Chapter 18 – Financial Management
208. The finance manager at AllSports Communication has asked his assistant, Ben, to
prepare the ________ budget. Ben will gather as much information as possible by
utilizing the firm’s other budgets and any documents that summarize proposed financial
activities.
A. master budget
B. cash budget
C. capital budget
D. line item budget
Feedback: The master budget (also known as the operating budget) summarizes and ties
together all the company’s other budgets.
209. One of the challenges of effective financial management is:
A. to have sufficient cash on hand without compromising the firm’s investment potential.
B. ensuring the satisfaction of each of the stakeholder groups.
C. working within the strict regulations of the Financial Accounting Standards Board
(FASB).
D. providing the financial data in a timely manner for management consultants to
improve decision making.
210. The concept, “time value of money” indicates:
A. the value of a dollar decreases over time as prices increase.
B. the prices of goods and services will fluctuate over time due to inflation and higher
costs of production.
C. monetary systems tend to become more sophisticated over time.
D. a dollar received today is worth more than a dollar received a year from today.
18–63
214. To reduce the time and expense of collecting their accounts receivable, some firms:
A. extend credit to new customers.
B. offer extended payment plans to existing customers.
C. adopt a just-in-time inventory policy.
D. accept bank credit cards.
215. A just-in-time inventory system allows a firm to:
A. extend credit to new customers.
B. provide sufficient inventory for most contingencies.
C. reduce their investment in inventory.
D. reduce capital expenditures.
216. Acquiring funds through borrowing represents:
A. debt financing.
B. venture capital.
C. speculative capital.
D. equity financing.
217.
Chapter 18 – Financial Management
If a firm sells shares of stock, it is financing with ________.
A. debt
B. liabilities
C. spectator capital
D. equity
218. If a company secures a three year bank loan, it is considered __________.
A. short-term financing
B. asset funding
C. liability funding
D. long-term financing
219. If a company secures a one-year bank loan it is considered _______.
A. short-term financing
B. asset funding
C. liability funding
D. long-term financing
18–65
220. In the Legal Briefcase box titled, “Financial Order or Financial Martial Law?” students
are introduced to ____________________ assigned by governors to establish financial
procedures to secure the health of local and state governments. This type of procedure
was put in place in Michigan during the last recession
A. EFMs – Emergency Financial Managers
B. UBs – Union Boards
C. EEOs – Emergency Elected Officials
D. EGC – Emergency Governor’s Cabinet
221. The effective management of accounts receivable requires financial managers to:
A. review the credit history of new customers.
B. provide prompt cash payments to suppliers.
C. allow customers more time in paying their past due accounts.
D. refuse bank-issued credit cards.
Feedback: Finance managers are responsible for carefully evaluating old and new credit
customers to determine if they have a favorable history of meeting their credit obligations on
time.
222.
Chapter 18 – Financial Management
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.
A. retained
B. debt
C. initial offering
D. equity
Feedback: Equity financing refers to funds raised from either selling shares of ownership or
from retained earnings.
223. The owner of a Mountain Cycle Shop worries that cash flows may be insufficient to pay
his current operating expenses. While he anticipates a surplus of cash inflows as warm
weather approaches, he needs to borrow funds now to meet his immediate obligations.
He can best resolve his cash flow concerns by obtaining ________ financing.
A. intermediate
B. contingency
C. short-term
D. long-term
Feedback: Short-term financing is intended to meet the immediate funding needs of an
organization. These are funds that will be repaid within a year.
18–79
253. Although best used as a last resort, many small businesses find it convenient to use
__________ as a short-term source of financing. Although this form short-term debt
comes with high interest rates, it provides a quick line of credit for many firms,
including start-up companies who may not be able to secure bank loans.
A. factoring
B. credit cards
C. commercial paper
D. promissory notes
254. As a result of cash flow shortages, Millard’s Department Stores has fallen behind in
payments to suppliers. Some suppliers are withholding shipments to Millard’s until they
receive payments on overdue accounts. To meet their immediate needs, Millard’s
Department Stores should utilize:
A. vulture capital.
B. long-term financing.
C. contingency capital.
D. short-term financing.
Feedback: Finance managers use short-term financing to run the day-to-day operations. This
includes the purchase of inventory and supplies.
255.
Chapter 18 – Financial Management
Maryland Nursery offers customers credit terms of 3/15 net 30. This gives customers a:
A. fifteen percent discount if they pay in three days.
B. three percent discount if they pay in thirty days.
C. three percent discount if they pay in fifteen days.
D. fifteen percent discount if they pay in thirty days.
Feedback: The terms 3/15, net 30 indicates that a 3% discount is offered to customers paying
by the 15th day after the billing. No discount is offered to customers paying between the 16th
and the 30th day after the billing.
256. To secure financing for a planned expansion, Ohio Electronics borrowed $400,000 from
King Finance. The ________ loan agreement requires that Ohio Electronics provide the
title to their factory as collateral.
A. recapitalization
B. secured
C. pledged
D. minority
Feedback: A secured loan is a loan that’s backed by something of value, such as property or
collateral. If the borrower fails to pay the loan, the lender may take possession of the
collateral.