New Venture Finance Exam 2 (Set 2)

Consider a product that costs $5 to make, and is sold for $15. What is the productivity ratio? A. 2:1 B. 1:1 C. 1:3 D. 3:1

D. 3:1

How can you improve the management of accounts payable? A. Negotiate better terms B. Avoid interest penalty charges C. Communicate with suppliers D. All of these

D. All of these

Often referred to as blood equity, the typical sources of personal funds include: A. savings B. life Insurance C. mortgage on a house or car D. All of these

D. All of these

Regulation D contains which of the following? A. General definitions of what constitutes a private offering B. Broad provisions designed to simplify private offerings C. Specific operating rules D. All of these

D. All of these

The issues of Property, Plant, and Equipment (PPE) are most important if you are in which of the following industries: A. retail merchandising or wholesale B. manufacturing, farming, and mining C. online retail D. All of these

D. All of these

When scheduling orders for inventory which factor determines the optimal reorder point? A. # of days to receive inventory B. Cost of potential sales lost C. # of units sold per day D. All of these

D. All of these

Which of the following is true of Net Working Capital? A. It is directly related to the ability to service other expenses B. It is a measurement of the companies solvency C. It is not equal to Gross Working capital D. All of these

D. All of these

Cash obtained from stocks, bonds, land, banks, and equipment is known as? A. Cash flow from operations B. Marketable securities C. Demand deposits D. Cash flow from investing

D. Cash flow from investing

_____ make up most of the non currency cash which is available immediately. A. Marketable securities B. Debt investments C. Commercial papers D. Demand deposits

D. Demand deposits

Which of the following is a statistical technique that determines the size of inventory that a business must hold to minimize total inventory cost? A. Benchmarking B. Factoring C. Pull-push strategy D. Economic order quantity

D. Economic order quantity

2/10 net 30 is often used to refer to... A. If the customer pays within 30 days they are allowed a 10% discount, otherwise the payment is due in 2 months B. 2% of the payment is due within the first 10 days, the remaining balance in 30 days C. 10% of the payment is due in 2 days the remaining is due in 30 days D. If the customer pays within 10 days they are allowed a 2% discount, otherwise the payment is due in 30 days

D. If the customer pays within 10 days they are allowed a 2% discount, otherwise the payment is due in 30 days

_____ is a general term for real estate, but it can also be applied as a legal term for anything owned or possessed. A. Equipment B. Plant C. Inventory D. Property

D. Property

Mr. Hill, who runs a key-chain manufacturing unit, buys raw materials from his supplier during the first week of every month. The supplier's policy states that all payments need to be cleared within 50 days of buying the materials. This schedule ensures that Mr. Hill gets an extended period to make payments thus controlling when the payment is made. Which of the following strategies is Mr. Hill using to control cash outflow? A. Taking a consignment B. Offering trade discount C. Gaming the payment process D. Timing the purchase

D. Timing the purchase

Potential buyers and investors are most interested in the _____ value of a business's assets. A. book B. replacement C. charge back D. disposal

D. disposal

Kevin has taken an apartment on lease for five years with a monthly rental of $3,500. At the end of five years, Kevin will be the legal owner of the apartment after an additional payment of $80,000. This type of lease is an example of a _____ lease. A. leveraged B. capital C. direct D. operating

D. operating

BlueBull Co. is leasing a bottling machine for its energy drinks. The lease is for 5 years $100,000 dollars a year. At the end of 5 years the bottling machine asset becomes property of BlueBull for no additional cost. What type of lease do they have? A. Operating Lease B. Cost Funded Lease C. Capital Lease D. Profit Lease

C. Capital Lease

A business's cash flow is commonly referred to as? A. FCF B. EBITDA C. EBIT D. Net Earnings

C. EBIT

The amount of time it takes a business to earn back the funds it paid out to obtain a capital asset is referred to as the _____. A. payback period B. synodic period C. chargeback period D. grace period

- A. payback period

Which of the following is the cost incurred in financing, insuring, taxing, or tracking an asset? A. Acquisition cost B. Cost of owning C. Cost of operating D. Replacement cost

- B. Cost of owning

Which of the following is a technique used by a small business to increase cash inflows? A. Making deposits and progress payments B. Forgoing any receivables C. Offering discounts for prompt payment D. Refusing any noncore paying projects

C. Offering discounts for prompt payment

Negative effects of allowing customers a month or two to pay include all of the following EXCEPT A. Providing credit delays the receipt of cash. B. The cash "lost" by credit must somehow be obtained through other means, such as borrowing. C. Providing credit makes customers distrustful of the business' legitimacy. D. When giving credit to customers, sooner or later, someone will not pay and the business will lose that money.

C. Providing credit makes customers distrustful of the business' legitimacy.

The sum of money that has actually been received and paid out of a depositor's account is termed _____. A. bank ledger balance B. company book balance C. bank available balance D. overdraft balance

C. bank available balance

Delays in the movement of money among depositors and banks is referred to as a(n) _____. A. overdraft B. ledger balance C. float D. charge back

C. float

The practice of purchasing and accepting delivery of inventory only after it has been sold to the final customer is termed as _____. A. perpetual inventory B. point-of-sale system C. just-in-time inventory D. optimum stocking level

C. just-in-time inventory

The _____ is also called the reorder point. A. replacement value B. disposal value C. optimum stocking level D. economic order quantity

C. optimum stocking level

What is the typical amount that a factoring company will pay you for your receivables? A. 75%-80% B. 110% C. 60%-90% D. 30%-50%

A. 75%-80%

Your company is interested in purchasing a $20,000 piece of equipment over a period of time by using a lease. Which type of lease would be best for you? A. Capital Lease B. Operating Lease C. Asset Lease D. Equity Lease

A. Capital Lease

_____ are notes issued by credit-worthy corporations. A. Commercial papers B. Receivables C. Demand deposits D. Marketable securities

A. Commercial papers

Which of the following is the most common noncash incentive given to an employee? A. Stock options B. Autonomy C. Benefits packages D. Telecommuting

A. Stock options

A(n) _____ refers to the sum of cash inflows and cash outflows recorded in a firm's accounting records. A. company book balance B. bank ledger balance C. overdraft balance D. bank available balance

A. company book balance

Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major—who manages the budgets and expenses of the business. Tammy receives a bulk order from a customer to make 100 paper roses for Valentine's Day. She charges 20 percent of the total sales price in advance and promises to deliver the order within 30 days. The advance payment that Tammy receives for the order before delivering the product is called _____. A. discount payment B. deposit and progress payment C. noncash incentive D. gaming the payment process

A. discount payment

A _____ is the process of physically counting business assets on a set schedule. A. periodic inventory B. perpetual inventory C. just-in-time inventory D. micro inventory

A. periodic inventory

Pledging receivables will get an owner about one-half of the amount that can be collected, whereas, factoring can immediately get an owner _____ percent of the amount due. A. 90-95 B. 75-80 C. 40-45 D. 20-25

B. 75-80

_____ refers to money that is owed to a business by its customers who purchased a product on credit. A. Pledging receivable B. Accounts receivable C. Factoring receivable D. Accounts payable

B. Accounts receivable

Which of the following goals need to be addressed for extending credit to customers? A. Getting as many customers as possible B. Arranging a loan and making regular payments of interest C. Keeping the number of bad accounts as low as possible D. Increasing the time between a credit sale and cash receipt

B. Arranging a loan and making regular payments of interest

_____ is a schedule of the amounts and timings of the cash coming into a business. A. Cash disbursements budget B. Cash receipts budget C. Comprehensive budget D. Capital budget

B. Cash receipts budget

Which of these is not one of the three ways a company can reduce its cash gap? A. Decrease the number of items in the inventory - B. Increase the number of days it takes to pay for inventory C. Decrease the number of days it takes to collect receivables D. Increase the inventory turns

B. Increase the number of days it takes to pay for inventory

Which of the following is a feature of the perpetual inventory system? A. It is the method with the lowest cost for maintaining records. B. It maintains a constant record of the receipt and sale of inventory. C. It requires very little time for constant record keeping. D. It is the process of physically counting inventories on a set schedule.

B. It maintains a constant record of the receipt and sale of inventory.

Cash is a form of money but cash is composed of only 3 elements. Which of the listed element is not considered cash? A. Traveler's checks B. Marketable securities C. Demand deposits D. Currency

B. Marketable securities

_____ refers to a situation that occurs when a check is returned to a depositor because the writer of the check did not have a bank available balance equal to or greater than the amount of the check. A. Charge back B. Nonsufficient fund C. Reconciling D. Overdraft

B. Nonsufficient fund

_____ is the cost incurred to substitute one asset with an identical asset. A. Disposal value B. Replacement value C. Fair market value D. Book value

B. Replacement value

Which of these options are NOT a way to increase cash flow? A. Taking on noncore paying projects B. Taking clients to court C. Factoring Receivables D. Offer discounts on prompt payments

B. Taking clients to court

Depreciation is based on which of the following assumptions? A. The period of utility of an asset is not fixed or determinable. B. The value of an asset declines in a predictable manner over the period of utility. C. The salvage value of an asset will not exist when the depreciation process is complete. D. The value of an asset is not fixed or determinable.

B. The value of an asset declines in a predictable manner over the period of utility.

A Cash Receipts Budget is a schedule of the _______ into a business A. debits and credits of cash received B. amounts and timings of the receipts of cash C. amounts of cash received D. amounts of financing and cash from sales receipts

B. amounts and timings of the receipts of cash

Currency is a form of cash represented by: A. stocks and bonds. B. bills and coins. C. commercial paper. D. demand deposits.

B. bills and coins.

For a business to factor receivables, the _____ must have good credit ratings. A. suppliers B. business C. vendors D. customers

B. business

The _____ methods define utility as being the net cash inflows that the asset will produce. A. residual income valuation B. discounted cash flow valuation C. inventory valuation D. pre-money valuation

B. discounted cash flow valuation

Tammy is talented at craft but lacks the cash flow management skills required to run a business. She opens a store, Tammy's Craft Corner, with the help of her son David—a business major. Within a few months, the sales increase exponentially which results in a shortage of cash needed to expand their business. This crisis is termed _____. A. nonsufficient funds B. growth trap C. charge back D. reconciling

B. growth trap

The _____ is the total cost of substituting an asset with an essentially identical asset. A. cost of disposition B. replacement cost C. cost of operating D. acquisition cost

B. replacement cost

In small businesses, providing credit to customers decreases the need to borrow cash. (T or F)

False

People outside of a company are more likely to steal money than an employee. (T or F)

False

The cost of ordering inventory is far greater than the cost of owning and holding inventory. (T or F)

False

Assigning a high value to inventory results in increased sales margin and reported profit, but at the price of paying increased income taxes. (T or F)

True

Cash-to-cash cycle and operating cycle are the same thing. (T or F)

True

Short-term assets are also known as operating assets. (T or F)

True

The higher amount of leverage (debt/total assets), the greater the risk in the venture. (T or F)

True

The total cost of keeping inventory is the sum of the cost to buy the inventory, the cost to store, protect, and maintain inventory, and the cost of making an order to purchase inventory. (T or F)

True