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Exam 18: Financial Management

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Question 101

True/False

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A share of stock represents a company-issued IOU including a promise to repay on a certain date.

A) True
B) False

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Question 102

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Successful use of financial leverage requires a firm to:

A) negotiate with lenders to establish a line of credit.
B) establish and operate a venture capital organization to minimize the use of equity financing.
C) register with the local government commission that administers market leverage.
D) earn a higher return on its investments than the interest rate it pays to acquire funds.

E) A) and C)
F) A) and B)

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Question 103

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Trade credit represents one of the most expensive forms of short-term financing.

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

Anna operates a florist shop specializing in weddings.While she knows that her competitors allow customers to buy on credit,she is concerned about the risk and expense of unpaid customer accounts.One strategy to reduce risk and collect sales revenue more quickly would be to accept bank-issued credit cards.

After enjoying increased sales and profits of several popular products,Braggs & Stritton plans to expand their production facilities.The firm,a well-known producer of lawn care products,prefers financing this project with a funding source that avoids interest and dividend payments as well as underwriting costs.Which of the following best meets the needs of Braggs & Stritton?

Energy-wise Builders,Inc,a leader in residential housing,recently negotiated a financing arrangement with First Pennsylvania Bank.The short-term funding agreement guarantees a specified amount of funds would be made available upon Energy-wise's request.This arrangement represents a:

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

Which business function involves credit management/collecting funds from customers?

Finance managers need funds for capital purchases,but seldom for the day-to-day operations.

When his firm is owed money,the financial manager tries to collect as early as possible.

Big Bear Ski Lodge's cash budget for the month of March,2012,shows a negative amount.Due to the fact that the months of January and February were quite lucrative and showed positive amounts,the finance manager will not borrow any money on the short-term to cover for March's deficit.

A term-loan agreement requires the borrower to repay the loan in one lump sum at the end of the loan period.

Acquiring funds through equity financing requires the firm to pay annual dividends.

Commercial paper is unsecured short-term debt.

Business match their long-term capital needs to:

Selling accounts receivable to obtain short-term funds is called:

A cash budget helps managers anticipate borrowing,debt repayment,operating expenses,and short-term investment opportunities.

Financial managers are responsible for the management of accounts receivable and accounts payable.

The long-term financial forecast plays a crucial part in the company's long-term strategic plan.