161. With regard to the ongoing expense of long–term corporate financing, which of the following would be the least
expensive?
a. Long–term loans
b. Corporate bonds
c. Debenture bonds
d. Common stock
e. Trade credit
162. With regard to the ongoing expense of long-term corporate financing, which of the following would be the most
expensive?
a. Long-term loans
b. Corporate bonds
c. Debenture bonds
d. Common stock
e. Trade credit
163. All of the activities concerned with obtaining money and using it effectively are called financial management.
a. True
b. False
164. Effective financial management involves careful planning to determine the best financial sources and to ensure that
projected uses are in keeping with the organization’s goals.
a. True
b. False
165. Short-term financing is used to start a new business.
a. True
b. False
166. For a manufacturer, it is impossible to have cash-flow problems before peak sales periods.
a. True
b. False
167. Florida-based Swim and Fin Products often experiences a time lag between the time goods are produced and the
time that retailers pay for the finished products. In this situation, the Swim and Fin’s financial problems are the
result of speculative production.
a. True
b. False
168. Short-term financing is used to finance a merger or expansion.
a. True
b. False
169. Most financial managers consider long-term financing to be money that will be used for longer than one year.
a. True
b. False
170. During the recent economic crisis, the number of business bankruptcies actually declined.
a. True
b. False
171. For the majority of businesses, newly-proposed financial reforms by the U.S. House of Representatives and the
Senate will likely increase the time and cost of obtaining financing.
a. True
b. False
172. According to the risk-return ratio, conservative decisions actually result in more risk when compared to decisions
that are often considered high-risk decisions.
a. True
b. False
173. One of the most important priorities for someone interested in careers in finance is honesty.
a. True
b. False
174. The first step in building a budget is to identify sources of debt financing.
a. True
b. False
175. When constructing budgets, most managers begin with departmental budgets for sales and various expenses that
are then combined into a company-wide cash budget.
a. True
b. False
176. A cash budget estimates a firm’s expenditures for major assets like replacement of obsolete equipment and mergers
and acquisitions.
a. True
b. False
177. Zero-base budgeting is a budgeting approach in which every expense must be justified in every budget.
a. True
b. False
178. Equity capital generally provides the greatest part of a firm’s financing.
a. True
b. False
179. Debt capital is borrowed money that does not have to be repaid.
a. True
b. False
180. Selling a firm’s unneeded assets is a reasonable last resort when neither equity capital nor debt capital can be found
to meet a firm’s need for capital.
a. True
b. False
181. In order to catch problems before they get out of hand, a business firm should compare its financial performance
against various budgets.
a. True
b. False
182. When a firm makes the decision to borrow money, it is a clear sign that the firm is in financial trouble.
a. True
b. False
183. Collateral is not required for most short-term financing.
a. True
b. False
184. Trade credit is the most popular form of short-term financing available for most businesses.
a. True
b. False
185. The terms 2/10, net 30 are used with most promissory notes.
a. True
b. False
186. A promissory note is a written pledge by a borrower to pay a certain sum of money to a creditor at a specified
future date.
a. True
b. False
187. The lowest interest rate charged by a bank for a short-term loan is called the discount rate.
a. True
b. False
188. A firm with questionable credit should expect to pay the prime interest rate minus 2 percent.
a. True
b. False
189. A revolving credit agreement is a guaranteed line of credit.
a. True
b. False
190. Commercial paper is short-term promissory notes issued by large corporations.
a. True
b. False
191. Inventories and accounts receivable are the assets most commonly used as collateral for short-term financing.
a. True
b. False
192. Commercial paper short-term financing is usually available only to large firms.
a. True
b. False
193. The quality of a firm’s accounts receivables is the credit standing of the firm’s customers, coupled with the
customers‘ ability to repay their credit obligations.
a. True
b. False