Chapter 18 3 Susan is convinced that her new business failed because she lacked the necessary funds to do the things that it takes to get a new business up and running. Her problem apparently was

193. (p. 484) Finance is most closely related to:

A. marketing.

194. (p. 484, figure 18.1) Which business function involves credit management/collecting funds from customers?

A. accounting

195. (p. 486-487) Which of the following statements about taxes is accurate?

D. Taxes cannot be managed because of fluctuations in political policy.

196. (p. 487) A(n) __________ is responsible for verifying that the accounting procedures within a firm are

consistent with established accounting principles.

197. (p. 485) Which of the following commonly results in the financial failure of a firm?

D. management of cash flows

198. (p. 485) Susan is convinced that her new business failed because she lacked the necessary funds to do the

things that it takes to get a new business up and running. Her problem apparently was:

A. inadequate financial control.

199. (p. 485-486) Murray is the manager of Oh! Canada Sporting Goods. He is concerned that his cash expenditures

have been exceeding his cash receipts for the last six months. Oh! Canada is suffering from a(n) ________

problem.

A. accounting

200. (p. 486) Nicole is a financial manager. Her responsibilities include preparing which of the following?

D. the income statement

201. (p. 484, figure 18.1) Budgeting, managing cash, credit accounts, and inventory, and managing taxes are all part of

a(n) ________ job.

A. CPA’s

202. (p. 484, figure 18.1) Working in the finance department of a firm that operates a chain of dry cleaning and

tailoring shops, Demonte discovered that tax management is:

A. not an area of concern for his department, since the accounting department prepares the tax returns.

203. (p. 485) Which of the following companies faces the problem of undercapitalization?

D. an electric utility that has recently experienced a significant increase in the cost of coal and labor

204. (p. 484) Sarah intends to major in finance and find employment in corporate financial management. As a

finance major, Sarah will discover her ________ courses to be similar to her finance classes.

A. marketing

205. (p. 486) Robert intends to major in business. He has never had much interest in subjects with numbers and so

he’d like to avoid taking any finance courses if possible. Robert should:

A. avoid finance courses and focus on subjects that he enjoys.

206. (p. 484, figure 18.1) Which of the following activities is most likely to be performed by a financial manager?

A. design of a marketable product that satisfies an unmet need

207. (p. 487) As a member of her firm’s finance department, Elizabeth spends her workday studying current tax

law, as well as any proposed changes in tax laws. Her company’s concern with taxes results from the firm’s

increasing tax liabilities. Elizabeth works in:

D. tax allocation.

208. (p. 487) Tiffany’s work in the finance department of her firm consists of checking accounting records and

financial statements to verify that proper procedures are followed. Tiffany activities are those of a(n):

D. financial advisor.

209. (p. 487) The overall objective of financial planning is to:

A. forecast the impact of technological trends.

210. (p. 487) The first step in the financial planning process is:

D. establishing financial control.

211. (p. 488) A _________ forecast predicts the revenues, costs, and expenses a firm will incur for a period of one

year or less.

D. tactical

212. (p. 488) A _________ forecast predicts the future cash inflows and outflows.

A. money based

213. (p. 488) A _________ forecast predicts the revenues, costs, and expenses a firm will incur for a period longer

than one year.

A. cash flow

214. (p. 488) A(n) ________ allocates dollars to various costs and expenses needed to operate a business at an

estimated level of sales revenue.

A. forecast

215. (p. 488) Which of the following highlights a firm’s spending plans for the purchase of major assets?

D. surplus budget

216. (p. 488) The budget that estimates a firm’s projected cash inflows and outflows, as well as cash shortages or

surpluses during a given time period is called the ________ budget.

A. capital

217. (p. 489) ___________ refers to the process that identifies variances by comparing actual revenues and

expenses to projected revenues and expenses.

A. Factor analysis

218. (p. 488) An effective budget requires:

D. stakeholder consensus.

219. (p. 488) Liberty Electronics is uncertain about their revenues, costs, and expenses for the coming year. This

firm would benefit from developing a:

A. master budget.

220. (p. 488) Carlos wants to know the income potential of several different strategic plans for his computer

consulting business. Which of the following would be most helpful?

D. capital budget forecast

221. (p. 488) 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):

D. asset budget.

222. (p. 489) The managers of Dakota Clothing regularly compare their actual profits with the firm’s projected

profits. When deviations occur, the managers use the feedback to take corrective action when necessary. The

management of Dakota Clothing is exercising financial:

D. budgeting.

223. (p. 487) As a management consultant, Lamont knows that regardless of how good a firm’s product might be,

the firm has little chance of success without a(n):

D. warranty.

224. (p. 488) Akiko realizes the importance of developing a ________ for her interior design business. Akiko

knows of no better way of establishing revenue expectations and allocating resources in order to achieve the

goals of her firm.

A. market prediction

225. (p. 488-489) As a finance manager at AllSports Communication, Charlie worries about the firm’s borrowing

and debt repayment requirements for the next year. He knows the benefit of estimating AllSports’ cash

disbursements and short-term investment expectations. Facing these concerns, a(n) ________ would provide

Charlie with valuable information.

D. line item budget

226. (p. 487) Financial managers identify three steps to financial planning. Which of the following is one of the

three key steps to financial planning?

A. forecasting both short-term and long-term marketing plans

227. (p. 491, Making Ethical Decisions box) According to the boxed material entitled “Making Ethical Decisions” in Chapter

18, which of the following best describes the auditing problem?

A. the failure to include employees’ input when developing budget allowances

228. (p. 491) The need for operating funds:

D. is established by relevant government laws and regulations.

229. (p. 492) One of the challenges of effective financial management is:

D. providing the financial data in a timely manner for management consultants to improve decision making.

230. (p. 492) The concept of the time value of money indicates that:

A. the value of a dollar decreases over time as prices increase.

231. (p. 492) Money has a time value because:

D. a dollar received today is worth more than a dollar received yesterday.

232. (p. 492) Rather than requiring cash payment for all sales, some firms offer credit to:

D. replace accounts receivable with fixed assets.

233. (p. 492) A major concern for firms selling on credit is:

D. the inability to utilize factoring as a source of financing.

234. (p. 492) To reduce the time and expense of collecting their accounts receivable, some firms:

A. extend credit to new customers.

235. (p. 493) A just-in-time inventory system allows a firm to:

236. (p. 493) ____________ represent major investments in long-term assets such as land, buildings, and

trademarks.

D. Extreme resources

237. (p. 493) Acquiring funds through borrowing represents:

D. equity financing.

238. (p. 493) A firm acquires _________ through the sale of ownership in the firm.

A. debt financing

239. (p. 493) ________ represents funds acquired for major purchases that will be repaid over a year or longer.

A. Short-term financing

240. (p. 493) Financing that must be repaid within one year represents:

D. long-term financing.

241. (p. 491-492) Firms use operating funds to finance which of the following activities?

A. distributing depreciation payments

242. (p. 492) Lancer Wholesale Company wants to improve cash flow provided by accounts receivable collections.

Which of the following strategies would be most likely to help Lancer achieve this objective?

D. offering extended payment plans to qualified buyers

243. (p. 492) The effective management of accounts receivable requires financial managers to:

D. refuse bank-issued credit cards.

244. (p. 493) With plans to build a $50 million theme park, Lakeview Enterprises 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

245. (p. 493) Clark, president of Cycles Go Go, 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. Clark can best resolve his cash flow concerns by

obtaining ________ financing.

A. intermediate

246. (p. 494, figure 18.4) Which of the following would normally involve long-term financing?

A. worker’s salaries

247. (p. 493) By borrowing $10 million from the First Dayton Bank, Ohio Industries utilizes:

D. asset funding.

248. (p. 492) Which of the following presents an effective technique to improve cash management?

D. slow down both the payment and collections of cash

249. (p. 492) Charging interest on past due customer accounts reflects that:

A. credit sales cost more to manage than they are worth.

250. (p. 492) New World Chemical does not offer customers a cash discount for early payment of their accounts

receivable. As a result, most customers wait to pay their bill on the last day before late penalties are charged.

These customers apparently understand the:

D. government’s regulations of the chemical industry.

251. (p. 493) Which of the following represents a capital expenditure?

A. issuing paychecks to workers

252. (p. 493) By selling shares of ownership in their company, California Scientific acquires the funds needed to

finance their research and development projects. California Scientific provides for their long-term funding

needs through ________ financing.

D. asset

253. (p. 493) When Liberty Industries renegotiated their loan agreement, they borrowed an additional $2 million.

The new loan requires Liberty to repay the new amount in nine months. Liberty’s activity represents ________

financing.

D. secured

254. (p. 494) Obtaining long-term financing:

A. occupies the majority of a finance manager’s day.

255. (p. 498) Which of the following represents a source of short-term funding?

D. corporate bonds

256. (p. 494) The most widely used source of short-term funding is:

D. commercial finance companies.

257. (p. 494) ________ describes the short-term financing available to firms that buy merchandise from their

suppliers and are not required to pay for their purchase until some future date.

D. Factoring

258. (p. 494) Some suppliers hesitate to offer trade credit to firms with a poor credit history. In these cases, the

supplier may insist that the customer sign a(n):

D. factoring agreement.

259. (p. 496) A loan that requires the borrower to provide collateral represents a(n):

A. bond trust.

260. (p. 497) Typically, only highly regarded customers of a bank receive:

A. secured loans.