Question 1

Capital expenditures are major investments in long-term assets such as property and equipment.

Accepted Answer

A) True 
 B)False

Question 2

Explain the role the operating budget, the capital budget, and the cash budget play in financial planning.

Accepted Answer

The operating budget (master budget) tie...

Question 3

Undercapitalization refers to the problem of:

Accepted Answer

A)   insufficient start-up funds.
B)   inadequate control of expenses.
C)   inappropriate cash flows.
D)   undervalued capital stock.E) A) and B)
F) B) and C)

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

What are two major forms of debt financing? Describe and differentiate between the two types.

Accepted Answer

The two forms of debt financing are (1) ...

Question 6

Unlike bonds, stocks offer the advantage of tax-deductible interest payments.

Accepted Answer

A) True 
 B)False

Question 7

Green Builder's Supply, Inc., does not offer customers a cash discount for early payment of their accounts receivable. As a result, most customers wait to pay their bill on the last day before late penalties are charged. These customers apparently understand the:

Accepted Answer

A)   time value of money.
B)   benefits of tax-deductible expenses.
C)   financial community's perception of equity financing.
D)   government's regulations of the chemical industry.E) A) and D)
F) B) and C)

Question 8

Investors and entrepreneurs should have an understanding of financial issues.

Accepted Answer

A) True 
 B)False

Question 9

According to the risk/return trade-off, the higher the risk, the lower the interest rate charged by the lender.

Accepted Answer

A) True 
 B)False

Question 10

Sound financial management involves determining the most appropriate sources of funds to meet short-term and long-term needs of an organization.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following correctly identifies areas of authority and responsibility for a chief financial officer (CFO) ?

Accepted Answer

A)   Accounting and finance
B)   Marketing and finance
C)   Production and accounting
D)   Finance and research and developmentE) A) and B)
F) B) and C)

Question 12

To maximize the benefits of using financial leverage, a firm should:

Accepted Answer

A)   strive to minimize their cost of capital.
B)   avoid securing funds through long-term debt financing.
C)   limit their investments to projects with minimum risk levels.
D)   incorporate in states with relatively low tax rates.E) A) and B)
F) A) and C)

Question 13

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

Accepted Answer

A) True 
 B)False

Question 14

To be effective, an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Accepted Answer

A) True 
 B)False

Question 15

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) :

Accepted Answer

A)   indenture agreement.
B)   promissory note.
C)   line of credit.
D)   factoring agreement.E) C) and D)
F) None of the above

Question 16

Which of the following statements represents good advice prior to making capital expenditures?

Accepted Answer

A)   Capital expenditures represent borrowed funds that must be repaid in one year or less. It is important to seek the advice of your accountant prior to committing.
B)   Capital expenditures represent investment in inventories and expendable assets that the firm will use in one year or less. It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.
C)   Most firms do not value capital expenditures on their balance sheets, so it is important to stay abreast of the market value of these assets at all times, in case you want to sell them.
D)   Capital expenditures are major investments, meaning they require large sums of funds. Companies should weigh all possible options before committing available resources to projects that take significant amounts of funds and extended time.E) A) and B)
F) All of the above

Question 17

Which of these statements about corporate bonds is correct?

Accepted Answer

A)   Bonds provide equity financing.
B)   Issuing new bonds dilutes the existing ownership in the firm.
C)   Interest paid to bondholders represents a tax-deductible business expense.
D)   Debenture bonds require assets pledged as collateral.E) A) and D)
F) None of the above

Question 18

A firm will choose to seek debt financing only for the purpose of paying for short-term operating needs.

Accepted Answer

A) True 
 B)False

Question 19

A comptroller is responsible for the acquiring and managing of funds for an organization.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following represents a source of short-term funding?

Accepted Answer

A)   Retained earnings
B)   Commercial paper
C)   Common stock
D)   Corporate bondsE) A) and C)
F) A) and D)

Exam 18: Financial Management

Unlike bonds, stocks offer the advantage of tax-deductible interest payments.

Correct AnswerverifiedShow Answer

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) :

Correct AnswerverifiedShow Answer

Investors and entrepreneurs should have an understanding of financial issues.

Correct AnswerverifiedShow Answer

Sound financial management involves determining the most appropriate sources of funds to meet short-term and long-term needs of an organization.

Correct AnswerverifiedShow Answer

To be effective, an internal auditor must be critical of any improprieties or deficiencies found in the financial activities of the firm.

Correct AnswerverifiedShow Answer

Undercapitalization refers to the problem of:

Correct AnswerverifiedShow Answer

A firm will choose to seek debt financing only for the purpose of paying for short-term operating needs.

Correct AnswerverifiedShow Answer

Which of the following statements represents good advice prior to making capital expenditures?

Correct AnswerverifiedShow Answer

What are two major forms of debt financing? Describe and differentiate between the two types.

Correct AnswerverifiedThe two forms of debt financing are (1) ...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

To maximize the benefits of using financial leverage, a firm should:

Correct AnswerverifiedShow Answer

Explain the role the operating budget, the capital budget, and the cash budget play in financial planning.

Correct AnswerverifiedThe operating budget (master budget) tie...View AnswerShow Answer

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

Correct AnswerverifiedShow Answer

Green Builder's Supply, Inc., does not offer customers a cash discount for early payment of their accounts receivable. As a result, most customers wait to pay their bill on the last day before late penalties are charged. These customers apparently understand the:

Correct AnswerverifiedShow Answer

Which of the following represents a source of short-term funding?

Correct AnswerverifiedShow Answer

According to the risk/return trade-off, the higher the risk, the lower the interest rate charged by the lender.

Correct AnswerverifiedShow Answer

A comptroller is responsible for the acquiring and managing of funds for an organization.

Correct AnswerverifiedShow Answer

Capital expenditures are major investments in long-term assets such as property and equipment.

Correct AnswerverifiedShow Answer

Which of these statements about corporate bonds is correct?

Correct AnswerverifiedShow Answer

Which of the following correctly identifies areas of authority and responsibility for a chief financial officer (CFO) ?

Correct AnswerverifiedShow Answer

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The two forms of debt financing are (1) ...
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The operating budget (master budget) tie...
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