Question 1

A revolving credit agreement represents a line of credit that is guaranteed.

Accepted Answer

A) True 
 B)False

Question 2

Lancer Wholesale Company wants to improve cash flow. Which of the following strategies would be most likely to help Lancer achieve this objective?

Accepted Answer

A)   Relaxing its credit policy for new customers
B)   Offering cash discounts to buyers who pay their accounts promptly
C)   Accepting IOUs from customers who buy in large quantities
D)   Offering extended payment plans to qualified buyersE) C) and D)
F) B) and C)

Question 3

Undercapitalization refers to the problem of:

Accepted Answer

A)   insufficient start-up funds.
B)   inadequate control of expenses.
C)   inappropriate cash flows.
D)  under-valued capital stock.E) B) and D)
F) None of the above

Question 4

A firm will choose to seek debt financing only for the purpose of paying for short-term operating needs.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following companies is undercapitalized?

Accepted Answer

A)   A large corporation that has been hit with a major lawsuit because one of its products has a design flaw that has led to serious injuries
B)   A new company struggling because it has insufficient start-up funds
C)   A medium-sized company that has decided to buy out a smaller competitor
D)   An electric utility that has recently experienced a significant increase in the cost of coal and laborE) All of the above
F) A) and B)

Question 6

Financially stable firms are able to sell commercial paper to raise short-term funds.

Accepted Answer

A) True 
 B)False

Question 7

A forecast predicts the revenues, costs, and expenses a firm will incur for a period longer than one year.

Accepted Answer

A)   cash flow
B)   short-term
C)   capital expenditures
D)   long-termE) A) and B)
F) A) and D)

Question 8

Factoring represents the least expensive way for a firm to raise short-term funds.

Accepted Answer

A) True 
 B)False

Question 9

A budget reflects management's expectations for revenues and allocates the use of specific resources throughout the firm.

Accepted Answer

A) True 
 B)False

Question 10

Venture capitalists expect lower than average returns on their investment since they are exposed to little risk.

Accepted Answer

A) True 
 B)False

Question 11

To be effective, budgets are prepared independently of organizational forecasts.

Accepted Answer

A) True 
 B)False

Question 12

The concept of the time value of money is based on the interest-earning power of money.

Accepted Answer

A) True 
 B)False

Question 13

As a management consultant, Lamont knows that regardless of how good his firm's product might be, the business has little chance of success without a(n) :

Accepted Answer

A)   financial plan.
B)   outside consultant.
C)   auditor.
D)   warranty.E) None of the above
F) A) and B)

Question 14

With plans to build a $50 million theme park, Extreme Entertainment, Inc. intends to finance this project through the sale of additional shares of ownership in their firm. Selling new shares of stock represents financing.

Accepted Answer

A)   retained
B)   debt
C)   initial offering
D)   equityE) B) and C)
F) All of the above

Question 15

Chunky Chicken, Inc. announced yesterday that it plans to issue $100 million in debenture bonds to fund the expansion of its fast food chain of restaurants. In financial terms, this means:

Accepted Answer

A)   The corporation will borrow $100 million worth of long term financing. The bond issue will not carry any collateral.
B)   The corporation will issue $100 million worth of equity financing. The bond issue will be backed by the property and buildings purchased with the funds.
C)   The corporation will borrow $100 million worth of long term financing. The issue will be backed by the property and buildings purchased with the funds.
D)   The corporation will issue $100 million worth of interest free bonds. Financiers will be paid from the revenues created by the individual franchises.E) A) and B)
F) A) and C)

Question 16

Corporations must comply with the Securities and Exchange Commission (SEC) requirements in order to sell their stock publicly.

Accepted Answer

A) True 
 B)False

Question 17

A firm negotiates a(n)  with its bank. This arrangement gives the firm access to a specified amount of unsecured short-term funds, provided the bank has the funds available.

Accepted Answer

A)   asset drawing account
B)   capital drawing agreement
C)   reserve account
D)   line of creditE) B) and D)
F) All of the above

Question 18

Many small businesses rely on factoring as a source of short-term financing because:

Accepted Answer

A)   factoring provides a much cheaper source of funds than bank loans.
B)   interest paid to a factor qualifies for a tax credit.
C)   small firms often find it difficult to qualify for bank loans.
D)   loans provided by factors do not require collateral.E) B) and C)
F) None of the above

Question 19

A line of credit represents a guarantee from a bank to lend a firm a given amount of money.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following shows a firm's spending plans on fixed assets such as large equipment?

Accepted Answer

A)   Capital budget
B)   Operating budget
C)   Cash budget
D)   Surplus budgetE) B) and C)
F) A) and B)

Exam 18: Financial Management

Financially stable firms are able to sell commercial paper to raise short-term funds.

Correct AnswerverifiedShow Answer

Many small businesses rely on factoring as a source of short-term financing because:

Correct AnswerverifiedShow Answer

As a management consultant, Lamont knows that regardless of how good his firm's product might be, the business has little chance of success without a(n) :

Correct AnswerverifiedShow Answer

Venture capitalists expect lower than average returns on their investment since they are exposed to little risk.

Correct AnswerverifiedShow Answer

A firm negotiates a(n) with its bank. This arrangement gives the firm access to a specified amount of unsecured short-term funds, provided the bank has the funds available.

Correct AnswerverifiedShow Answer

Which of the following companies is undercapitalized?

Correct AnswerverifiedShow Answer

Which of the following shows a firm's spending plans on fixed assets such as large equipment?

Correct AnswerverifiedShow Answer

With plans to build a $50 million theme park, Extreme Entertainment, Inc. intends to finance this project through the sale of additional shares of ownership in their firm. Selling new shares of stock represents financing.

Correct AnswerverifiedShow Answer

A line of credit represents a guarantee from a bank to lend a firm a given amount of money.

Correct AnswerverifiedShow Answer

Undercapitalization refers to the problem of:

Correct AnswerverifiedShow Answer

A forecast predicts the revenues, costs, and expenses a firm will incur for a period longer than one year.

Correct AnswerverifiedShow Answer

To be effective, budgets are prepared independently of organizational forecasts.

Correct AnswerverifiedShow Answer

A firm will choose to seek debt financing only for the purpose of paying for short-term operating needs.

Correct AnswerverifiedShow Answer

Factoring represents the least expensive way for a firm to raise short-term funds.

Correct AnswerverifiedShow Answer

Corporations must comply with the Securities and Exchange Commission (SEC) requirements in order to sell their stock publicly.

Correct AnswerverifiedShow Answer

The concept of the time value of money is based on the interest-earning power of money.

Correct AnswerverifiedShow Answer

Chunky Chicken, Inc. announced yesterday that it plans to issue $100 million in debenture bonds to fund the expansion of its fast food chain of restaurants. In financial terms, this means:

Correct AnswerverifiedShow Answer

A budget reflects management's expectations for revenues and allocates the use of specific resources throughout the firm.

Correct AnswerverifiedShow Answer

A revolving credit agreement represents a line of credit that is guaranteed.

Correct AnswerverifiedShow Answer

Lancer Wholesale Company wants to improve cash flow. Which of the following strategies would be most likely to help Lancer achieve this objective?

Correct AnswerverifiedShow Answer

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