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Exam 19: Recognizing the Basics of Financial Management

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Question 21

Multiple Choice

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According to the risk-return ratio, which of the following statements is correct?

A) Decisions involving higher risk should yield higher returns.
B) Decisions involving lower risk should yield higher returns.
C) Decisions involving more risk should yield fewer returns.
D) Decisions involving high risk should yield more predictable returns.

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Question 22

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Slater Co. has an old, outdated manufacturing facility that needs extensive renovation and expansion. Slater does not have the cash available for this renovation/expansion, so it will most likely need which of the following?

A) to use trade credit
B) to obtain an unsecured loan
C) long-term financing
D) a short-term loan

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Question 23

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When considering the cost of financing, that there is no interest cost for most common forms of stock is one benefit of which type of financing?

Which of the following is a statement that projects income and/or expenditures over a specified future period?

During 2011 Sampson Technology sold common shares for the first time on the open market, representing which of the following for the company?

ConAgra Foods offer shares of their company stock. This is a form of which of the following?

An assisted living facility in your town is currently at capacity. The company that operates it decides to expand and build an additional wing on to the building that will house 20 more residents. Which of the following does this represent for the company?

You would like to start a small photography business. You own a nice camera, but you need to purchase some additional equipment in order to get your business started. You approach your parents and offer them 10% equity in your business for a $2300 investment. Given these numbers, what do you feel your company valuation is?

Which of the following would be the most appropriate use of long-term financing?

The finance manager advises the CEO, "We've got a short-term cash-flow problem. We can draw on our line of credit, and the interest rate is only 2.5%. If we sell our accounts receivable, it'll cost us 3%. I recommend drawing on our line of credit." Which consideration in evaluating financing options does this illustrate?

Companies often look at short-term debt financing because it is usually easier to obtain than long-term debt financing for three reasons. Which of the following is NOT one of the three reasons?

Which of the following are loans from banks and financing companies that are protected by collateral such as inventory or accounts receivable balances?

All of the following are uses of long-term financing EXCEPT which one?

Which of the following would reflect the cost of acquiring a new company?

Brian needs major financing for the educational software company he has founded. He is offering an equity stake of 5% in exchange for an investment of $500,000. At what amount is Brian valuing his business?

Abbott Laboratories, a worldwide health care company, looks to invest $50 million in new technologies for diagnostic instrument systems. This investment into research and development would appear in which of Abbot's budgets?

Which companies raise large pools of money from private and institutional investors and invest in companies that have the potential to become large and successful?

Liza is evaluating two different investment opportunities. One investment appears to be speculative and uncertain, but the potential rewards are substantial. The other investment seems much more predictable, but the potential payoff is low. Which of the following do you suggest she consider in reaching her decision?

What is short-term financing NOT backed by collateral called?

Vikram and Rupi decide to start a new restaurant. They obtain a loan from the bank, but the bank insists that they pledge the equipment owned by the restaurant as security for the repayment of the loan. Which of the following does this exemplify?