Question 1

As a financial manager, Garry 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. These concerns suggest that Garry would want to develop a:

Accepted Answer

A) cash budget. 
B) pro forma income statement. 
C) sales forecast. 
D) projected balance sheet.

Question 2

Alpha Inc.saw an increase in profits in the previous year following which the management decided to reinvest earnings. These retained earnings will be used to:

Accepted Answer

A) meet the company's long-term financial needs. 
B) meet the company's short-term financial needs. 
C) pay the owners a dividend. 
D) increase the liquid assets of the company.

Question 3

Cash budgets normally cover a five-year period and show projected cash inflows and outflows for each week.

Accepted Answer

A) True 
 B)False

Question 4

A large, well-established company with an impeccable financial record considers borrowing money to meet its short-term financing needs. The company hopes to borrow money using _________ since this form of financing typically carries a lower interest rate than that than commercial banks charge on short-term loans.

Accepted Answer

A) corporate bonds 
B) factoring 
C) commercial paper 
D) trade credit

Question 5

Financial managers should focus solely on meeting the financial needs of their firms in the short run, leaving the long-term financial issues to the top management.

Accepted Answer

A) True 
 B)False

Question 6

One drawback of offering liberal credit to customers is that it can:

Accepted Answer

A) delay the sales to a future period. 
B) increase the cost of credit to customers. 
C) delay the receipt of cash that the firm needs to meet its financial obligations. 
D) decrease sales by the extension of credit and cause a loss to the company.

Question 7

Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He is using capital budgeting to estimate the project's future cash flows. He finds that the present value of the estimated future cash flows is greater than the cost of the project. How likely is he to gain approval from the board?

Accepted Answer

A) He will quite certainly gain approval since the project has a positive net present value. 
B) Approval is probable but not likely as he failed to account for the time value of money. 
C) He will not gain approval as he failed to consider whether the project is leading edge or not. 
D) Approval is probable but not likely as the project has been constructed on estimates instead of facts.

Question 8

An advantage of offering more lenient credit terms is that it helps a firm _____.

Accepted Answer

A) decrease its debt 
B) increase its sales 
C) reduce its risk 
D) improve cash flows

Question 9

David needs to acquire financial capital to purchase a printing press for his business. David can either acquire the financial capital for the press by borrowing money from a bank or by purchasing the press on credit from his supplier.

Accepted Answer

A) True 
 B)False

Question 10

Cash equivalents are long-term, unsecured but highly liquid assets that firms list in the fixed assets section on their balance sheet.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following statements is true of a current ratio?

Accepted Answer

A) The larger a firm's current ratio, the harder it is for the firm to pay its short-term debts. 
B) The current ratio is a type of leverage ratio. 
C) A current ratio below 1.0 signifies a company's inability to pay its short-term liabilities with its current assets. 
D) The current ratio is computed by dividing a firm's current liabilities by its current assets.

Question 12

Pro Corp. and Darths Inc.are two companies that are identical in every aspect except for the fact that Pro uses only equity financing, while Darths relies heavily on debt financing. Over the past year, the firms had identical earnings before interest and taxes. If net income for both firms was high, _____.

Accepted Answer

A) Pro would pay less taxes than Darths 
B) Darths would report a higher return on equity than Pro 
C) Darths would report a lower return on equity than Pro 
D) Pro would be required to pay no taxes, unlike Darths

Question 13

_____ ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.

Accepted Answer

A) Activity 
B) Leverage 
C) Liquidity 
D) Profitability

Question 14

What is a pro forma statement? Describe the two major types of pro forma statements, and explain the role they play in financial planning.

Accepted Answer

The answer of What is a pro forma statement? Describe...

Question 15

Which of the following is a long-term financing option for a firm?

Accepted Answer

A) Trade credit 
B) Revolving credit agreements 
C) Commercial paper 
D) Corporate bonds

Question 16

The Chief Financial Officer of Orange Motors Inc.recently mentioned in an interview that a dollar received today is worth more than a dollar received in the future because the sooner you receive a sum of money, the quicker you can put that money to work. The Chief Financial Officer was speaking about the _________.

Accepted Answer

A) present value of money 
B) assumed value of money 
C) future value of money 
D) time value of money

Question 17

Which of the following best describes a highly leveraged firm?

Accepted Answer

A) A firm that relies heavily on equity 
B) A firm that has equity that is twice the debt 
C) A firm that relies heavily on debt 
D) A firm that has higher current assets than current liabilities

Question 18

Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Net income is $27,500. Wild Trails Inc.'s earnings per share is _____.

Accepted Answer

A) $55 
B) $0.018 
C) $13,750 
D) $27,000

Question 19

Which of the following statements best describes a money market mutual fund?

Accepted Answer

A) It pools funds from many investors and uses these funds to purchase very safe, highly liquid securities. 
B) It is a short-term marketable IOU issued by the U.S. federal government. 
C) It is the part of a firm's net income that it reinvests. 
D) It is a financial agreement between a firm and a bank in which the bank pre-approves credit up to a specified limit.

Question 20

If an invoice lists the terms 2/10 net 30, it means that the supplier is offering a 10 percent cash discount off the invoice price if the buyer pays within 2 days.

Accepted Answer

A) True 
 B)False

Exam 9: Finance: Acquiring and Using Funds to Maximize Value

As a financial manager, Garry 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. These concerns suggest that Garry would want to develop a:

Alpha Inc.saw an increase in profits in the previous year following which the management decided to reinvest earnings. These retained earnings will be used to:

Cash budgets normally cover a five-year period and show projected cash inflows and outflows for each week.

Financial managers should focus solely on meeting the financial needs of their firms in the short run, leaving the long-term financial issues to the top management.

One drawback of offering liberal credit to customers is that it can:

An advantage of offering more lenient credit terms is that it helps a firm _____.

David needs to acquire financial capital to purchase a printing press for his business. David can either acquire the financial capital for the press by borrowing money from a bank or by purchasing the press on credit from his supplier.

Cash equivalents are long-term, unsecured but highly liquid assets that firms list in the fixed assets section on their balance sheet.

Which of the following statements is true of a current ratio?

_____ ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.

What is a pro forma statement? Describe the two major types of pro forma statements, and explain the role they play in financial planning.

Which of the following is a long-term financing option for a firm?

Which of the following best describes a highly leveraged firm?

Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Net income is $27,500. Wild Trails Inc.'s earnings per share is _____.

Which of the following statements best describes a money market mutual fund?

If an invoice lists the terms 2/10 net 30, it means that the supplier is offering a 10 percent cash discount off the invoice price if the buyer pays within 2 days.