipment.
E) buy supplies.

Question 41

The greatest part of a firm's financing is provided by

A) debt equity.
B) sale of assets.
C) government grants.
D) sales revenue.
E) equity capital.

Question 42

Melissa feels confident about obtaining short-term financing for her art gallery because, like many companies, she has a(n)

A) unlimited source of financing available to her.
B) relatively large amount of money she can borrow.
C) stockpile of cash to use in place of short-term financing.
D) relationship with the friend of her banker.
E) close working relationship with a lender.

Question 43

Which of the following is not a characteristic of short-term financing?

A) It must be repaid within three years.
B) It is easier to obtain than long-term financing.
C) There is less risk of nonpayment to the lender.
D) The amounts are usually smaller than amounts obtained through long-term sources.
E) There is a close working relationship between borrower and lender.

Question 44

Sanchez Company sells its garden hoses to Gary's Lawn and Garden Centre but does not require Gary's to pay for them right away.If this is a standard trade-credit agreement, Gary's will have to pay for the garden hoses in

A) 30 to 60 days.
B) 1 to 20 days.
C) 45 to 90 days.
D) 60 to 180 days.
E) as many days as it takes to sell the merchandise.

Question 45

Money obtained through various types of loans is called

A) cash flow.
B) factor proceeds.
C) dividends.
D) equity capital.
E) debt capital.

Question 46

Jackson Ski Equipment receives an invoice for €10,000 worth of merchandise from one of its suppliers.The invoice has discount terms of 2/10, net/60.Twenty days later, Jackson Ski Equipment writes a check for ____ to pay the invoice.

A) €10,200
B) €10,000
C) €9,800
D) €9,000
E) €200

Question 47

Max Beauty Supply has ordered €5,000 worth of merchandise from Kelly's Beauty Supply, Inc.The invoice to Max has discount terms of 2/10, net/30.Max writes a check within ten days for

A) €100.
B) €1,000.
C) €4,000.
D) €4,900.
E) €5,000.

Question 48

Beard Auction receives an invoice from one of its European suppliers for antiques.The amount of the invoice is €40,000 with terms of 3/10, net/60.If the invoice is paid on day 20, Beard is entitled to a ____ cash discount and will write the check for ____.

A) €1,200; €1,200
B) €1,200; €38,800
C) €0; €40,000
D) €0; €41,200
E) €0; €1,200

Question 49

Financial managers should

A) ignore minor budgeting problems and concentrate on major problems when budgeting.
B) establish a means of monitoring financial performance on an interim basis.
C) prepare budgets and hope for the best.
D) hire a person to go over interim budgets.
E) fire or demote individual managers when budgeting goals are not achieved.

Question 50

When a seller allows a buyer thirty to sixty days to pay for a purchase, the sales arrangement is called

A) a bank loan.
B) trade credit.
C) a promissory note.
D) equity financing.
E) None of these answers is correct.

Question 51

Ms.Thomas has received an invoice from the manufacturer for which she distributes products.The invoice states credit terms of 3/10, net/30.Puzzled by this, she calls on you to explain.You indicate that the notation 3/10 means that

A) she may take a 30 percent discount if she pays the invoice within three days.
B) she must pay the entire amount in three days.
C) after three days, she must pay the new amount in ten days.
D) her line of credit is equivalent to three-tenths of the value of her business.
E) she may take a 3 percent discount if she pays the invoice within ten days.

Question 52

Sara Lee Corporation is a large conglomerate of businesses participating in a variety of industries.A few years ago, Sara Lee was considering the purchase of Bryan Foods.If Bryan Foods represented a tremendous opportunity to make the company more successful, Sara Lee may, as a last resort, have considered

A) seeking short-term financing.
B) using trade credit to pay for Bryan Foods.
C) using future sales revenues for the purchase of Bryan Foods..
D) sharing the idea with competitors as a possible joint venture..
E) selling assets from another division to pay for Bryan Foods.

Question 53

Short-term financing not backed by collateral is called

A) debt capital.
B) unsecured financing.
C) mortgage bonds.
D) trade credit.
E) unprotected financing.

Question 54

Dillon Wholesale Foods allows retailers to purchase merchandise using trade credit.For Dillon, this type of transaction

A) is written off as a bad-debt expense.
B) is an unusual type of transaction between a wholesaler and retailers.
C) should be paid within thirty to sixty days.
D) is referred to as a notes payable account by Dillon's accountants.
E) creates a liability for Dillon Wholesale.

Question 55

The primary sources of funds available to a business include all of the following except

A) debt capital.
B) sales of assets.
C) government grants.
D) sales revenue.
E) equity capital.

Question 56

Which of the following might be considered the most drastic step in securing funding, often a last resort for a corporation?

A) Using sales revenue
B) Equity capital funding
C) Short-term borrowing from a bank
D) Debt capital funding
E) Sale of assets

Question 57

Money received from the sale of shares of ownership in a business is called

A) sales revenue.
B) debt capital.
C) equity capital.
D) factor proceeds.
E) cash flow.

Question 58

Jacob and Molly decide to start a new cake-decorating business.They each contribute €10,000 to get the business off the ground.This money is considered

A) sales revenue.
B) long-term debt.
C) equity capital.
D) short-term financing.
E) cash flow.

Question 59

The most popular form of short-term financing is

A) bank loans.
B) trade credit.
C) sale of bonds.
D) sale of stock.
E) loans from insurance companies.

Question 60

A tool that managers use to estimate major expenditures for assets, expansion of facilities, and mergers and acquisitions is called a(n)

A) capital budget.
B) cash budget.
C) revenue forecast.
D) zero budget.
E) equity budget.

Question 61

Rick's Wholesale Office Supplies prefers to handle its accounts receivable itself, but it also needs to use them to facilitate short-term borrowing.What can Rick's do?

A) Use floor planning.
B) Purge its accounts receivable.
C) Pledge them as collateral.
D) Force all customers to pay now.
E) Sell commercial paper.

Question 62

To raise money, Fawcett Productions sold its accounts receivable to a ____.In doing so, Fawcett received cash and shifted to the other company both the task of collecting and the risk of nonpayment.

A) credit-reporting agency
B) stockbroker
C) factor
D) real estate agent
E) credit union

Question 63

The cost of borrowing money that is reserved for large corporations with excellent credit ratings is called the

A) prime interest rate.
B) bank discount.
C) discount factor.
D) add-on interest rate.
E) compound interest rate.

Question 64

The amounts owed to a firm by its customers are called

A) factors.
B) revolving credit agreements.
C) dividends.
D) accounts receivable.
E) commercial drafts.

Question 65

Surf 'N' Sun Shop sells ski boats and other boating accessories.It receives most of its inventory about three months in advance of the summer season, but it is not able to pay for the inventory up front.Instead, its suppliers allow Surf 'N' Sun to use its inventory as collateral.This type of agreement is called

A) unsecured short-term financing.
B) long-term lending.
C) factoring.
D) secured short-term financing
E) a promissory note.

Question 66

Kevin received unsecured financing from a bank for his plumbing business.This means that Kevin did not have to provide the bank with any

A) application forms.
B) collateral.
C) reasons for the loan.
D) promise to pay interest.
E) scheduled monthly payments.

Question 67

Suppose IBM decided to issue commercial paper in denominations of €5,000 to raise a large sum of money.Since the commercial paper is secured only by IBM's reputation,

A) IBM does not have to pay back the principal.
B) IBM has to pay interest rates higher than those charged by commercial banks for short-term loans.
C) no interest is paid.
D) no collateral is involved.
E) the commercial paper can be issued only in €1,500 or €10,000 denominations.

Question 68

The lowest rate of interest charged by a bank for a short-term loan is known as

A) the discount rate.
B) dividends.
C) add-on interest.
D) the compound interest rate.
E) the prime interest rate.

Question 69

Which of the following is not an advantage that promissory notes have over trade credit from the perspective of the seller?

A) Notes are legally binding agreements.
B) Most notes earn interest for the seller.
C) Notes are negotiable instruments.
D) The company extending credit can sell the note and receive the money quickly.
E) The seller may demand payment from the buyer at any time.

Question 70

Commercial paper usually is issued

A) for 3 to 7 years.
B) for short-term financing by large corporations.
C) for short-term financing by small businesses.
D) by large corporations unable to get credit elsewhere.
E) by savings and loan associations.

Question 71

Harlen Manufacturing is hesitant to extend trade credit to Brendan Drake.Instead, Brendan agrees to sign a promissory note.Harlen prefers this note because

A) it specifies when the goods will be delivered.
B) the money will still be paid if Brendan declares bankruptcy.
C) it is a legally binding and enforceable agreement.
D) it is a form of commercial paper.
E) it will receive the money from Brendan much sooner.

Question 72

A firm that specialises in buying other firms' accounts receivable is called a(n)

A) factor.
B) broker.
C) credit officer.
D) agent.
E) trustee.

Question 73

A written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date is called

A) a promissory note.
B) collateral.
C) a factor account.
D) a charge account.
E) a term loan agreement.

Question 74

Over the years, Zebra Productions has been slow making payments to its bank.Now it is in need of financing.Based on past experience, the interest rate Zebra will pay is the

A) interest rate determined by the SBA.
B) finance rate determined by the Department of Commerce.
C) prime rate.
D) prime rate plus 4 percent.
E) prime rate minus 2 percentage points.

Question 75

____ is (are) short-term promissory notes with no collateral that are issued by large corporations.

A) Serial bonds
B) Sinking funds
C) Convertible bonds
D) Credit agreements
E) Commercial paper

Question 76

A factor will buy accounts receivable for

A) more than their face value.
B) less than their face value.
C) their present value.
D) their par value.
E) the interest that can be collected from them.

Question 77

The assets most commonly used as collateral for short-term financing include

A) cash and accounts receivable.
B) accounts payable and notes payable.
C) inventory and equipment.
D) marketable securities and owners' equity.
E) accounts receivable and inventory.

Question 78

Use of a warehouse receipt in short-term financing indicates that

A) a loan has been secured by inventory.
B) a loan has been obtained to purchase raw materials.
C) a shipper or freight company has bought merchandise from a company.
D) fur coats are being stored in a retail location.
E) the lender is taking precautions because the loan is unsecured.

Question 79

If Sunbelt Computers were to take out a short-term loan from Chase for €5 million and were required to keep €500,000 of that in its Chase account, this would be called a(n)

A) compensating balance.
B) security deposit.
C) commercial-paper arrangement.
D) reserve requirement.
E) insurance policy.

Question 80

Which of the following companies would most likely be able to issue commercial paper?

A) Mike's Pizza Place
B) A local housing construction company
C) General Electric
D) A medium-sized advertising agency
E) United Way