Intro To Business Chapter 18

It is better to go to banks instead of family and friends for business loans because ______. (Select all that apply)

- loans from family can hurt family relationships - banks can assist the business in analyzing problems

Items that may back a secured bond include ______.

- machinery and equipment - real estate

A term-loan agreement is a promissory note that requires the borrower to ______.

- pay interest on a loan - pay specified amount in installments

In factoring, the discount given depends on ______. (Select all that apply)

- the age of the accounts receivable - the nature of the business - the condition of the economy

As a function of financial management, financial managers must understand tax regulations because ______. (Select all that apply)

- they must consider the tax implications of major decisions - businesses want to minimize taxes

Advantages of using a credit card in small business financing include that ______.

- they save time - cards are accepted in many places

When a firm is not putting an asset up as collateral for a loan, the loan is considered to be ______.

unsecured

A loan that does not require collateral is called a(n) ______.

unsecured loan

Needs for operating funds include ______. (Select all that apply)

- controlling credit operations - making capital expenditures - acquiring needed inventory

Place the three steps in the financial planning process in order from beginning to end with the first step at the top.

1. forecasting the firm's financial needs 2. developing budgets 3. establishing financial controls

______ is a promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments.

A term-loan agreement

True or false: Financial management is only concerned with items involving cash.

False

______ means to raise funds through borrowing to increase a firm's rate of return.

Leverage or Leveraging

______ funds are typically needed to manage day to day needs of a business as well as acquiring needed inventory.

Operating, Operational, operating, or operational

True or false: A budget is a tool for financial planning.

True

True or false: The financial crisis that began in 2008 was due, in large part, to financial managers making poor investment decisions and engaging in risky financial dealings.

True

The first public offering of a corporation's stock is called ______.

an initial public offering (IPO)

A secured loan is

backed by collateral

Why can loans obtained from families and friends be problematic?

because all parties may not understand cash flow

A(n) ______ is a financial plan that sets forth management's expectations and, on the basis of those expectations, allocates the use of specific resources throughout the system.

budget

During tough economic times, customers are happy when firms extend ______ for purchases.

credit

There is usually no management influence for ______ financing whereas common stockholders have voting rights for ______ financing.

debt, equity

A feature of ______ financing is that stockholders have voting rights.

equity

A financial institution or commercial bank that purchases a business' accounts receivable at a discount and then keeps what they collect is a(n) ______.

factor

In any business, funds come into and go out of a business. What business function acquires funds for the firm and then manages those funds on a day-to-day basis?

finance

The function of acquiring and managing funds within a firm is referred to as ______.

finance or financing

In financial planning, what is the process in which a firm periodically compares its actual revenues, costs, and expenses, with its budget?

financial control

When a firm periodically compares its actual revenues, costs, and expenses with its budget, it is engaging in ______ control.

financial or finance

Finance is the function of acquiring and management of ______.

funds

What inventory management procedure helps a firm to control inventory costs?

implementing a just-in-time inventory control method

Firms will leverage (raise needed funds through borrowing) because it will ______.

increase a firm's rate of return on ownership's investment

Careful control of a firm's ______ costs allows it to maintain correct levels of stock and product.

inventory

Money is considered to have a time value because ______.

money has more value in your possession today than at a later point in the future

Debt financing refers to funds that ______.

must be repaid

Dimitri owns stock in a U.S. publicly traded company. As a stockholder, Dimitri is a(n) ______ of the corporation.

owner

Stockholders are the ______ of a public corporation.

owners or investors

Retained earnings are the ______.

profits the company keeps

The profit a firm keeps and reinvests in the firm is referred to as ______ ______. (Enter one word in each blank.)

retained earnings

How much money a firm will borrow often depends on how long it takes to convert inventory into ______.

revenue, cash, funds, or sales

The ______ /return trade-off means that, the greater the risk a lender makes in making a loan, the higher the interest rate.

risk

A firm that issues a bond backed by assets that may be claimed upon default has issued a(n) ______ bond.

secured

A firm that puts something of value, like a piece of property, up for collateral is applying for a(n) ______ loan.

secured

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

secured

A(n) ______ bond is one that is backed by assets which may be claimed if the bond's interest is not paid.

secured

An IPO is the first public offering of a corporation's ______

stock

In a public corporation, the ownership is held by ______.

stockholders, shareholders, or investors

A firm that has a promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments has a(n) ______ -loan agreement.

term

An IPO is ______.

the first public offering of a corporation's stock

The risk/return trade-off principle means that ______.

the greater the risk for a lender making a loan, the higher the interest rate

The ______ value of money is the idea that money in your possession today is worth more than money that will be in your possession in the future.

time

A firm that buys goods and services on a given day, but pays for them later is using a(n) ______ credit.

trade

The practice of buying goods and services now and paying for them later is termed ______ ______

trade credit

Because a majority of small business are rejected for traditional business loans, many ______ for short-term financing.

use credit cards

Investing in a new business with high profit potential is done by ______ capitalists.

venture

Select those items that are considered to be a capital expenditure. (Select all that apply)

- buildings and equipment - patents and copyrights - land

Financial control is a process through which a firm periodically compares its budget to which of the following? (Select all that apply)

- expenses - costs - revenues

Select the steps in financial planning. (Select all that apply)

- forecasting short term needs - develop budgets - establish financial controls

Which are forms of debt financing?

- issuing bonds - getting a loan from a bank

When a company allocates the use of specific resources throughout the firm based on a financial plan indicating management's expectations, then the company is using a(n) ______ as the basis for making decisions.

budget

A secured loan is backed by ______.

collateral

Unless special conditions have been agreed upon, there is usually no management influence in ______ financing.

debt

The three steps in the financial planning process are to forecast the firm's short- and long-term needs, develop budgets, and ______.

establish financial controls

The idea that the greater the risk a lender assumes in making a loan, the higher the interest rate is called the ______ ______ trade off.

risk return

A loan backed by collateral, something valuable like property, is called a(n) ______.

secured loan

The process of borrowing against accounts receivable and when the accounts receivable is paid, the money is forwarded to the lender is called ______.

pledging

A loan that does not require collateral is called a(n) ______ loan.

unsecured

Identify the statements that are correct regarding pledging. (Select all that apply)

- A percentage of the value of a firm's accounts receivable pledged is advanced to the borrowing firm. - In pledging, a firm's accounts receivable are used as the collateral for a loan.

The amount a business borrows and for how long depends on which of the following? (Select all that apply)

- How quickly it can resell the merchandise it purchases with the funds - The type of business and industry it is in

Which statements are true about factoring accounts?

- It is the accounts receivable of a firm sold for a discount. - Small businesses often use it for financing in the short term. - The firm that buys the accounts receivable collects the amount due.

Borrowing money the company has a legal obligation to repay is ______.

debt financing

Raising needed funds through borrowing to increase a firm's rate of return is called ______

leverage or leveraging

When considering ______ ______ financing options a financial manager must consider the organization's financial goals and objectives.

long term

Compared to a bank, the interest on commercial paper is ______.

lower

Is it more common for a firm to fail due to lack of sales or poor financial management?

poor financial management

Bonds that are backed by specific collateral that must be forfeited in the event that the issuing firm defaults are called ______.

secured bonds

A ______-term forecast is usually for one year or less.

short

A(n) ______ forecast predicts revenues, costs, and expenses for a period of one year or less.

short-term

Short-term financing is more important to a small business than long-term financing because ______.

small businesses are more concerned with funding day to day operations

Which statements are true regarding trade credit? (Select all that apply)

- It is usually more convenient than bank loans - It is used by large and small businesses - It is the most widely used source of short-term funds

Which of the following are true about commercial paper?

- Only large, stable firms offer it. - It is a short term source of funds.

A firm that makes a major investment in a long-term asset has made a(n) ______ expenditure.

capital

The term used for unsecured notes of $100,000 and up that are due in no more than 270 days is ______ ______

commercial paper

A firm raising funds through various forms of borrowing with the intent to pay it back is using ______ financing.

debt

Small business managers are more concerned with ______-term funds.

short

Money invested in new or emerging companies that investors believe have great profit potential is:

venture capital

Short-term forecasts generally cover up to a ______.

year

A company that takes out a loan from a bank is using which type of financing?

debt financing

Which are questions financial managers ask when considering long-term financing? (Select all that apply)

- What sources of long-term funding (capital) are available, and which will best fit our needs? - What funds do we need to achieve the firm's long-term goals and objectives? - What are the organization's long-term goals and objectives?

What are the three most common reasons firms fail financially?

- poor control over cash flow - undercapitalization - inadequate expense control

Accepting credit cards can be useful to small businesses by

- providing the business with payment more quickly - providing ease of payment for customers

During the recent financial collapse, financial managers failed to do their job effectively because of:

- risky financial decisions - poor investment decisions

Determinants of how much money a firm should borrow include:

- speed with which they can turn the borrowed funds into cash - cash flow forecasts