Deck 18: Finance Maximizing the Value

Question 1

The concept of risk-return trade-off is best described by which of the following?

A) It is important only at the lowest management levels.
B) It relates to higher risk requiring greater return.
C) It will be more likely to influence the financial activities in an international company than a national one.
D) It will be more likely to influence the financial activities in a service provider than a manufacturer.

Answer 1

B

Question 2

Esselte is one of the world's leading producers of office supplies.The company forecasts that its profits will double by the year 2012,and its financial manager will need to determine what should be done with the increased earnings.This forecast is part of which of the following activities?

A) the company's marketing plan
B) the company's strategic plan
C) the company's operating plan
D) the company's production budget

Answer 2

B

Question 3

Financial managers are best described by which of the following?

A) They focus on profit maximization.
B) They track how money is flowing into and out of the company.
C) They play such an important organizational role that they often are called operations managers.
D) They are not typically involved in long-term strategic planning.

Answer 3

B

Question 4

Long-term forecasts that cover two to ten years and take a broader view of the company's financial activities are known as which of the following?

A) tactical plans
B) operating plans
C) strategic plans
D) projected plans

Question 5

As part of the task of managing cash flows,financial managers perform which of the following activities?

A) They collect financial data.
B) They present financial data.
C) They oversee the collection of accounts receivable.
D) They hire the accountants.

Question 6

In finance,what is the potential for loss?

A) the leverage
B) the risk
C) the business chance
D) the factoring

Question 7

Which of the following are forecasts of the company's inflows and outflows of cash?

A) fiscal budgets
B) revenue budgets
C) operating budgets
D) cash budgets

Question 8

Which of the following do financial managers use to describe the inflow and outflow of cash?

A) cash flows
B) financial flows
C) revenue streams
D) sales revenues

Question 9

Which type of management is used to determine the most effective ways to acquire and use funds to achieve the company's goals?

A) corporate management
B) operations management
C) financial management
D) accounting management

Question 10

European Airlines forecast that its profits will increase by 2-4 percent for flights between Europe and Canada during the next 12 months.This prediction is part of which of the following activities?

A) the company's economic forecast
B) the company's marketing plan
C) the company's production budget
D) the company's operating budget

Question 11

Financial management is best described by which of the following?

A) It is typically performed by a company's CEO.
B) It uses financial statements prepared by accountants to make financial decisions.
C) Its purpose is to collect and present financial data.
D) It is completely different from accounting.

Question 12

The primary goal of the financial manager is best described by which of the following?

A) He or she concentrates on short-term growth strategies.
B) He or she develops new goods and services for the company.
C) He or she ensures all employees get paid on a regular schedule.
D) He or she maximizes the value of the company to its owners.

Question 13

In seeking a balance between the opportunity for profit and the potential for loss,a financial manager is dealing with which of the following concepts?

A) potential profit trade-off
B) sales-profit trade-off
C) risk-return trade-off
D) profit-loss trade-off

Question 14

Which of the following are formal written forecasts of revenues and expenses that set spending limits based on operational forecasts?

A) profit and loss statements
B) business predictions
C) budgets
D) financial forecasts

Question 15

Short-term forecasts that project revenues,costs of goods,and operating expenses over a one-year period are known as which of the following?

A) supervised plans
B) internal plans
C) operating plans
D) strategic plans

Question 16

Financial managers constantly strive for a balance between which of the following?

A) common and preferred shares
B) economic responsibility and social responsibility
C) cash and marketable securities
D) the opportunity for profit and the potential for loss

Question 17

In finance,what is the opportunity for profit?

A) the value
B) the risk
C) the potential
D) the return

Question 18

Hannah Perez keeps track of day-to-day operational data to make sure her employer has enough cash to run the business.She will determine if and when the company she works for should open a second distribution centre.Perez is which type of manager?

A) accounting
B) financial
C) operations
D) analysis

Question 19

The financial planning process begins with which of the following?

A) budgeting
B) expert systems
C) financial forecasts
D) brainstorming

Question 20

Lowell Arden bought and sold shares for a profit.The profit Arden earned on his investment in shares is known as which of the following?

A) investment return
B) investment certainty
C) investment risk
D) investment probability

Question 21

Financial managers often shift temporary funds from chequing accounts to which of the following to earn higher interest returns?

A) administrative securities
B) commercial securities
C) marketable securities
D) strategic securities

Question 22

Commercial paper is best described by which of the following?

A) It is the same thing as accounts receivable recorded in the ledger.
B) It is a type of IOU.
C) It is typically issued by stakeholders.
D) It is a type of secured debt.

Question 23

The three most popular types of marketable securities are Treasury bills,certificates of deposit,and which of the following?

A) money market funds
B) corporate bonds
C) Treasury notes
D) commercial paper

Question 24

Making sure that enough cash is on hand to pay bills as they come due and to meet unexpected expenses is called which of the following?

A) cash targeting
B) cash management
C) cash maintenance
D) cash capitalization

Question 25

Earth Worm is an independent bookstore that only eight months after opening went bankrupt due to an unexpected demand for cash to fix a leaking roof.Which of the following activities might have allowed the business to continue operation?

A) better cash maintenance
B) better cash targeting
C) better cash management
D) better cash capitalization

Question 26

Which of the following is the process of selecting the capital expenditures that offer the best returns and meet the goal of maximizing the company's value?

A) capital evaluation
B) capital allocation
C) budget analysis
D) capital budgeting

Question 27

Which of the following is a short-term unsecured debt issued by a financially strong corporation?

A) a treasury bill
B) a certificate of deposit
C) a money market deposit
D) commercial paper

Question 28

Chez Dove is an independent coffeehouse/bookstore.In order to predict how much coffee it would serve,how many Styrofoam cups it would need,and how much staff it will require during July,the company would use which type of budget?

A) a cash budget
B) an operating budget
C) a centralized budget
D) a strategic budget

Question 29

Which of the following would be an example of a capital expenditure for a superstore that specializes in outdoor grills and other items needed for outside dining?

A) a parking lot
B) cardboard sale signs
C) pens and markers
D) a handheld calculator

Question 30

Budgets that combine sales forecasts with estimates of production costs and operating expenses to forecast profits are known as which of the following?

A) operating budgets
B) centralized budgets
C) strategic budgets
D) cash budgets

Question 31

Linda's Kitchen is a bakery.Flour,sugar,eggs,milk,and chocolate would be included in which type of expenses?

A) operating expenses
B) general expenses
C) managerial expenses
D) administrative expenses

Question 32

Which of the following are specific repayment conditions as to how long customers have to pay bills and the amount of cash discount allowed?

A) revolving accounts
B) credit credentials
C) credit terms
D) liability procedures

Question 33

Funds invested in long-lived assets,such as land,buildings,machinery,and equipment,are called which of the following?

A) operating expenses
B) production costs
C) manufacturing expenses
D) capital expenditures

Question 34

As the Toronto-based Four Seasons hotel chain remodels an existing hotel in Mumbai to bring it to the five-star hotel's exacting standards,it is building a magnificent revolving restaurant overlooking the Arabian Sea.The restaurant structure is an example of which of the following?

A) a material cost
B) an account receivable
C) an operating cost
D) a capital expenditure

Question 35

Short-term expenses used to support current production and selling expenses are known as which of the following?

A) operating expenses
B) managerial expenses
C) administrative expenses
D) general expenses

Question 36

Toronto Pneumatic Tools has changed its credit terms to encourage its buyers to pay their accounts receivable more quickly.Which of the following represents the policy that the financial manager has changed?

A) credit ratings
B) account flexibility
C) credit terms
D) collection policy rate

Question 37

Grainger Distribution Company sold Long Electronics 10 circuit breakers for $169.00 each.Long Electronics will be allowed 30 days to pay the bill.Grainger will carry the $1690.00 on its books as which of the following?

A) an account receivable
B) an account payable
C) a current liability
D) a fixed liability

Question 38

What are short-term investments that are easily converted back to cash and are used by financial managers to achieve higher returns than those offered by chequing accounts?

A) corporate securities
B) marketable securities
C) management vehicles
D) corporate equities

Question 39

Which of the following are forecasts for outlays for fixed assets,usually covering a period of several years?

A) tactical budgets
B) operating budgets
C) capital budgets
D) monetary-policy budgets

Question 40

The Four Seasons hotel chain has purchased an existing hotel in Mumbai.To forecast how much it needs to spend to bring the facilities in line with Four Seasons' other five-star hotels,it will use which of the following?

A) a managerial budget
B) a tactical budget
C) a capital budget
D) an operating budget

Question 41

Long-term debt would be used to finance which of the following activities?

A) to replace broken glass in a window
B) to buy new tablecloths for a restaurant
C) to provide customer with a cash discount
D) to pay for a few pieces of equipment

Question 42

When Magna Manufacturing sells hand screwdriver sets to Malloy Building Supply Company,Magna bills the tool manufacturer for the screwdriver purchase with terms of payment,which specify when the account is due.This type of unsecured loan is known as which of the following?

A) trade credit
B) borrower's credit
C) product credit
D) revolving credit

Question 43

Capital budgeting is best described by which of the following?

A) It analyzes production costs.
B) It helps select new products.
C) It selects asset proposals for maximum profitability.
D) It combines all budgets into a master budget.

Question 44

A secured loan requires that the borrower pledge specific assets to secure the loan.These assets are known as which of the following?

A) negotiable assets
B) intangible assets
C) pledges
D) collateral

Question 45

Albee Construction Company,a financially strong corporation that builds roads and bridges,finances its equipment leases by issuing unsecured short-term debt,this is known as which of the following?

A) revolving credit
B) collateralized loans
C) commercial paper
D) corporate issues

Question 46

Which of the following is a type of loan often used to finance buildup of inventory for seasonal (cyclical)businesses just before their strongest sales period?

A) a collateral loan
B) an unsecured bank loan
C) trade credit
D) a secured bank loan

Question 47

C.W.Beauregard is an Atlantic salmon farmer.He produces and sells salmon to satisfy the growing demand for fish.He has arranged a business loan with terms that guarantee that he can borrow up to $12,000 whenever he needs it within the next year.He must pay interest only on the unpaid loan balance.Beauregard has arranged which type of credit?

A) a credit-line loan
B) a line of credit
C) a single-payment note
D) a collateralized loan

Question 48

The major advantage of debt financing is which of the following?

A) the absence of factoring
B) the number of different sources from which it is available
C) the deductibility of interest expenses
D) the lack of dependence on collateral

Question 49

Which of the following businesses would be most likely to require an unsecured bank loan,such as a line of credit or a revolving credit agreement?

A) a Christmas tree farm
B) an envelope manufacturer
C) a manufacturer of integrated circuits
D) a poultry producer

Question 50

Which statement best describes the major drawback to the use of debt financing?

A) Debt financing gives common shareholders a voice in company management.
B) Debt financing is a form of permanent financing.
C) The interest paid in debt financing is not tax-deductible.
D) Financial risk is always a possibility with debt financing.

Question 51

In which of the following industries are you most likely to find factoring being used?

A) the tire industry
B) the fast-food industry
C) the soft drink industry
D) the appliance industry

Question 52

Short-term loans are best described by which of the following?

A) They are always secured.
B) They have a maturity of one year or longer.
C) They do not require any collateral.
D) They are shown as a liability on the balance sheet.

Question 53

Shameika Olson owns a bookstore and has arranged a business loan with the bank where she has her business account.The terms of the loan allow her to borrow up to $12,000 within the next year.She must pay interest only on the unpaid loan balance.Olson has arranged which of the following?

A) a line of credit
B) a secured loan
C) a collateralized loan
D) a mortgage loan

Question 54

What are three important forms of long-term debt?

A) trade credit, accounts payable, and bank loans
B) term loans, mortgage loans, and bonds
C) accounts payable, notes payable, and commercial paper
D) treasury bills, certificates of deposit, and accounts payable

Question 55

An IOU is most similar to which type of bank loan?

A) business trade credit
B) revolving credit
C) collateralized credit
D) commercial paper

Question 56

Secured short-term loans are usually secured by which of the following?

A) accounts receivable and inventory
B) equipment and accounts payable
C) accounts payable and accounts receivable
D) inventory and equipment

Question 57

Which of the following statements describes an advantage inherent in equity financing?

A) The company is not required to repay equity.
B) Interest is tax-deductible.
C) A company has an obligation to pay dividends.
D) Equity has a maturity date.

Question 58

The three main types of unsecured short-term loans are which of the following?

A) trade credit, bank loans, and commercial paper
B) treasury bills, certificates of deposit, and accounts payable
C) trade credit, accounts payable, and bank loans
D) accounts payable, notes payable, and loans payable

Question 59

A loan that requires the borrower to pledge specific assets as collateral is known as which of the following?

A) an amortized loan
B) a promissory loan
C) an unsecured loan
D) a secured loan

Question 60

A company sells its accounts receivable to a financial institution that is in the business of buying accounts receivable at a discount.This sale is known as which of the following activities?

A) pledging
B) bartering
C) factoring
D) collateralizing

Question 61

What is the willingness to bear risk without insurance?

A) risk avoidance
B) risk assumption
C) risk reduction
D) risk transfer

Question 62

Business loans available from commercial banks with terms generally 5-12 years and secured or unsecured are called which of the following?

A) collateral loans
B) mortgage loans
C) term loans
D) line of credit loans

Question 63

Long-term debts (liabilities)for corporations and governments are known as which of the following?

A) common shares
B) equity funds
C) bonds
D) preferred shares

Question 64

Which of the following terms represents the stated interest rate of a bond?

A) the liquidity rate
B) the market rate
C) the prime rate
D) the coupon rate

Question 65

Dividends are best described by which of the following?

A) They are annual payments on bonds.
B) They are the earnings of the corporation.
C) They are payments to the shareholders from company earnings.
D) They are guaranteed payments to the common shareholders.

Question 66

Payments in the form of more shares to existing shareholders are known as which of the following?

A) rights offerings
B) warrants
C) share offerings
D) share dividends

Question 67

Private individual investors who sometimes provide venture capital to small companies in need of equity capital are known as which of the following?

A) angel investors
B) entrepreneur backers
C) opportunists
D) benefactors

Question 68

Which of the following is a long-term loan using real estate or other assets as collateral?

A) an unsecured loan
B) a discount loan
C) a mortgage loan
D) a line of credit loan

Question 69

A company's basic approach to paying dividends can greatly affect which of the following?

A) its share prices
B) its span of financial management
C) its mission statement
D) its unity of fiscal policy

Question 70

Term loans are best described by which of the following?

A) They are loans with a maturity of less than one year.
B) They are available from commercial banks, insurance companies, pension funds, commercial finance companies, and manufacturer's financing subsidiaries.
C) They must be secured.
D) They must be repaid on an annual schedule only.

Question 71

Which of the following are securities that represent an ownership interest in a corporation and give the holders voting rights?

A) treasury shares
B) common shares
C) par value shares
D) preferred shares

Question 72

Which of the following statements best describes preferred shares?

A) Preferred shareholders are paid before other debt holders in the event of company dissolution.
B) The dividends for preferred shares are a variable amount.
C) Preferred shares are less costly than debt financing.
D) Preferred shareholders have to be paid annually.

Question 73

The funds that are kept by the company out of profits and after dividends are paid are called which of the following?

A) share equity
B) investor earnings
C) retained earnings
D) secondary earnings

Question 74

Which of the following is the process of identifying and evaluating risks and selecting and managing techniques to adapt to the risk exposure?

A) risk management
B) insurance management
C) risk research
D) factoring

Question 75

Which of the following allows insurance companies to predict the likelihood that a peril will occur?

A) underwriting
B) deductibles
C) law of risks
D) law of large numbers

Question 76

Which of the following groups invest in new businesses in return for part of the ownership,sometimes as much as 60 percent?

A) intrapreneurs
B) venture capitalists
C) multipreneurs
D) leveraged capitalists

Question 77

Which of the following groups would a secured Internet service provider be very likely to attract,given that it is in a high-tech industry with lots of opportunity for rapid growth?

A) multipreneurs
B) intrapreneurs
C) leveraged capitalists
D) venture capitalists

Question 78

What are the four major ways of dealing with risk?

A) control, retention, transfer, and avoidance
B) avoidance, retention, control, and retirement
C) control, retention, retirement, and avoidance
D) avoidance, retention, retrenchment, and control

Question 79

Tracy Lefteroff is the global managing partner for PricewaterhouseCoopers.She said that her company is eager to invest in newly created biotech companies because Canada has an aging population that will need new medications and treatments.Which of the following kinds of equity capital would Lefteroff be likely to provide?

A) dividends
B) mortgage loans
C) retained earnings
D) venture capital

Question 80

Which of the following statements best describes preferred shares?

A) Preferred shares carry voting rights.
B) Preferred shares produce a fixed-amount dividend.
C) Preferred shareholders receive dividends after common shareholders.
D) Preferred shares can be owned only by upper management.