chapter 18
What form of financing takes place when the merchant accepts payment immediately from the bank and the customer agrees to repay the bank?
Credit cards
Identify the statements that are correct regarding pledging. (Select all that apply)
In pledging, a firm's accounts receivable are used as the collateral for a loan. A percentage of the value of a firm's accounts receivable pledged is advanced to the borrowing firm.
Careful control of a firm's allows it to maintain correct levels of stock and product.
Inventory
Which statements are true about factoring accounts? (Check all that apply)
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.
Which statements are true regarding trade credit? (Select all that apply)
It is used by large and small businesses. It is the most widely used source of short-term funds. It is usually more convenient than bank loans.
______ funds are typically needed to manage day to day needs of a business as well as acquiring needed inventory.
Operating
Is it more common for a firm to fail due to lack of sales or poor financial management?
Poor financial management
Select the steps in financial planning. (Select all that apply)
Select the steps in financial planning. (Select all that apply)
What happens if a secured loan is not repaid?
The lender may take the collateral.
The amount a business borrows and for how long depends on which of the following? (Select all that apply)
The type of business and industry it is in How quickly it can resell the merchandise it purchases with the funds
Which of the following is true about venture capitalists?
They have assisted many major companies during start-up. They invest in businesses with high potential.
True or false: A budget is a tool for financial planning.
True
What are three questions financial managers ask when considering long-term financing?
What funds do we need to achieve the firm's long-term goals and objectives? What sources of long-term funding (capital) are available, and which will best fit our needs? What are the organization's long-term goals and objectives?
The first public offering of a corporation's stock is called
an initial public offering (IPO)
A secured loan is Blank______.
backed by collateral
Why might 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
Major investments in either tangible long-term assets such as land, or intangible assets such as patents are considered to be Blank______ expenditures. Multiple choice question.
capital
Advantages of using a credit card in small business financing include that:
cards are accepted in many places they save time
The term used for unsecured notes of $100,000 and up that are due in no more than 270 days is
commercial paper
Needs for operating funds include
controlling credit operations acquiring needed inventory making capital expenditures
A firm raising funds through various forms of borrowing with the intent to pay it back is using financing.
debt
Borrowing money the company has a legal obligation to repay is
debt financing
Functions of financial management do NOT include
ensuring employees are paid fairly
A financial institution or commercial bank that purchases a business' accounts receivable at a discount and then keeps what they collect is a(n) Blank
factor
True or false: Financial management is only concerned with items involving cash.
false
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
In financial planning, what is the process in which a firm periodically compares its actual revenues, costs, and expenses, with its budget?
financial control
Finance is the function of acquiring and management of ______.
funds
Retained earnings are the:
funds often used to fund long-term capital needs profits the company keeps
What are two criteria a business should use to determine how much money it should borrow?
how quickly it can generate funds using the borrowed cash the kind of business it is in
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
Which are forms of debt financing?
issuing bonds getting a loan from a bank
Raising needed funds through borrowing to increase a firm's rate of return is called
leverage
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
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
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
Stockholders are the of a public corporation.
owners
Select those items that are considered to be a capital expenditure. (Select all that apply)
patents and copyrights land buildings and equipment
A term-loan agreement is a promissory note that requires the borrower to Blank______. (Select all that apply)
pay specified amount in installments pay interest on a loan
When borrowing against accounts receivable so when the account receivable is paid, the money is forwarded to the lender is the process of
pledging
During the recent financial collapse, financial managers failed to do their job effectively because of:
poor investment decisions risky financial decisions
Accepting credit cards can be useful to small businesses by:
providing ease of payment for customers providing the business with payment more quickly
Profits the company keeps and reinvests in the firm are called
retained earnings
Financial control is a process through which a firm periodically compares its budget to which of the following? (Select all that apply)
revenues costs expenses
The /return trade-off means that, the greater the risk a lender makes in making a loan, the higher the interest rate.
risk
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 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(n)
secured loan
A -term forecast is usually for one year or less
short
Small business managers are more concerned with Blank______ funds.
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
In a public corporation, the ownership is held by
stockholders
An IPO is the first public offering of a corporation's
stocks
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
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
The practice of buying goods and services now and paying for them later is termed
trade credit
What are the three most common reasons firms fail financially?
undercapitalization poor control over cash flow inadequate expense control
Because a majority of small business are rejected for traditional business loans, many ______ for short-term financing.
use credit cards
Money invested in new or emerging companies that investors believe have great profit potential is
venture capital