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Exam 18: Financial Management

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Question 131

Multiple Choice

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A just-in-time inventory system allows a firm to:

A) extend credit to new customers.
B) provide sufficient inventory for most contingencies.
C) reduce their investment in inventory.
D) reduce capital expenditures.

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

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Question 132

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

A) True
B) False

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Question 133

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An operating budget analyzes the firm's spending plans for long-lasting assets that require large sums of money.

Explain the term leverage.When is it more favorable for firms to use this strategy?

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

__________ refers to the strategy of using borrowed funds to increase the rate of return for stockholders.

The operating (master)budget identifies the funds (and the allocation of those funds)required to operate a business at a projected level of revenue.

A _________ forecast predicts the revenues,costs,and expenses a firm will incur for a period longer than one year.

A(n) __________ is responsible for verifying that the accounting procedures within a firm are consistent with established accounting principles.

Budgets are prepared after the financial forecasts are developed.

Big Ticket Technologies holds commercial paper issued by Prude Insurance Corporation that matures in 180 days.However,shortly after Big Ticket purchased the commercial paper,Prude Insurance went out of business.The finance manager for Big Ticket is not worried because his loan to the corporation is secured by collateral that he can now claim.

Finance managers spend the majority of their time managing ____________.

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

A line of credit from a bank guarantees a firm that a specified amount of financing will be available when it is needed.

As a result of cash flow shortages,Millard's Department Stores has fallen behind in payments to suppliers.Some suppliers are withholding shipments to Millard's until they receive payments on overdue accounts.To meet their immediate needs,Millard's Department Stores should utilize:

Tax payments are important to the finance manager because they represent a cash inflow to a firm.

According to the Connecting Across Borders box,since 2011 Middle Eastern countries are starting to invest less in sovereign wealth funds (SWFs),and are in turn investing in their home countries.

Acquiring funds through debt financing actually decreases the overall risk of the firm.

After earning $30 million in net income,Rolatrim Industries distributed $5 million in dividends to their stockholders.The board of directors of the firm decided to invest the remaining $25 million back into the business.This $25 million reinvestment of profits represents:

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