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Exam 19: Mastering Financial Management

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Question 71

True/False

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When a firm makes the decision to borrow money, it is a clear sign that the firm is in financial trouble.

A) True
B) False

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Question 72

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

A) True
B) False

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Question 73

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

Florida-based Swim and Fin Products often experiences a time lag between the time goods are produced and the time that retailers pay for the finished products. In this situation, Swim and Fin's financial problems are the result of speculative production.

When Platinum Fitness sells its accounts receivable to a financial institution, it receives less than the full value of the accounts receivable. Which of the following is a benefit Platinum Fitness receives from this arrangement?

Which of the following generally has no specific repayment period?

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

Inventories and accounts receivable are the assets most commonly used as collateral for short-term financing.

Selling a firm's unneeded assets is a reasonable last resort when neither equity capital nor debt capital can be found to meet a firm's need for capital.

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

The NASDAQ is the largest and probably best-known securities exchange market in the world.

Most financial managers consider long-term financing to be money that will be used for longer than one year.

Burberry Mills sold stock to an insurance company to raise needed financing for expansion and new product development. This type of transaction is referred to as a(n)

A venture capital firm

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.

When compared with selling stocks to the public, a private placement has

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 firm with questionable credit should expect to pay the prime interest rate minus 2 percent.

The managers at Bally Manufacturing decided to borrow money to finance a new production facility. The loan agreement they signed required that they pay 10 percent interest on the loan. Based on this information, which of the following statements is true?

One of the most important priorities for someone interested in careers in finance is honesty.