SEVI Chap 16 Practice Questions
Kemi is the principal owner of a home and office cleaning corporation. To obtain necessary operational capital, the company has issued a bond to investors backed only by its reputation. Which of the following did Kemi's corporation issue?
A debenture bond
Ishara owns and operates a hardware store. She needs a $20,000 small business loan to purchase additional inventory for the store, and to do that, the local bank requires Ishara to pledge her home as security for the loan. In this transaction, Ishara's home represents which of the following?
Collateral
Luiz and Naroa have decided to form a law partnership. To get their practice started, Luiz and Naroa have agreed to provide $25,000 each from their personal funds. These contributions from Luiz and Naroa to their partnership represent which of the following?
Equity capital
_______ is the use of borrowed funds to increase the return on owners' equity.
Financial leverage
______ is defined as all of the activities concerned with obtaining money and using it effectively.
Financial management
As a young entrepreneur who operates a recently launched landscaping business, Vicente would like to learn more about the traditional banking services provided to business clients. Which of the following is not one of those services?
Issuing business bankruptcy insurance
As an executive manager for a paint manufacturing company, Patrick understands the importance of effective financial management to the success of his company. Which of the following is incorrect regarding proper financial management?
It must ensure that the company "go public" with an initial public offering within the first ten years of the firm's existence.
As a Master of Business Administration (MBA) student, Ingrid is learning about corporate retained earnings. Which of the following is incorrect regarding retained earnings?
Most large corporations distribute all their after-tax earnings to stockholders.
Alpha Corporation, an industrial chemical producer, has been very successful in the industrial chemical market. Its research and development team is working on products that will be used in farming. It needs $100 million to expand its production and develop its new products. It has agreed to issue written pledges that it will repay a specified amount of money with interest on a particular day. Because it is uncertain it will have sufficient funds available if all of the pledges should become due on the same day, none of the pledges will be paid during the first 15 years. After 15 years, 10 percent of the pledges will mature each year until all of them are retired at the end of the 25th year. What are the pledges?
Serial bonds
Rin owns and operates a residential kitchen cabinet manufacturing company. Based on previous experience, Rin knows that although she will have a production run of cabinets in January, those cabinets may not sell until April, when the weather for home construction improves. This time lag between Rin's actual production of cabinetry in January and when it is sold in April is which of the following?
Speculative production
Advik just took out a short-term loan from the local bank for his alien novelty shop in Roswell, New Mexico. Due to his outstanding credit, Advik was fortunate enough to receive the lowest interest rate charged by the bank for a short-term loan. Advik received which of the following?
The prime rate
Riko owns and operates a furniture wholesaling business. To facilitate sales to retailers, Riko often provides financial assistance to his retail customers by allowing them up to 60 days to pay for the furniture they purchase. Which of the following describes the arrangement Riko has with his customers?
Trade credit
Hy-Vee supermarkets use _____ to convert information from its customers' checks into an electronic payment for products.
electronic check conversion (ECC)
Mattress Barn needs short-term loans periodically to cover operating expenses prior to selling new shipments of mattresses. To cover its short-term capital needs, it uses a _______, which is a loan approved before the money is actually needed.
line of credit
Equity financing provides two primary benefits for corporations. These benefits are that ________
there is no obligation to pay dividends or to repay the money obtained from the sale of stock
Thrifty Car Rental follows a ______ budgeting process in which each department manager is required to provide documentation justifying every expected expense.
zero-based
Dafina has been successful this year in the yogurt shop she owns and operates. In fact, Dafina has generated $9,500 in profit so far this year, and she chooses to deposit this money in the bank in case she needs it for her business in the future. In her arrangement with the bank, Dafina will leave her $9,500 on deposit for one year, and in return, the bank will pay her a specified rate of interest. The agreement between Dafina and the bank represents which of the following?
A certificate of deposit (CD)
Copper Penny Productions needs to purchase new equipment for the business. The owners of the company choose to fund this purchase with a bank loan. Copper Penny Productions is utilizing _____.
debt capital
A(n) ______ is a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments.
term-loan agreement
Effia is the majority shareholder of a publicly traded manufacturing corporation. To obtain required operational funding, the company has issued a bond to investors that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock. Effia's company has issued which of the following?
A convertible bond
In her Introduction to Business class, Catarina is learning about the four primary sources of funds available to a business. Which of the following is not one of those sources?
Dividend distributions
Arlo is the finance manager of TK Corporation and has been tasked with establishing the company's financial plan. The steps to effective financial planning are _____.
establishing organizational goals and objectives, budgeting for financial needs, and identifying sources of financing
When Affirm, a technology firm, sold common stock for the first time to whoever wanted to buy it, this _____ generated $11.9 billion for the company.
initial public offering
A firm is likely to seek long-term financing in all of the following situations except _____.
unexpected emergencies
Junction 35 Outfitters often uses ____ a sales arrangement in which a seller allows a buyer 30 to 60 days to pay for a purchase.
trade credit
Ida is interested in pursuing a career in finance. Successful managers and employees in finance must have all but which of the following credentials or skills?
A juris doctor degree
Aditi is the majority shareholder of an industrial chemical supply corporation. To obtain much-needed operational capital, the company has issued a bond secured by its real estate holdings and equipment. Which of the following did Aditi's corporation issue?
A mortgage bond
Rishaan, who owns a wholesale supply business, has just sold $8,200 in merchandise to Clara for inventory in her styling salon. In return, Clara has signed a pledge to Rishaan to pay the $8,200, plus a designated rate of interest, one year from the date of the sale. Which of the following represents the arrangement between Clara and Rishaan?
A promissory note
To obtain much-needed operational capital for her restaurant, Chiku recently signed a promissory note to repay a $10,000 loan from her lender in monthly installments over three years. Which of the following refers to the arrangement Chiku has with her lender?
A term-loan agreement
Laqueta works as a certified public accountant (CPA) for a large accounting firm. The firm uses a network that transfers salaries directly into their employee's bank accounts, thus eliminating the need to make out individual paychecks. The accounting firm Laqueta works for uses which of the following for employee salary transfers?
An automated clearinghouse (ACH) network
Maria is the principal owner of an information technology firm in Carrollton, Texas. After having operated the business successfully for the last ten years, Maria and her co-owners are considering "taking the next step" in growing the business by selling common stock to the general public for the first time. This initiative is known as which of the following?
An initial public offering
Tereza is interested in obtaining short-term financing for her confectionary shop, primarily because she has heard from fellow entrepreneurs that short-term financing is usually easier to obtain than long-term debt financing. Which of the following is not a reason short-term debt financing is usually easier to obtain than long-term debt financing?
As an industry standard, banks ordinarily charge three times the interest rate for short-term loans compared to long-term loans.
Last month, the seafood restaurant Mariana owns and operates took in $157,350 in total receipts, and spent $142, 575 in total fixed and variable costs. This movement of money into and out of Mariana's restaurant represents which of the following?
Cash flow
Phaedra bought 50 shares of stock in Biogen, Inc., an American multinational technology company. She received documents in the mail from the company inviting her to a meeting at the company's headquarters in San Diego, California. Out of curiosity about what the company had planned for the future and how its products had performed over the past year, she attended the meeting. During the meeting, she heard reports from different corporate officers outlining the accomplishments and failures in their particular areas of expertise. At the end of the meeting, Phaedra voted for the new president of the company, a director, and approved the accounting firm. What kind of stock does Phaedra own in Biogen, Inc.?
Common stock
In her last lecture class for Introduction to Business, Janice learned about the two types of stock issued by a corporation: common stock and preferred stock. Which of the following is incorrect regarding common stock and preferred stock?
Common stockholders have the first claim (after creditors) on assets if the corporation is dissolved.
As a budding entrepreneur, Haji is interested in the importance of effective financial management to the success of a business. Which of the following is incorrect regarding proper financial management?
It must ensure that the firm pays dividends to its shareholders.
Darius recently provided $25,000 in financial backing for his nephew Demond's start-up computer repair shop. Demond refers to his uncle Darius as his "angel" investor. Which of the following is incorrect regarding an angel investor?
Like venture capitalists, angel investors are often more focused on helping a business or an entrepreneur succeed rather than earning huge profits.
Batini plans to start up a new tattoo parlor in town. To open her parlor, Batini takes out a three-year, $20,000 small business loan from a local bank. She uses the money to lease a building and purchase necessary equipment. This loan represents which of the following?
Long-term financing
Vasilli sells used cars which he buys from rental agencies. The agencies usually require part of the payment upfront or proof that payment will be made on delivery. Because Vasilli has been in business for many years, and has used the same bank for his business for the entire time he has been in business, he works out an agreement with his banker that the bank will advance him funds for a short term at prime interest rate plus one percent without collateral because he has a good credit rating. What kind of transaction did Vasilli enter into with the bank?
Unsecured bank loan
Marlon operates a textile manufacturing business in Birmingham, Alabama. Due to the highly competitive nature of the industry both domestically and internationally, Marlon micromanages every penny of his company's expenses. He specifically requires that every expense in his company's budget must be justified. Marlon's approach to budgeting is known as which of the following
Zero-base budgeting
Hillsboro Farm Supply provides a wide range of products for farmers in Hillsboro. The store carries fencing supplies, tractors, feed for livestock, and more. During harvest season, Hillsboro Farm Supply is one of the busiest places in town. As a result, the store often stocks up on certain supplies ahead of the harvest so the store doesn't run low on inventory. Hillsboro Farm Supply has a ______ with the local bank to ensure that funds are available when the store needs it to order excess inventory. For this, the store pays a small commitment fee.
revolving credit agreement
Cindy runs a chimpanzee sanctuary in Louisiana. The sanctuary receives money from donations, grants, and also from tours that Cindy gives to visitors multiple times per day. Unfortunately, during last year's hurricane season, the sanctuary sustained some minor damage. In addition, Cindy had to halt ticket sales for tours until the damages could be repaired. As a result, Cindy is short on cash to purchase food for the chimps. Cindy is likely to ____
seek short-term financing to fix her cash flow problem
Grady owns a multi-use sports facility. He rents individual courts in his facility to basketball, futsal, and volleyball teams. Weekends at the sports facility are very busy—with all ten courts occupied from 9 a.m. to 5 p.m. for games and practices. Grady is considering converting two of the courts to an indoor soccer field which will allow him to attract even more sports teams. Grady decides to move forward with the indoor soccer field after considering the risk-return ratio. Grady must think ____.
the addition of the indoor soccer field, although high risk, will create high financial returns for the business
Executive Transportation Services creates each new budget based on the dollar amounts budgeted in the preceding year. Executive Transportation is using a ____.
traditional approach
A financial manager is an employee _______.
whose responsibility is to oversee all the activities concerned with obtaining money and using it effectively