CHapter #9 Multiple choice Questions
171. Explain the role a factor plays in providing short-term financing to a firm.
Answers will vary. The money that customers owe a firm when they buy on credit shows up in accounts receivable on the company's balance sheet. A factor buys the accounts receivables of other firms. The factor makes a profit by purchasing the receivables at a discount and collecting the full amount from the firm's customers. Although firms that use factors don't receive the full amount their customers owe, factoring offers some definite advantages. Instead of having to wait for customers to pay, the firm gets its money almost immediately. Also, since the factor is responsible for collection efforts, the firm using the factor may be able to save money by eliminating its own collection department. Finally, the factor typically assumes the risk for bad debts on any receivables it buys.
174. Describe how net present value (NPV) is used to evaluate capital budgeting proposals.
Answers will vary. The most commonly used method to evaluate capital budgeting proposals is to compute their net present value (NPV). The NPV of an investment proposal is found by adding the present values of all of its estimated future cash flows and subtracting the initial cost of the investment from the sum. A positive NPV means that the present value of the expected cash flows from the project is greater than the cost of the project. In other words, the benefits from the project exceed its cost. Financial managers approve projects with positive NPVs. A negative NPV means that the present value of the expected future cash flows from the project is less than the cost of the investment. This would indicate that the cost of the project outweighs its cash flow benefits. Financial managers would reject proposals with negative NPVs.
167. Ashton is working on a project at PowerTek Inc., a well-known multinational corporation. He uses 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?
a. He will quite certainly gain approval since the project has a positive net present value.
88. In the context of short-term financing, which of the following statements is true of a factor?
a. It buys the accounts receivables of other firms.
160. Which of the following statements best describes a money market mutual fund?
a. It pools funds from many investors and uses these funds to purchase very safe, highly liquid securities.
87. _____ refers to financing that arises during the natural course of business without the need for special arrangements.
a. Spontaneous financing
69. _____ compares assets that will provide cash in the following year to debts that will come due in the following year.
a. The current ratio
136. Which of the following is an advantage of debt financing?
a. The interest payments a firm makes on debt are a tax-deductible expense.
133. When a company issues and sells new stock or uses retained earnings to meet its financial needs, it is using _____.
a. equity financing
142. Unlike the debt in a firm's capital structure, the equity in a firm's capital structure:
a. imposes no required payments.
112. Alpha Inc. saw an increase in profits in the previous year following which the management decided to reinvest its earnings. These retained earnings will be used to:
a. meet the company's long-term financial needs.
99. _____ is a guaranteed line of credit in which a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement.
b. A revolving credit agreement
71. _____ measures how long it takes for a firm to receive payment from customers who buy on credit. a. The current ratio
b. The average collection period
165. From a financial manager's perspective, the time value of money reflects the fact that:
b. a dollar received today is worth less than a dollar received in the future.
140. One of the major sources of equity financing for corporations is _____.
b. retained earnings
156. An advantage of cash equivalents is that:
c. they offer a better financial return than currency.
127. Which of the following is a source of long-term funds for firms?
d. Corporate bonds
117. In addition to contributions from owners, firms can also raise long-term funds by:
: a. issuing bonds.
125. Newot Texin, a pharmaceutical company, introduces a new pain relieving drug in the market. It borrows $1 million from Esterotia, a private bank, to market the drug. In return, Esterotia allows Newot Texin to return the full amount with interest in fixed amounts of $200,000 every six months. Which of the following sources of long-term funds is being used by Newot Texin in the given scenario?
A term loan
172. Explain the advantages and disadvantages of equity financing.
Answers will vary. For corporations, equity financing comes from two major sources: retained earnings and money directly invested by stockholders who purchase newly issued stock. Equity financing is more flexible and less risky than debt financing. Unlike debt, equity imposes no required payments. A firm can skip dividend payments to stockholders without having to worry that it will be pushed into bankruptcy. And a firm doesn't have to agree to burdensome covenants to acquire equity funds. On the other hand, equity financing doesn't yield the same tax benefits as debt financing. In addition, existing owners might not want a firm to issue more stock, since doing so might dilute their share of ownership. Finally, a company that relies mainly on equity financing forgoes the opportunity to use financial leverage.
173. Explain how the accounting process can be used for a long-term project's cash flows that are spread out over a number of years.
Answers will vary. One of the most challenging aspects of the evaluation of a long-term project's cash flows is that they are spread out over a number of years. When financial managers compare cash flows that occur at different times, they must take the time value of money into account. The time value of money reflects the fact that, from a financial manager's perspective, a dollar received today is worth more than a dollar received in the future because the sooner you receive a sum of money, the sooner you can put that money to work to earn even more money. Because money has a time value, a cash flow's value depends not only on the amount of cash received but also on when it is received. Financial managers compare cash flows occurring at different times by converting them to their present values. The present value of a cash flow received in a future time period is the amount of money that, if invested today at an assumed rate of interest (called the discount rate), would grow to become that future amount of money.
170. Describe the two major types of pro forma financial statements, and explain the role they play in financial planning.
Answers will vary. The budgeting process provides financial managers with much of the information they need for financial planning. The budgeted income statement and budgeted balance sheet are two key financial planning tools. Also called pro forma financial statements, they provide a framework for analyzing the impact of the firm's plans on the financing needs of the company. The budgeted income statement uses information from the sales budget and various cost budgets (as well as other assumptions) to develop a forecast of net income for the planning period. This can help the firm evaluate how much internal financing (funds generated by earnings) will be available. The budgeted balance sheet forecasts the types and amounts of assets a firm will need to implement its future plans. It also helps financial managers determine the amount of additional financing (liabilities and owners' equity) the firm must arrange to acquire those assets.
43. _____ are also sometimes called activity ratios.
a. Asset management ratios
154. _____ are very safe and highly liquid assets that can be converted into cash quickly and easily. a. Cash equivalents
a. Cash equivalents
155. Which of the following is a popular cash equivalent?
a. Commercial paper
130. Which of the following scenarios involves the use of corporate bonds?
a. Nigel buys an IOU of Herbiscus Pharmaceuticals with a maturity period of eight years.
158. Which of the following statements is true of U.S. Treasury bills (T-bills)?
a. They are highly liquid.
81. _____ is a spontaneous financing granted by sellers when they deliver goods and services to customers without requiring immediate payment.
a. Trade credit
100. Unlike a line of credit, in a revolving credit agreement:
a. a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement.
50. A high inventory turnover ratio is good because it indicates that:
a. a firm can continue its daily operations with a small amount of inventory on hand.
59. Initiatium, a software development firm, utilized $2 million to create a new software. Half of the total budget was acquired from loans from different sponsors while the rest was funded by the firm. The debt ratio amounts to 0.5. The given scenario illustrates the analysis of _____.
a. leverage ratios
150. As a current asset, firms use cash for _____.
a. paying dividends
79. Which of the following is a similarity between angel investors and venture capitalists?
b. Both invest in risky opportunities that offer the possibility of high rates of return.
128. Westbro Inc., a home appliances company, wants to invest in marketing new products. In order to generate funds for the process, it issues its own formal IOUs and sells them to its investors. Which of the following sources of longterm funds is being used by Westbro Inc. in the given scenario?
b. Corporate bonds
143. Pro Corp. and Darths Inc. are two companies that are identical in every aspect except for the fact that Pro only uses 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 is high, _____. a. Pro would pay lower taxes than Darths
b. Darths would report a higher return-on-equity than Pro
132. _____ refers to funds provided by creditors.
b. Debt financing
113. Connink, a software development firm, invested on developing new products from the company's earnings from the previous year. Which of the following sources of long-term funds is being used by Connink in the given scenario?
b. Direct investments from owners
151. In comparison with other assets, which of the following is a shortcoming of cash?
b. It earns no return.
144. Which of the following statements is most likely true of a company that relies mainly on equity financing? a. It has to agree to burdensome covenants to acquire equity funds.
b. It forgoes the opportunity to use financial leverage.
141. In the context of the capital structure of a firm, which of the following statements is true of equity financing?
b. It is less risky than debt financing.
149. Which of the following statements is true of the Dodd-Frank Act?
b. It required large firms in the financial sector to hold more equity and less debt in their capital structures.
139. Which of the following is a disadvantage of debt financing?
b. It requires firms to make fixed payments.
67. _____ measures the income earned per dollar invested by the stockholders of a firm.
b. Return-on-equity
169. Jessie, the regional manager of a large electronics firm, is trying to determine whether a new warehouse for herfirm would be 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?
b. 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.
77. _____ helps financial managers determine the amount of additional financing a firm must arrange to acquire the assets needed to implement its future plans.
b. The budgeted balance sheet
126. A _____ is a requirement a lender imposes on the borrower as a condition of the loan.
b. covenant
41. In the context of liquidity ratios, a firm's _____ are the debts that must be repaid in the following year. a. fixed assets
b. current liabilities
134. When a company takes out a bank loan, or issues and sells corporate bonds, it is relying on _____. a. equity financing
b. debt financing
162. An advantage of offering lenient credit terms is that it can help a firm:
b. increase its sales.
137. An advantage of debt financing is that:
b. it does not require firms to sell stock to new investors to gain additional funds.
157. Firms buy commercial paper as part of their portfolio of cash equivalents because:
b. it is a safe way to earn some interest.
164. The time value of money reflects the fact that:
b. it is best to have money today, so it can be put to work sooner to make even more money.
166. Grisham is the financial manager of Plink Inc., an electronics company. He invests a major portion of the company's profit in his business. He believes that money has the potential to grow in value over a certain period, which is why he prefers to receive and invest an amount of money today rather than in the future. In this scenario, Grisham is most likely to be influenced by _____ while utilizing the finances of the company.
b. net present value
65. Trestone, a guitar manufacturing company, produces a thousand units of electric guitars each year. The company has been able to sell all its guitars by the end of the fiscal year and earn twice the amount spent on production and marketing. The given scenario indicates that Trestone most likely analyzes _____ for its financial planning.
b. profitability ratios
168. A project with a negative net present value should be:
b. rejected since the expected future cash flows from the project are less than the cost of the investment.
153. _____ are safe and highly liquid assets that many firms list with their cash holdings on their balance sheet. a. Trade credits
c. Cash equivalents
131. Gratinut Entos, an automobile company, wants to launch a new model of bike that would appeal to young adults. The company issues its own formal IOUs to fund the project. Which of the following sources of long-term funds is being used by Gratinut Entos in the given scenario?
c. Corporate bonds
161. Which of the following statements is true of money market mutual funds?
c. They are affordable for small investors.
159. Which of the following is a difference between commercial paper and U.S. Treasury bills?
c. Unlike commercial paper, U.S. Treasury bills are essentially risk-free.
163. One drawback of offering liberal credit to customers is that it can:
c. delay the receipt of cash that the firm needs to meet its financial obligations.
145. Firms that rely on a lot of debt in their capital structure are said to be _____.
c. highly leveraged
146. The main advantage of financial leverage is that:
c. it magnifies the financial return on the investment of stockholders when times are good.
147. The main disadvantage of financial leverage is that:
c. it reduces the financial return to stockholders' investment when times are bad.
60. Omnimenium, an automobile company, incurred a debt of $20 million for the fiscal year of 2016. The company used that money with an additional $20 million of its own to buy out a rival company. The ratio of the company's debt to its investment is 0.5. The given scenario illustrates the analysis of _____.
c. leverage ratios
35. Mort Zuba, an automobile company, needs to pay off its loans to banks the following year. The company plans to sell its factories in Astonsia in order to pay its debts. In this scenario, Mort Zuba's ability to sell its factories in Astonsia to pay its debts is measured by calculating _____.
c. liquidity ratios
138. In the context of debt financing, if a firm invests the borrowed funds profitably, the use of debt can substantially improve the _____ to the shareholders. a. total contract value
c. return on equity
102. Under a revolving credit agreement, the _____ is lower than the interest on the borrowed funds, but it can amount to a fairly hefty charge if the firm has a large unused balance.
commitment fee
40. A firm's _____ include cash and other assets expected to be converted into cash in the following year. a. current assets
current assets
129. Vironi Mave, a designer clothing company, wants to hire fashion designers to start a new clothing line for men. To obtain funds for the project, Vironi Mave issues several formal IOUs to sell them to its investors, with a maturation period of ten years. Which of the following sources of long-term funds is being used by Vironi Mave in the given scenario?
d. Corporate bonds
39. Which of the following is the most commonly used liquidity ratio?
d. Current ratio
93. Rel Eston, a network service provider, sells off its accounts receivable to a financing company in order to gain early access to funds that would help accelerate company's growth trajectory in the market in the following year. Which of the following short-term financing options is being used by Rel Eston in the given scenario?
d. Factoring
120. Maude Shade, a fashion apparel manufacturing company, wants to invest in research before finalizing the production of its proposed product. In order to do so, it approaches Ruemen Bank and takes a loan of $80,000 in the form of bonds. Which of the following financing options is being used by Maude Shade in the given scenario?
d. Long-term debt
62. _____ are ratios that measure the rate of return a firm is earning on various measures of investment. a. Liquidity ratios
d. Profitability ratios
63. Yennex Inc., a textile company, planned to sell its stock products in two months' time. The company was able to sell those products within a month's time. Therefore, it was able to sell double the estimated amount in a year. Given the scenario, which of the following ratio analyses is most likely to have been analyzed by Yennex Inc. to achieve this success?
d. Profitability ratios
66. Kitsure, a cosmetics company, was able to sell 20 percent more than its estimated sales in a year. The company was able to acquire its investment along with a higher turnover for its shareholders. Which of the following financial ratios provides the measure of Kitsure's earnings?
d. Profitability ratios
111 Which of the following is a source of long-term funds for a firm?
d. Retained earnings
103. Kenneth wants to start a new business. To get start-up capital, he takes a short-term loan from a bank. The bank agrees to provide him the agreed-upon funds as per a legally binding commitment. However, the bank requires Kenneth to pay interest on any fund he borrows and a commitment fee based on the unused amount of funds. Which of the following short-term financing sources does Kenneth utilize to fund his business in the given scenario?
d. Revolving credit agreement
74. _____ forecasts the types and amounts of assets a firm will need to implement its future plans and help financial managers determine the amount of additional financing the firm must arrange in order to acquire those assets.
d. The budgeted balance sheet
80. Which of the following statements is true of angel investors?
d. They typically provide funds to start-ups in exchange for a share of ownership.
84. Trumen House, a confectionary manufacturing company, orders its raw materials in bulk from Nesinbon. Nesinbon allows Trumen House to make the payment at a later date, as opposed to immediate payment. Which of the following short-term financing options is being offered by Nesinbon?
d. Trade credit
46. Nestrum, a real estate management company, employs qualified analysts to predict customers' buying habits and budgets. Hence, the company has been able to acquire at least one customer per month. In the given scenario, the analysts most likely need to analyze the company's _____ to measure how effectively it has been using its assets to generate revenues.
d. asset management ratios
48. Umbero Nix, a garment manufacturing company, produces twenty thousand units of sweaters. These units are sold within three months and replenished with another twenty thousand units. In one year, Umbero Nix replaces its inventory of sweaters four times over. Umbero Nix most likely analyzes _____ to measure how many times its inventory is sold and replaced each year. a. capital budgeting ratios
d. asset management ratios
135. The extent to which a firm relies on various forms of debt and equity to satisfy its financing needs is called that firm's _____.
d. capital structure
152. A firm's _____ refers to its holdings of currency plus demand deposits.
d. cash
32. Financial managers use _____ to assess the financial strengths and weaknesses of their firm. a. financial leverage
d. financial ratio analysis
90. An advantage of factoring is that:
d. firms using factors get their money almost immediately.
148. 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:
d. the firms replaced much of the debt in their capital structure with equity.
68. Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Its net income is $27,500. Wild Trails Inc.'s earnings per share (EPS) is _____.
a. $55
44. _____ measure how effectively an organization uses its resources to generate net income. a. Asset management ratios
a. Asset management ratios
45. Nemfembo, a pharmaceutical company, gains most of its net income by outsourcing its manufacturing plants to foreign countries. For every product it manufactures, the demand for those products becomes more pronounced. Which of the following financial ratio analyses can be used to measure how effectively Nemfembo is using its resources to generate revenues?
a. Asset management ratios
114. Miranti Nex, an automobile company, plans to invest in developing a hybrid car. It refrains from using loans from other firms and instead uses its own monetary resources to fund the project. Which of the following sources of longterm funds is being used by Miranti Nex in the given scenario?
a. Corporate bonds
115. Merith Qin, a textile company, relies on self-funding in order to sustain the promotion of its new product in the market. The company sold its newly issued stock and was able to amass a sizable amount of money to invest. Which of the following sources of long-term funds is being used by Merith Qin in the given scenario?
a. Direct investments from owners
95. Maurio Inc., a publishing house, wants to invest in digital publishing. However, the company does not possess enough capital to kick start the project. In order to gain immediate funds, Maurio Inc. sells its accounts of credits to Restube, a financing firm, at a discount. Which of the following short-term financing options is being used by Maurio Inc. in the given scenario?
a. Factoring
98. Renita works as a freelancer. She wants to start her own business, but she does not have the required funding. To meet the working capital for her business, she takes a short-term loan from a bank. The bank agrees to provide her funding up to $50,000, as and when she needs it. However, she can repay the amount immediately or over a pre-specified period of time. Which of the following short-term financing sources does Renita utilize to fund her business in the given scenario?
a. Line of credit
119. Dominic and Matherson, a finance management company, lends money to Ebok, a fast food chain, in order to help Ebok market its new product. Dominic and Matherson provides financial support in the form of bonds. Which of the following financing options is being used by Ebok in the given scenario?
a. Long-term debt
85. Duk Yu, a beverage company, buys its raw materials from Nessange, a fruits and vegetables exporting company, without making any payment at the time of purchase. Instead, Nessange allows Duk Yu to pay the total purchase amount within a period of six months. Which of the following short-term financing options is being used by Duk Yu in the given scenario?
a. Trade credit
76. A _____ can help a firm evaluate how much internal financing (funds generated by earnings) will be available for a planning period.
a. budgeted income statement
78. Garry, a financial manager at AtoZ technologies, 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 _____.
a. cash budget
106. Reesa Mork is a multinational corporation that has good credit ratings. It issues promissory notes to other companies. Based on the given information in the scenario, it appears that Reesa Mork uses _____ as a short-term financing option to other companies.
a. commercial paper
52. The term _____ refers to the use of debt to meet a firm's funding needs.
a. financial leverage
56. Leverage ratios measure the extent to which a firm uses _____.
a. financial leverage
110. For a corporation, direct investment from owners occurs when:
a. it sells newly issued stock.
64. Munit Exon, an automobile company, sells 100 cars in a year. The net income earned by the company is relatively more than the amount invested by it, thereby giving larger returns to its shareholders. To reach this conclusion, Munit Exon most likely analyzed its _____.
a. profitability ratios
28. Financial managers emphasize the goal of maximizing the market price of stock because:
a. they have a fiduciary duty.
122. Timini Inc., a beverage company, wants to produce a new health drink. It borrows money from Maverk Bank to finance the procedure. The bank mandates Timini Inc. to return the amount with interest in a regular schedule of fixed payments. Which of the following sources of long-term funds is being used by Timini Inc. in the given scenario?
b. A term loan
47. Bon Suede, a shoe manufacturing company, produces ten thousand units of shoes of a distinct design. In 2015, the company was able to sell all the units within six months of manufacture, prompting the company to produce an additional ten thousand units. Which of the following financial ratios has most likely been analyzed in the given scenario?
b. Asset management ratios
108. Tinix is a well-established petrochemical company that holds excellent credit ratings in the market. It provides shortterm financial capital to other big firms by issuing promissory notes that are collateralized by physical assets. Which of the following short-term financing options is being offered by Tinix in the given scenario?
b. Asset-backed commercial paper
124. Tusken Thaw, a shipping industry, plans to expand its customer base to other countries. To facilitate this process, Tusken Thaw seeks financial assistance from Jermino Bank. The bank agrees to lend a specified amount of money; however, it mandates Tusken Thaw to return the amount with interest in a regular schedule of fixed payments. Which of the following sources of long-term funds is being used by Tusken Thaw in the given scenario?
b. Commercial paper
94. Tunebeak, a fast food service chain, wants to introduce a new product. However, it lacks the financial support required to promote its product. Therefore, it sells its accounts receivables from its customers to a financing firm and is able to invest in the promotion of its product. Which of the following short-term financing options is being used by Tunebeak in the given scenario?
b. Factoring
53. Which of the following statements is true of financial leverage?
b. It is the use of debt in a firm's capital structure.
37. Yellow Dustur, a textile company, converts its overseas assets into cash in order to pay its debts to different companies the following year. In the given scenario, which of the following financial ratios is most likely being analyzed by Yellow Dustur?
b. Liquidity ratios
118. Mezzinzi Bank offers loans to companies in the form of bonds. The companies who apply for these loans can repay the amount over a prolonged period of time. Which of the following financing options is being offered by Mezzinzi Bank in the given scenario?
b. Long-term debt
96. MVJ Corp., a market research firm, borrowed $2 million from Trimitium Bank. While negotiating with the bank, the firm signs a promissory note, which specifies that the firm must pay the borrowed amount in 90 days with interest. However, the bank also requires the firm's inventories and receivables to be pledged as collateral to back the loan. Which of the following short-term financing options is being offered by Trimitium Bank in the given scenario?
b. Short-term bank loans
83. Rumerion Inc., a shoe manufacturing company, buys its raw materials from Coy Kaymilford, a footwear raw material supplier. Coy Kaymilford allows Rumerion Inc. to make the payment at a later date, as opposed to immediate payment. Which of the following short-term financing options is being used by Rumerion in the given scenario?
b. Trade credit
86. Juxiplex, an electronics company, introduced a new range of smart phones. It bought the required raw materials from Gunplet Inc. without making payment at the time of purchase. Instead, Gunplet Inc. allowed Juxiplex to pay within fifteen days from the time of purchase. Which of the following short-term financing options was used by Juxiplex in the given scenario?
b. Trade credit
101. Under the terms of _____, a firm will pay interest on any funds it borrows, and a commitment fee on any funds it does not borrow.
b. a revolving credit agreement
49. The _____ measures how many times a firm's stock is sold and replaced each year.
b. asset turnover ratio
75. The _____ of a firm uses information from the sales budget and various cost budgets to develop a forecast of net earnings for the planning period.
b. budgeted income statement
70. The _____ is an asset management ratio that measures how quickly a firm sells its stock to generate revenue.
b. inventory turnover ratio
57. Hevron Hrist, a multinational company, finances itself each year by procuring 25 percent of its yearly budget through loans from banks. The remaining budget is covered by the company itself. The given scenario suggests that the firm most likely relies on measuring _____ to decide its capital structure.
b. leverage ratios
42. Which of the following statements is true of current ratio?
c. A current ratio that is below 1.0 signifies a company's inability to pay its short-term liabilities with its current assets.
104. _____ consists of short-term (and usually unsecured) promissory notes issued by large corporations. a. Line of credit
c. Commercial paper
107. Gotwing Inc., a multinational company, issues promissory notes to big corporations. As the company has strong credit ratings, it easily finds buyers without having to offer a substantial discount for its debt. Which of the following short-term financing options is being used by Gotwing Inc. in the given scenario?
c. Commercial paper
116. Timoth Steels, a steel manufacturing company, wants to install a new factory in Temenia. The company decides to use funds from its own account and refrain from borrowing money from banks. Which of the following sources of long-term funds is being used by Timoth Steels in the given scenario?
c. Direct investments from owners
91. When customers of Trankent Corp., an equipment manufacturing unit, buy equipment on credit and then delay making payments, they receive a bill from a collection agency. Which of the following sources for short-term financing is being used by Trankent Corp. in this scenario?
c. Factoring
92. Tobit Financing offers short-term financing plans to other companies. It buys the accounts of other companies at a discount and collects the full amount from the customers of those companies. Which of the following short-term financing options is being provided by Tobit Financing in this scenario?
c. Factoring
29. Which of the following statements is true of a socially responsible firm?
c. It has an obligation to respect the needs of all stakeholders.
54. Which of the following statements best describes a highly leveraged firm?
c. It is a firm that relies heavily on debt.
82. Which of the following statements is true of trade credit?
c. It is granted by suppliers after evaluating the creditworthiness of a firm.
105. Which of the following statements is true of commercial paper?
c. It is not backed by a pledge of collateral.
55. _____ are ratios that measure the extent to which a firm relies on debt financing in its capital structure. a. Liquidity ratios
c. Leverage ratios
34. _____ measure the ability of an organization to convert assets into the cash it needs to pay off liabilities that come due in the following year.
c. Liquidity ratios
51. Which of the following is a difference between liquidity ratios and leverage ratios?
c. Liquidity ratios measure a firm's ability to pay its short-term liabilities as they come due, whereas leverage ratios measure the extent to which a firm relies on debt to meet its financing needs.
121. Delventon Bank offers loans to multinational corporations which can be returned over an extended period along with interest. The bank issues such loans in the form of bonds. Which of the following financing options is being offered by Delventon Bank in the given scenario?
c. Long-term debt
97. Dimitium National Bank is well known for lending money to companies who need it as quickly as possible. Any company that takes money from the bank is required to return the amount within six months at an interest at a rate of 12 percent. Which of the following short-term financing options is being offered by Dimitium National Bank in the given scenario?
c. Short-term bank loans
123. Rudolf and Martin, a finance management company, offers funds to corporations that require a permanent source of funding. However, it required the company to make fixed payments on a regular schedule to ensure that the amount borrowed and interest are repaid. Which of the following sources of long-term funds is being offered by Rudolf and Martin in the given scenario?
c. Term loans
72. The _____ is a common measure of leverage that compares liabilities to assets.
c. debt ratio
30. In financial management, risk is referred to as the:
c. degree of uncertainty about the actual outcome of a decision.
89. A(n) _____ makes a profit by purchasing the receivables of a firm at a discount and collecting the full amount from the firm's customers.
c. factor
27. Dora works for PowTran Corp. Her primary responsibilities include managing the firm's working capital and analyzing long-term investment opportunities for the firm. Dora is most likely a part of the firm's _____ team. a. administrative management
c. financial management
26. Financial capital refers to the:
c. funds a firm uses to acquire its assets and finance its operations
38. Maurio Pena, a petroleum company, needs to pay $2 million to Zaiten Inc. Maurio Pena sells its old assets to another company and obtains enough money to pay its debt. In this scenario, Maurio Pena's ability to sell its old assets to another company in order to pay its debt to Zaiten is measured by analyzing _____. a. leverage ratios
c. liquidity ratios
73. Since common stockholders are the true owners, preferred stockholders' dividends are deducted from net income before computing _____.
c. return-on-equity
109. Juxipi Inc. is well known for having a stronger credit score than its competitors. That is why, buyers are more willing to buy promissory notes from Juxipi than its competitors. Which of the following short-term financing options is being offered by Juxipi Inc. in the given scenario?
d. Commercial paper
61. Which of the following is a leverage ratio?
d. The debt ratio
58. Ponlinaytion, a clothing company, imports its raw materials from different countries. To cover the cost of expensive raw materials, Ponlinaytion takes a yearly loan of $5 million from Heritage Rimier, a finance company. The remaining budget is covered by the company itself. The given scenario indicates that the firm most likely relies on measuring _____ to decide how it finances its overall operations and growth by using different sources of funds.
d. leverage ratios
33. In finance, a _____ is one that can be quickly converted into cash with little risk of loss.
d. liquid asset
36. Trumbeak Inc., an electronics company, needs to pay its debt to Breston Bank the following year. Trumbeak Inc. sells half of its shares to other companies and is able to acquire the cash it needs to pay its debt. In this scenario, Trumbeak Inc.'s ability to sell its shares to other companies in order to pay its debt to Breston Bank is measured by calculating _____.
d. liquidity ratios
