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Exam 18: Financial Management

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Question 1

Multiple Choice

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Liberty Electronics wants to predict how much money it can make this coming year.Liberty would benefit from developing a:

A) master budget.
B) consolidated income statement.
C) short-term forecast.
D) statement of cash flows.

E) All of the above
F) C) and D)

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Question 2

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Long-term financing would normally be used to purchase:

A) supplies.
B) inventory.
C) buildings.
D) highly liquid assets.

E) B) and C)
F) None of the above

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Question 3

Multiple Choice

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The managers of Dakota Clothing regularly compare their actual profits with the firm's projected profits.When deviations occur,the managers use the feedback to take corrective action when necessary.The management of Dakota Clothing is exercising financial:

Mini-Case Tishian's Funeral Home has been in business for over eighty 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 approached the chief lending officer at First Virginia Bank about obtaining a $75,000 loan.The banker said she would approve the loan provided that the funeral home's building was pledged as collateral.The banker was offering a(n) :

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.

Preferred Pet Care,Inc. ,a mobile pet care company is planning for the future.The company owners (two seasoned veterinarians)have brought together the vice president of marketing and the director of information systems to talk about how their expansion campaign: "We come to you!" The talks are in the preliminary stages,so there is no need to concern the finance team at this time because cash flow is currently not a problem.

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?

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

Factoring refers to the process of selling accounts receivable for cash.

__________ provide financing to new or emerging companies with high profit potential.In return,these organizations expect a share of ownership in the company.

_____________ is the function in business that is responsible for acquiring funds for the firm,and managing funds within the firm.

Farmers Savings and Loan agreed to extend Eckert's Orchards $200,000 of unsecured short-term funds,contingent upon the bank having the funds available.This arrangement represents a:

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.

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

Some suppliers hesitate to offer trade credit to firms with a poor credit history.In these cases,the supplier may insist that the customer sign a(n) :

The owner of a Mountain Cycle Shop worries that cash flows may be insufficient to pay his current operating expenses.While he anticipates a surplus of cash inflows as warm weather approaches,he needs to borrow funds now to meet his immediate obligations.He can best resolve his cash flow concerns by obtaining ________ financing.

Managing a firm's resources so that it can meet its goals and objectives is the goal of financial accounting.

Venture capital is money that is invested in new or emerging companies that are perceived as having great profit potential.

Sarah intends to major in finance and find employment in corporate financial management.As a finance major,Sarah will discover her ________ knowledge to be valuable in mastering the objectives of her finance classes.

An example of a firm using leverage to its advantage is a firm that borrows funds at 9% and invests those funds to earn 14%.