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Exam 18: Financial Management

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Question 101

Multiple Choice

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When Portable Pet Care, a mobile veterinary company, first started operations, it extended three months of credit to customers. It soon began to experience a cash flow problem. A finance professional was hired to

A) manage accounts receivable.
B) manage accounts payable.
C) develop tax strategies.
D) audit the company ledgers.

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

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Question 102

Multiple Choice

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Seedling Plant Science invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution worldwide, the company whose product produces lush green foliage needs a large amount of funding-fast! The handful of seed scientists that own the company decide to offer shares of stock to general investors. This first-time offering is a(n)

A) Stock Equity Commission (SEC) .
B) Stock Fund Offering (SFO) .
C) Broad-Based Offering (BBO) .
D) Initial Public Offering (IPO) .

E) All of the above
F) A) and B)

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Question 103

True/False

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If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm realize a benefit from using leverage.

Successful use of financial leverage requires a firm to

Undercapitalization refers to the problem of

Corporations that issue stock to raise long-term funds accept the legal obligation to repay the amount borrowed.

If a company secures a one-year bank loan this is considered

A promissory note that requires the borrower to repay the loan in specified installments is called a(n)

Many sellers offer a 2% discount to a buyer that makes payment 20 days before the due date, (2/10, net 30). Firms that fail to take advantage of this early payment discount are giving up approximately 36%.

Finance managers need funds for capital purchases, but seldom for the day-to-day operations.

Willow's small floral shop specializes in weddings. Though she knows 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.

To be effective, budgets are prepared independently of organizational forecasts.

The most widely used source of short-term funding is trade credit.

Leverage refers to the use of borrowed funds to increase a firm's rate of return.

By identifying variances from the financial plan, managers are able to focus on those departments that require corrective action.

A debenture bond is backed only by the reputation of the issuer.

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)

Portable Pet Care, Inc., a mobile veterinary clinic, 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 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.

Inadequate control of expenses represents a common financial problem that contributes to business failure.

By purchasing stock in Film Files, Mackenzie has become a(n) ________ the company.