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Exam 18: Financial Management

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Question 21

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Forecasting means determining how closely the actual revenue and expense results matched up with the predicted revenues and expenses.

A) True
B) False

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Question 22

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

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B) False

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Question 23

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Mini-Case Tishian's Funeral Home has been in business for over 80 years. Throughout its history, the firm has been a family-run operation. Today, the business is managed by Mort Tishian, a grandson of the founder. Unfortunately, Mort Tishian's tenure has been plagued with problems neither his father nor grandfather before him experienced. The reason is simple: the funeral business is undergoing rapid change. Small, family-owned funeral homes are losing ground to a new type of competitor, a large national network service that resembles a franchise system. More and more families "in their time of need" are choosing the new, highly promoted competitors instead of the traditional small family-operated funeral homes. This trend has required a response from organizations like Tishian's Funeral Home. Bigger and better facilities are needed to remain competitive. All of this puts more pressure on the family owners to be more active in the financial side of the business. Mort summed it up best when he said, "Grandpa told people, 'You pay me when you can, I ain't goin' nowheres.'" His creditors did the same with him. Today, it's a different game. Cash flow is key, and obtaining funds is no simple task. Additionally, creditors want their money now, not later. Banks are also more demanding. "Heck, Grandpa knew all the bankers he dealt with personally. I see new faces every time I go to the bank. If things don't get better, I suspect after eighty years of service, Tishian's Funeral Home will have its own funeral." -After much searching, Mort located an old banking friend of his father's. The banker offered Mort up to $25,000 in unsecured funds, which Mort's firm could borrow any time within a year, as long as the bank has the money available. Mort was offered a(n)

Equity financing represents funds acquired from within the firm or through the sale of stock, representing ownership in the company.

To be effective, an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Trade credit means the seller will sell and deliver products and/or services to the buyer, with the understanding that the buyer will pay for these products and/or services at a later date.

Which of the following situations represents a successful use of financial leverage?

An effective budget requires

Capital expenditures are major investments in long-term assets such as property and equipment.

Financial managers use data prepared by accountants to develop strategies for improving the financial performance of the firm.

Rock Solid Concrete Company relies on factoring to meet its short-term financing needs. This means that Rock Solid borrows money from a finance company and pledges its accounts receivable as collateral.

The interest paid on ________ represents a tax-deductible business expense.

Zachary is going to major in business. However, he has never had much interest in subjects with numbers. He would like to avoid taking any finance courses if possible. What should Zachary do?

A line of credit is designed to reduce the risk of lending money.

An unsecured loan does not require a borrower to provide collateral to secure a loan.

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

The cost to a retailer of accepting credit cards is generally greater than the benefits provided.

________ refers to the process that identifies variances by comparing actual revenues and expenses to projected revenues and expenses.

A capital budget highlights the expected funds provided by owner investments.

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