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Exam 18: Financial Management

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Question 81

Multiple Choice

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The effective management of accounts receivable requires financial managers to:

A) review the credit history of new customers.
B) provide prompt cash payments to suppliers.
C) allow customers more time in paying their past due accounts.
D) refuse bank-issued credit cards.

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

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Question 82

Multiple Choice

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A less-established company, or a company with a high debt to equity ratio, would be considered a riskier investment to the lender. Which of the following principles attests to this axiom?

A) Direct relationship principle
B) Compensating balance concept
C) Risk/return trade-off
D) Cost-benefit analysis

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

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Question 83

Multiple Choice

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If a company wants to predict how much money it can make this coming year, it would benefit from developing a:

Expansion into new markets (either domestic or global) is sometimes financed with long-term funds.

The primary focus of a cash flow forecast is the firm's revenue and costs for the current operating period.

According to the box, Adapting to Change, it is impossible for small businesses to bring in venture capital from investors.

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:

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 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.

An unsecured corporate bond is known as a debenture bond.

Factoring represents the least expensive way for a firm to raise short-term funds.

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:

An effective budget requires:

Effective financial managers evaluate customers' ability to pay for merchandise purchased on credit.

Financial managers are responsible for the management of accounts receivable and accounts payable.

A cash budget helps managers anticipate borrowing, debt repayment, operating expenses, and short-term investment opportunities.

As mentioned in the Reaching Beyond Our Borders box, sovereign wealth funds can easily purchase more than 10% of a U.S. company without investigation by the U.S. government.

Financial managers devote the majority of their time obtaining long-term financing to fund the firm's capital expenditures.

Finance is the function in a business that acquires funds for the firm and manages those funds within the firm.

An internal auditor is responsible for paying the company's bills and collecting overdue payments from customers.

As a financial manager for a very profitable manufacturer of specialty steel, Kurt has been asked to investigate sources of long-term funds to finance the construction of a new facility. Kurt would prefer a funding source that does not require interest payments or involve major underwriting fees. Kurt will consider using retained earnings to fund the construction project.