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Exam 18: Financial Management

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Question 141

True/False

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The indenture terms refer to the agreements of a bond issue, such as how much interest it promises to pay and when it promises to repay the issue.

A) True
B) False

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Question 142

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Inventory financing represents the selling of accounts receivables as collateral for a loan.

A) True
B) False

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Question 143

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A _________ represents a long-term debt obligation issued by a corporation or a government

The cost of capital is the rate of return a firm must earn in order to meet the demands of its lenders and expectations of its equity holders.

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.

Small businesses rely heavily on long-term financing.

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) :

Susan started a cake decorating business that failed. She is convinced that she lacked the necessary funds to promote her business and get it off the ground. Susan experienced:

Vitale Jewelers obtains needed short-term funds by selling its accounts receivable to the Friendly Finance Company. Friendly Finance usually pays Vitale about 80% of the value of the receivables. Vitale Jewelers utilizes ________ as a means of raising short-term funds

Business organizations always use long-term financing for (both) short-term and long-term needs, but they never use short-term financing for (both) short-term and long-term needs.

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.

Venture capital firms look to invest their funds in firms that __________

Financial managers generally oppose credit sales because of the impact on cash flows.

Big Bear Ski Lodge owners know that the lifts on the north slope will need replacing in the next two years. Three months prior to replacement, they will include the expenditure in their cash budget.

Which of the following commonly results in the financial failure of a firm?

A _________ forecast predicts the future cash inflows and outflows in future periods

As a finance manager at AllSports Communication, Charlie worries about the firm's borrowing requirements for the upcoming year. He knows the benefit of estimating AllSports' cash disbursements and short-term investment expectations. Facing these concerns, a(n) ________ would provide Charlie with valuable information by providing a good estimation of whether the firm will need to do short-term borrowing

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

The interest paid for debt financing is a tax-deductible expense for the firm.

By selling shares of ownership in their company, California Scientific acquires the funds needed to finance their research and development projects. California Scientific provides for their long-term funding needs through ________ financing