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Exam 18: Financial Management

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Question 101

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A secured loan means the borrower has the security of knowing repayment is not due for several years.

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Question 102

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Financial managers use data prepared by accountants to develop strategies for improving the financial performance of the firm.

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Question 103

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The financial manager of Carolina Graphics negotiated a ________ with her bank that allows Carolina to borrow up to $50,000 without collateral.This arrangement eliminates the need to renegotiate the terms of the loan and complete new paper work each time Carolina borrows money.The preapproved short-term loan agreement is contingent upon the bank having the funds available.

Accepting credit cards,such as MasterCard or Visa,enables a firm to decrease the expense of extending credit to customers.

Admiral Electric is a widely known,successful manufacturer of industrial motors and related equipment.When Admiral Electric anticipates a need for short-term funds,it offers unsecured promissory notes to investors for 180 days.To obtain short-term financing,Admiral Electric utilizes:

A major concern for firms selling on credit is:

Financial control is a process where firms compare actual revenues and costs with budgeted revenues and costs.

Several big firms got into financial trouble in 2008.The problems were not isolated to just a few industries.It stretched from financial services companies to the U.S.automakers.The government proceeded with a number of bailouts.

Mini-Case Tishian's Funeral Home has been in business for over eighty 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." -To raise the funds for the major improvements needed at the funeral home,Mort has talked to two investors about incorporating his business and selling them shares of stock in the company.Mort is considering the use of:

The effective management of accounts receivable requires financial managers to:

One of the challenges of effective financial management is:

With added competition,firms prefer not to offer the availability of credit sales to their customers.

Mini-Case Tishian's Funeral Home has been in business for over eighty 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." -Mort Tishian feels it's necessary to predict revenues,costs,and expenses on a six-month basis."It's the only way you get an idea of what to expect," explains Mort.In order to obtain these predictions,Mort needs to develop a(n) :

As a financial manager of a small firm,Jerry needs to determine how much his company will have to borrow in the coming months,and when the borrowed funds will be needed.The preparation of the cash budget will help.

A cash budget helps managers anticipate borrowing,debt repayment,operating expenses,and short-term investment opportunities.

The indenture terms refer to the agreements of a bond issue,such as how much interest it promises to pay and when it promises to repay the issue.

Tri-State Concrete Construction Company relies on factoring to meet its short-term financing needs.This means that Tri-State borrows money from a finance company and pledges its accounts receivable as collateral.

Effective financial managers evaluate customers' ability to pay for merchandise purchased on credit.

As indicated in the Making Ethical Decisions box,financial controls not only help a firm increase earnings,the process protects a firm from mismanaging funds and even overstating expenses.

Carolina Financial Services is considering the purchase and installation of an expensive computer network.This is the type of expenditure that would be included in a(n) :