MIE 201 Chapter 16

Which of the following inventory issues negatively impact a firm's finances? - Inventory shortages may cause a customer to seek out a competitor's product for purchase - Firms that product goods just in time to meet sales demands experience backlogs in product and excess inventory - Excess inventory sitting in a warehouse reduces money that could be invested in some other part of the company

- Inventory shortages may cause a customer to seek out a competitor's product for purchase - Excess inventory sitting in a warehouse reduces money that could be invested in some other part of the company

Which of the following are examples of debt financing? - Lines of credit - Stock issues - Bonds - Long-term loans

- Lines of credit - Bonds - Long-term loans

Name the two largest stock markets in the U.S. - The New York Stock Exchange - The OTC market - The NASDAQ - The Chicago Stock Exchange

- The New York Stock Exchange - The NASDAQ

Which three of the following are true about a factor? - The firm that buys the accounts receivable collects the amount due - The factor buys a firm's accounts receivables for a discount - Small businesses use it to obtain cash - Customers are always made aware when a factor has bought their receivables

- The firm that buys the accounts receivable collects the amount due - The factor buys a firm's accounts receivables for a discount - Small businesses use it to obtain cash

Which of the following can issue bonds? - corporations - governments - private citizens - nonprofit corporations - public utilities

- corporations - governments - nonprofit corporations - public utilities

Which two things will firms do to speed up the collection of payments from customers? - utilize a lockbox - offer customers coupons for stock - utilize electronic funds transfer systems - threaten customers with collection notices

- utilize a lockbox - utilize electronic funds transfer systems

Commercial CDs

Savings accounts offered by commercial banks and brokerage companies with minimum investments amounts of $100,000 or more

A loan backed by collateral, something valuable like property, is called a _______ loan.

Secured

_______ bonds are backed by the specific collateral that must be forfeited in the event that the issuing firm defaults.

Secured

An individual wants to sell their stocks and bonds to other investors. This is made possible through _______.

Securities markets

A sequence of small bond issues of progressively longer maturities are called _______ bonds.

Serial

T-bills

Short-term debt obligations the U.S. government sells to raise money

The term working capital management refers to the continuous flow of _______ and _______ through an organization, which are said to be "working".

Short-term liabilities, Short-term assets

Coupon rate

The annual interest rate on the bond

Indenture

The bond contract

Average

The calculated average of certain stock prices

Rank the following capital investments according to the risk associated with each. - Repair old machinery - Introduce a new product in a familiar area - Add to a product line - Introduce a new product in a foreign market - Buy new equipment for an established market - Expand into a new market

1. Introduce a new product in a foreign market 2. Expand into a new market 3. Introduce a new product in a familiar area 4. Add to a product line 5. Buy new equipment for an established market 6. Repair old machinery

Index

A comparison of current stock prices with those in a specified base period

Joan owns a flower ship. As a small business owner she carefully manages the finances of her business. If Joan purchases flowers from a local producer for $500 and agrees to pay for the flowers within a month, Joan with list the $500 bill as _______ on her balance sheet.

Accounts payable

If you use your Macy's credit card to purchase a new outfit, you represent a(n) _______ on Macy's balance sheet.

Accounts receivable

Maturity date

Date in which the bond is to be repaid

The field that addresses the issues of obtaining and managing the funds and resources necessary to run a business successfully is called _______.

Financial management

Production facilities, office equipment, and heavy machinery are assets that are expected to last many years and are called long-term or _______ assets.

Fixed

If bond issuers believe that interest rates will fall, they may issue _______ bonds while rates are still high instead of locking in high fixed rates for the lifetimes of their bonds.

Floating rate

A _______ rate load has a floating interest rate, whereas _______ rate loans have a rate of interest that does not change during the life of the loan.

Floating, Fixed

Newer and less prosperous firms must pay _______ costs to attract capital because these companies tend to be quite risky.

Higher

What is the first public offering of a corporation's stock?

Initial public offering (IPO)

Face value

Initial sales price

During an economic downturn, companies with too much long-term debt may find themselves having difficulty making the required _______ payments on their loans. ultimately the company may be forced into bankruptcy.

Interest

When a small business owner borrows money from a bank, they will repay the original principal amount plus _______.

Interest

When businesses calculate the cost to borrow money for capital budget projects they must be sure to include the _______ expenses for the debt used to finance the project.

Interest

Firms attempt to maximize their accounts receivables by all of the following EXCEPT _______. - offering cash discounts for prompt payment - studying payment history of potential customers to access risk - only lending to wealthy persons - charging late payment fees

Only lending to wealthy persons

Owners of _______ stock are given preference in the payment of company dividends.

Preferred

_______ stockholders do not have voting rights in a firm.

Preferred

The interest rate commercial banks charge their best customers, usually large corporations, for short-term loans is the _______ rate.

Prime

When individuals and business borrow money, the amount of money borrowed is called _______.

Principal

Tagging a product with a silicon chip and an antenna and then using radio waves to track and identify those products is the technology behind the use of _______ tags.

RFID

Which of the following long-term funds can be generated internally by a firm? - Retained earnings - Low interest bank loans - Bonds - Stocks

Retained earnings

What role do investment bankers play in securities markets?

They help firms with the details of selling securities to the public

Credit extended by suppliers for the purchase of their goods and services is called _______ _______.

Trade credit

Idle cash typically does not earn interest for the company, thus financial managers try to keep small amounts on hand, called _______, to pay current bills such as wages, supplies and utilities.

Transaction balances

Which investment option is considered to be the safest of all investments since it is issues by the federal government?

Treasury bills

Which bonds are not backed by an specific collateral, such as land or equipment?

Unsecured bonds

______ bonds are not backed by collateral, whereas _______ bonds are backed by collateral that is pledged to bondholders if interest of principal isn't paid when promised.

Unsecured, Secured

Secondary Market

stock exchanges and over-the-counter markets where investors can trade previously owned stock

Select the two statement(s) below that are true about commercial CDs. - Commercial CDs are U.S. government debt obligations - Commercial CDs are written promises from one company to another to pay a specific amount of money - Commercial CDs are issued by commercial banks and brokerage companies in minimum amounts of $100,000 - Commercial CDs may be traded prior to maturity

- Commercial CDs are issued by commercial banks and brokerage companies in minimum amounts of $100,000 - Commercial CDs may be traded prior to maturity

What three things make up stakeholders' equity? - Common stock - Dividends yet to be paid - Preferred stock - Corporate business assets - Retained earnings

- Common stock - Preferred stock - Retained earnings

Which two of the following are likely to issue junk bonds? - Companies that have the ability to issue various types of bonds - Companies wanting the stability of low-interest bonds - Companies in poor financial health - Start-up firms with limited track records

- Companies in poor financial health - Start-up firms with limited track records

Select from the following the two common ways firms raise funds for long-term assets. - Equity financing - Debt financing - Capital budgeting - Factoring

- Equity financing - Debt financing

Which of the following are examples of temporary marketable security investments utilized by firms to invest idle cash? - Eurodollar deposits - Land - Inventory - Certificates of deposit - U.S. Treasury bills - Commercial paper - Mutual funds

- Eurodollar deposits - Certificates of deposit - U.S. Treasury bills - Commercial paper

Which of the following are the three national credit rating services? - Standard and Poor's - Experian - Lifelock - Equifax - TransUnion - Bank of America

- Experian - Equifax - TransUnion

Which three items are specified in the bond indenture? - Face value of the bond - Maturity date of the bond - Interest rate of the bond - Dividend paid on the bond - Price of the bond on the secondary market

- Face value of the bond - Maturity date of the bond - Interest rate of the bond

Capital lease

A long-term contract that is shown on the balance sheet as an asset and a liability

Eurodollar market

A market for trading U.S. dollars in foreign countries

Which of the following is a type of dividend? - A payment of additional shares or cash to stockholders - A cash rebate distributed among lenders - A bonus to government workers - The payment for borrowing money

A payment of additional shares or cash to stockholders

Operating lease

A short-term, cancellable lease that is not shown on the balance sheet

If a company issues a $1,000 bond with an interest rate of 5% and a maturity date of 2030, what is the company agreeing to pay the bondholder?

A total of $50 interest each year until the specified maturity date in 2030

Commercial paper

A written promise from one company to another to pay a specific amount of money

Current _______ are short-term resources such as cash, investments, accounts receivable, and inventory.

Assets

A(n) _______ is like an IOU with a promise to repay the amount borrowed, with interest on a certain date.

Bond

The process of analyzing the needs of the business and selecting assets that will maximize its value is called _______.

Capital budgeting

In a secured loan, if the borrower does not repay the loan, the bank can claim the _______ which was used to secure the loan in the first place.

Collateral

The term used to describe a written promise from one company to another to pay a specific amount of money is _______ paper

Commercial

The single most important source of capital for more new companies is _______ stock.

Common

The dividend yield is found by dividing the _______ by the _______ per share.

Dividend; Price

_______ trading is faster and less expensive than floor trading, and now accounts for most of the stock trading done worldwide.

Electronic

What is considered to be one of the most important facets of financial management?

Ensuring that there are sufficient (but not excessive) funds on hand to meet the company's obligations

Originally developed by London banks, any dollar-denominated deposit in a non-U.S. bank is called a _______ deposit.

Eurodollar

A _______ is a finance company that pays cash for a firm's accounts receivable and assumes responsibility for collecting the accounts.

Factor

Current _______ are short-term debts such as accounts payable, accrued salaries, accrued taxes, and short-term bank loans.

Liabilities

Juan runs a small manufacturing company. He thinks over the next year he might need to borrow approximately $25,000 for upgrades to his business. He has decided to make an arrangement with the bank for (a) _______, which will allow how to borrow various amounts over time, not to exceed $25,000, if he needs it.

Line of credit

Debts that will be repaid over a number of years, such as a lengthy bank load and bond issues are called _______.

Long-term liabilities

Primary market

Market where new issues of stocks and bonds are sold to the public

Financial managers involved with the management of current assets and liabilities have one primary goal, which is _______.

Maximize the return to the business on cash, investments, accounts receivable and inventory

Because most corporate bonds and all U.S. gov debt securities are traded in the _______ market, this market regularly accounts for the largest total dollar value of all secondary markets.

OTC

Short-term assets and liabilities are called current because they are always replaced by new assets and liabilities within _______.

One year

What is par value?

The dollar amount printed on the stock certificate and has no relation to actual market value