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Exam 18: Financial Management

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Question 151

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The first step in financial planning is to develop a budget to better control costs.

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Question 152

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The most widely used source of short-term funding is:

A) trade credit.
B) a line of credit.
C) factoring.
D) commercial finance companies.

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Question 153

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Acquiring funds through debt financing enhances the firm's ability to increase profits.

Through equity financing, stockholders become _________ of the firm

Acquiring funds through debt financing actually decreases the overall risk of the firm.

Equity financing must be repaid.

A promissory note that requires the borrower to repay the loan in specified installments is called a(n) :

The Making Ethical Decisions box "Good Finance or Bad Medicine" has an important message for managers who make financial decisions. Which of the following statements summarizes this message?

Long-term financing would normally be used to purchase:

__________ provide financing to new or emerging companies with high profit potential. In return, these organizations expect a share of ownership in the company

After earning $30 million in net income, Rolatrim Industries distributed $5 million in dividends to their stockholders. The board of directors of the firm decided to invest the remaining $25 million back into the business. This $25 million reinvestment of profits represents:

With plans to build a $50 million theme park, Extreme Entertainment, Inc., intends to finance this project through the sale of additional shares of ownership in their firm. Selling new shares of stock represents ___________ financing

As John considers approaching a venture capital firm to provide funding for his new software firm, he should realize that a venture capital firm will:

Mini-Case Tishian's Funeral Home has been in business for over 80 years. Throughout its history, the firm has been a family-run operation. Today, the business is managed by Mort Tishian, a grandson of the founder. Unfortunately, Mort Tishian's tenure has been plagued with problems neither his father nor grandfather before him experienced. The reason is simple: the funeral business is undergoing rapid change. Small, family-owned funeral homes are losing ground to a new type of competitor, a large national network service that resembles a franchise system. More and more families "in their time of need" are choosing the new, highly promoted competitors instead of the traditional small family-operated funeral homes. This trend has required a response from organizations like Tishian's Funeral Home. Bigger and better facilities are needed to remain competitive. All of this puts more pressure on the family owners to be more active in the financial side of the business. Mort summed it up best when he said, "Grandpa told people, 'You pay me when you can, I ain't goin' nowheres.'" His creditors did the same with him. Today, it's a different game. Cash flow is key, and obtaining funds is no simple task. Additionally, creditors want their money now, not later. Banks are also more demanding. "Heck, Grandpa knew all the bankers he dealt with personally. I see new faces every time I go to the bank. If things don't get better, I suspect after eighty years of service, Tishian's Funeral Home will have its own funeral." -After much searching, Mort located an old banking friend of his father's. The banker offered Mort up to $25,000 in unsecured funds, which Mort's firm could borrow any time within a year, as long as the bank has the money available. Mort was offered a(n) :

The chief financial officer of a company is responsible for managing cash, accounts receivable, and inventory.

_____________ is the function in business that is responsible for acquiring funds for the firm, and managing funds within the firm

A financial manager makes recommendations to top executives regarding strategies for improving the financial strength of a firm.

Budgets are prepared after the financial forecasts are developed.

Money has a time value because:

A firm's short-term financial forecast provides a projected sales estimate.