Business Chapter 9
A marketable security is a cash equivalent unlike _____.
(a.) a treasury bill b. a money market mutual fund c. commercial paper d. trade credit WRONG
An advantage of offering more lenient credit terms is that it helps a firm
. increase its sales
Which of the following best describes a highly leveraged firm?
A firm that relies heavily on debt
Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He is using capital budgeting to estimate the project's future cash flows. He finds that the present value of the estimated future cash flows is greater than the cost of the project. How likely is he to gain approval from the board?
Approval is probable but not likely as the project has been constructed on estimates instead of facts
Which of the following is uncharacteristic of a capital budgeting proposal evaluation process?
Buying Treasury bills and bonds for the next six months
_____ are very safe and highly liquid assets that firms list with their cash holdings on their balance sheet.
Cash equivalents
Pro Corp. and Darths Inc. are two companies that are identical in every aspect except for the fact that Pro uses only equity financing, while Darths relies heavily on debt financing. Over the past year, the firms had identical earnings before interest and taxes. If net income for both firms was high, _____.
Darths would report a higher return on equity than Pro
Which of the following statements best describes a money market mutual fund?
It pools funds from many investors and uses these funds to purchase very safe, highly liquid securities.
Which of the following is a long-term financing option for a firm?
Revolving credit agreements WRONG
Jessie, the regional manager of a large electronics firm, is trying to determine whether a new warehouse is a good investment. After discussing with her firm's financial managers, she concludes that the project carries a negative NPV (Net Present Value). What should Jessie do and why?
She should not invest in the warehouse since a negative NPV means that the present value of the future cash flows does not justify the cost of the warehouse.
Which of the following is a characteristic of debt financing?
Tax-deductible interest payments
Which of the following statements is true of a current ratio?
The current ratio is computed by dividing a firm's current liabilities by its current assets. WRONG
Which of the following statements is true of angel investors?
They typically provide funds to start-ups in exchange for a share of ownership.
Which of the following is a key difference between a line of credit and a revolving credit agreement?
Under a line of credit, the bank involved agrees to make funds available as long as the borrower's credit rating doesn't deteriorate, while in a revolving credit agreement, the bank guarantees that the funds will be available.
One drawback of offering liberal credit to customers is that it can:
WRONG
The _____ forecasts the types and amounts of assets a firm will need to implement its future plans as well as the amount of additional financing the firm must arrange in order to acquire those assets.
budgeted balance sheet
As a financial manager, Garry wants to know when his firm will need to arrange for short-term financing and when the firm is likely to have surplus cash available to pay off loans or to invest in short-term liquid assets. These concerns suggest that Garry would want to develop a:
cash budget
When customers of an equipment manufacturing unit buy equipment on credit and then delay making payments, they receive a bill from a collection agency. What relationship does the collection agency have with the manufacturer?
factoring
Kun works for PowTran Corp. Her primary responsibilities include managing the firm's working capital and analyzing long-term investment opportunities for PowTran. Kun is part of the firm's _____ management team.
financial
One drawback of offering liberal credit to customers is that it can:
increase the cost of credit to customers.
The main disadvantage of financial leverage is that it:
reduces the financial return to stockholders when times are bad.
Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Net income is $27,500. Wild Trails Inc.'s earnings per share is _____.
$55 divide net income/shares
Which of the following best explains the time value of money?
It means that it's best to have money today, so it can be put to work sooner to make even more money.
_____ ratios measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the next year.
Liquidity
In financial management, risk is referred to as the:
degree of uncertainty about the actual outcome of a decision. WRONG
Financial capital refers to the:
funds a firm uses to acquire its assets and finance its operations.
For financial managers to be socially responsible, it is necessary that they:
make a long-term commitment to the needs of stakeholders.
Alpha Inc. saw an increase in profits in the previous year following which the management decided to reinvest earnings. These retained earnings will be used to:
meet the company's short-term financial needs WRONG
A project with a negative net present value should be:
rejected since the expected future cash flows from the project are less than the cost of the investment.
As the recession of 2007-2008 loomed over both large and small businesses, many firms looked for ways to deleverage. The term "deleveraging" implies that the firms:
replaced much of the debt in their capital structure with equity.
The two primary sources of equity financing are:
stockholder investments and retained earnings.
