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Exam 18: Financial Management

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Question 41

True/False

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A financial manager makes recommendations to top executives regarding strategies for improving the financial strength of a firm.

A) True
B) False

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Question 42

Multiple Choice

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The Making Ethical Decisions box "Good Finance or Bad Medicine" has an important message for managers who make financial decisions. Which of the following statements summarizes this message?

A) Managers must balance good economic decisions with socially forward thinking.
B) Financial decisions must be based on what insurance companies are willing to pay.
C) Checking academic credentials of recently graduated doctors is imperative due to the cost of lawsuits that patients may file if they learn that they were served by a surgeon without a license.
D) The support of a good law firm is worth every penny a hospital might pay. The finance manager should always budget for a legal team.

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

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Question 43

Multiple Choice

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Which of the following represents a capital expenditure?

Finance is the function in a business that acquires funds for the firm and manages those funds within the firm.

A tool that provides lots of convenience, credit cards are a source of a readily available line of credit for a small business because they provide convenience.

Since short-term financial forecasts predict expected future events, they should not be influenced by recent financial statements.

Financial management is more important for a large firm than it is for a small firm.

Recently, Epic Electronics borrowed $600,000 from Dinero Finance to secure financing for a planned expansion. The ________ loan agreement requires that Epic Electronics provide the title to their factory as collateral.

Equity financing refers to the money a firm receives from the sale of bonds.

The concept time value of money indicates

Money has time value due to the fact that if invested, it has the potential to earn more money at some point in the future.

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

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." -Mort is seriously considering a major expansion in the size of his funeral home. The money spent on this type of project would be classified as a(n)

The terms "2/10, net 30" indicate that the seller is offering a 20% discount for early payment.

Julia started a cake decorating business last year. Unfortunately it failed quickly. She is convinced that she lacked the necessary funds to promote her business and get it off the ground. What did Julia experience?

Money has a time value because

One of the primary factors that influences the interest rate a firm pays on long-term loans is the

Which of the following is a primary area of concern for financial managers?

The budget that estimates a firm's projected cash inflows and outflows, as well as cash shortages or surpluses during a given time period, is called the ________ budget.

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." -Mort Tishian feels it's necessary to predict revenues, costs, and expenses on a six-month basis. "It's the only way you get an idea of what to expect," explains Mort. In order to obtain these predictions, Mort needs to develop a(n)