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Exam 18: Financial Management

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Question 71

True/False

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Budgets assist managers in performing the functions of planning and control.

A) True
B) False

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Question 72

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

A) intensity of competition the firm faces with new products.
B) current level of government regulations.
C) general level of market interest rates.
D) exchange rate of the euro to the U.S. dollar.

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

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Question 73

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

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

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

Virginia Supply offers their customers trade credit with terms 2/15 net 30. This implies that:

By purchasing stock in Entertainment Today, Veronica has become a(n) ________ the company

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

The CFO of a satellite radio company was trying to work his magic today as he solicited another telecommunications/entertainment company to invest in his company in order to prevent bankruptcy. Having refinanced the company less than a year ago, the satellite radio finance manager had a $75 million note coming due today. The current financing arrangement represents:

Equity financing may involve the sale of stock (representing ownership) to new investors.

White Palace operates a chain of restaurants specializing in hamburgers. The corporation plans to expand to new communities. The acquisition of land and construction of new restaurants represent major capital expenditures.

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 importance of financial managers to firms with large cash inflows is greater than for firms with smaller cash flows.

Rod was required to pledge his house and car as collateral for a loan he received from the First National Bank. The money from the loan was used to start his new business, which unfortunately failed within 6 months. The bank can now claim Rod's house and car to satisfy its claim.

A(n) _____________ job includes forecasting, budgeting, cash flow analysis, cost control, taxes, and credit management

As a management consultant, Lamont knows that regardless of how good his firm's product might be, the business has little chance of success without a(n) :

When using equity financing, firms incur a legal obligation to repay the amount of money invested.

Many small businesses rely on factoring as a source of short-term financing because:

Which of the following would normally involve long-term financing?

Carolina Financial Services is considering the purchase and installation of an expensive computer network. This is the type of expenditure that would be included in a(n) :