Chapter 18 Smart book

Identify the statements that are correct regarding pledging.

A percentage of the value of a firm's accounts receivable pledged is advanced to the borrowing firm. In pledging, a firm's accounts receivable are used as the collateral for a loan.

______ is a promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments.

A term-loan agreement

The amount a business borrows and for how long depends on which of the following?

How quickly it can resell the merchandise it purchases with the funds The type of business and industry it is in

Which of the following are true about commercial paper?

It is a short term source of funds. Only large, stable firms offer it.

Which statements are true regarding trade credit?

It is used by large and small businesses It is the most widely used source of short-term funds It is usually more convenient than bank loans

Which statements are true about factoring accounts?

The firm that buys the accounts receivable collects the amount due. It is the accounts receivable of a firm sold for a discount. Small businesses often use it for financing in the short term.

Which of the following is true about venture capitalists?

They have assisted many major companies during start-up They invest in businesses with high potential

Which are questions financial managers ask when considering long-term financing?

What sources of long-term funding (capital) are available, and which will best fit our needs? What funds do we need to achieve the firm's long-term goals and objectives? What are the organization's long-term goals and objectives?

In pledging, the firm uses its ______ as collateral for a loan.

accounts receivable

The first public offering of a corporation's stock is called ______.

an initial public offering (IPO)

It is better to go to banks instead of family and friends for business loans because ______.

banks can assist the business in analyzing problems loans from family can hurt family relationships

Why can loans obtained from families and friends be problematic?

because all parties may not understand cash flow

When a company allocates the use of specific resources throughout the firm based on a financial plan indicating management's expectations, then the company is using a(n) ___ as the basis for making decisions.

budget

As a function of financial management, financial managers must understand tax regulations because ______.

businesses want to minimize taxes they must consider the tax implications of major decisions

A firm that makes a major investment in a long-term asset has made a(n) ___ expenditure.

capital

Major investments in either tangible long-term assets such as land, or intangible assets such as patents are considered to be ______ expenditures.

capital

Determinants of how much money a firm should borrow include:

cash flow forecasts speed with which they can turn the borrowed funds into cash

A secured loan is backed by ___

collateral

Needs for operating funds include ______.

controlling credit operations making capital expenditures acquiring needed inventory

Financial control is a process through which a firm periodically compares its budget to which of the following?

costs expenses revenues

During tough economic times, customers are happy when firms extend ___ for purchases.

credit

___ ___ are a form of financing where the merchant accepts payment immediately from the bank and the customer agrees to repay the bank.

credit cards

___ financing is funding raised through various forms of borrowing that must be repaid.

debt

Borrowing money the company has a legal obligation to repay is ______.

debt financing

Functions of financial management do NOT include ______.

ensuring employees are paid fairly

Select the steps in financial planning.

establish financial controls develop budgets forecasting short term needs

In any business, funds come into and go out of a business. What business function acquires funds for the firm and then manages those funds on a day-to-day basis?

finance

The function of acquiring and managing funds within a firm is referred to as

finance

When a firm periodically compares its actual revenues, costs, and expenses with its budget, it is engaging in ___ control.

financial

Finance is the function of acquiring and management of ______.

funds

How much money a firm will borrow often depends on how long it takes to convert inventory into ___

funds

Which are forms of debt financing?

getting a loan from a bank issuing bonds

What inventory management procedure helps a firm to control inventory costs?

implementing a just-in-time inventory control method

Firms will leverage (raise needed funds through borrowing) because it will ______.

increase a firm's rate of return on ownership's investment

Careful control of a firm's ___ costs allows it to maintain correct levels of stock and product.

inventory

Raising needed funds through borrowing to increase a firm's rate of return is called

leverage

When considering ___-___ financing options a financial manager must consider the organization's financial goals and objectives.

long-term

Compared to a bank, the interest on commercial paper is ______.

lower

Money is considered to have a time value because ______.

money has more value in your possession today than at a later point in the future

Debt financing refers to funds that ______.

must be repaid

Funding day-to-day operations, acquiring needed inventory, and making capital expenditures are all needs for ___ funds in an organization.

operating

___ funds are typically needed to manage day to day needs of a business as well as acquiring needed inventory.

operating

Dimitri owns stock in a U.S. publicly traded company. As a stockholder, Dimitri is a(n) ______ of the corporation.

owner

Is it more common for a firm to fail due to lack of sales or poor financial management?

poor financial management

Retained earnings are the ______.

profits the company keeps

Accepting credit cards can be useful to small businesses by

providing the business with payment more quickly providing ease of payment for customers

Profits the company keeps and reinvests in the firm are called ______.

retained earnings

The ___/return trade-off means that, the greater the risk a lender makes in making a loan, the higher the interest rate.

risk

During the recent financial collapse, financial managers failed to do their job effectively because of:

risky financial decisions poor investment decisions

A firm that puts something of value, like a piece of property, up for collateral is applying for a(n) ___ loan.

secured

A loan backed by collateral, something valuable like property, is called a(n) ______.

secured loan

Small business managers are more concerned with ______-term funds. Multiple choice question.

short

A(n) ______ forecast predicts revenues, costs, and expenses for a period of one year or less.

short-term

Short-term financing is more important to a small business than long-term financing because ______.

small businesses are more concerned with funding day to day operations

An IPO is the first public offering of a corporation's

stock

In a public corporation, the ownership is held by ___

stockholders

A firm that has a promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments has a(n) ___-loan agreement.

term

In factoring, the discount given depends on ______.

the condition of the economy the age of the accounts receivable the nature of the business

An IPO is ______.

the first public offering of a corporation's stock

The risk/return trade-off principle means that ______.

the greater the risk for a lender making a loan, the higher the interest rate

If a secured loan is not repaid, then

the lender may take the collateral

Advantages of using a credit card in small business financing include that ______.

they save time cards are accepted in many places

The ___ value of money is the idea that money in your possession today is worth more than money that will be in your possession in the future.

time

A firm that buys goods and services on a given day, but pays for them later is using a(n) ___ credit.

trade

True or false: A budget is a tool for financial planning.

true

True or false: The financial crisis that began in 2008 was due, in large part, to financial managers making poor investment decisions and engaging in risky financial dealings.

true

What are the three most common reasons firms fail financially?

undercapitalization inadequate expense control poor control over cash flow

Because a majority of small business are rejected for traditional business loans, many ______ for short-term financing.

use credit cards

Money invested in new or emerging companies that investors believe have great profit potential is:

venture capital

Short-term forecasts generally cover up to a ______.

year