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157. Leverage refers to the use of borrowed funds to increase a firm's rate of return.
158. The cost of capital is the rate of return a firm must earn in order to meet the demands of
its lenders and expectations of its equity holders.
159. Long-term loans are often more expensive than short-term loans.
160. Corporations that issue debenture bonds are required to provide collateral.
161. Corporations that issue stock to raise long-term funds accept the legal obligation to repay
the amount borrowed.
162. Unlike bonds, stocks offer the advantage of tax-deductible interest payments.
163. One important consideration for a firm accepting funds from a venture capitalist is the
ownership interest demanded by the venture capital firm.
164. According to the
Reaching Beyond Our Borders
box, some of the largest sovereign wealth
funds are operated by Norway, Saudi Arabia, and Singapore.
165. As mentioned in the
Reaching Beyond Our Borders
box, sovereign wealth funds can easily
purchase more than 10% of a U.S. company without investigation by the U.S. government.
166. Central Vermont Power issued $200 million of bonds to finance a major upgrade of one of
its largest power plants. The issuance of these bonds indicates that Central Vermont utilizes
equity capital to meet its long-term financing needs.
167. As a financial manager for a very profitable manufacturer of specialty steel, Kurt has
been asked to investigate sources of long-term funds to finance the construction of a new
facility. Kurt would prefer a funding source that does not require interest payments or involve
major underwriting fees. Kurt will consider using retained earnings to fund the construction
project.
168. Financial managers at Sasha Deal Electronics have always had a conservative attitude
toward long-term financing. In particular, they are interested in keeping risk to a minimum. This
philosophy suggests that managers at Sasha Deal consider the extensive use of leverage an
attractive financial strategy.
169. An example of a firm using leverage to its advantage is a firm that borrows funds at 9%
and invests those funds to earn 14%.
170. If a firm earns 10% return on funds they borrowed at 15% interest, the owners of the firm
realize a benefit from using leverage.
171. ________ examine the data prepared by ________ and then make recommendations to top
management regarding strategies for improving the firm.
172. _____________ is the function in business that is responsible for acquiring funds for the
firm, and managing funds within the firm.
173. Which of the following correctly identifies areas of authority and responsibility for a chief
financial officer (CFO)?
174. No matter the size of the business,
finance
is a critical activity for:
175. Undercapitalization refers to the problem of:
176. Which of the following statements is most accurate?
177. Which of the following is a primary area of concern for financial managers?
178. Which business function involves credit management/collecting funds from customers?
179. Which of the following statements about taxes is accurate?
180. A(n) __________ is responsible for verifying that the accounting procedures within a firm
are consistent with established accounting principles.
181. Which of the following commonly results in the financial failure of a firm?
182. A(n) _____________ job includes forecasting, budgeting, cash flow analysis, cost control,
taxes, and credit management.
183. Which of the following companies is undercapitalized?
184. Susan started a cake decorating business that failed. She is convinced that she lacked
the necessary funds to promote her business and get it off the ground. Susan experienced:
185. Carlos is the manager of Oh! Canada Sporting Goods. During the past six months, his
cash expenditures have exceeded his cash receipts. Oh! Canada is suffering from a(n) ________
problem.
186. Ariel, a recent graduate in finance from a well-known university, was hired by a large
corporation to work in tax management. Ariel's goal is:
187. Robert intends to major in business. He has never had much interest in subjects with
numbers. He would like to avoid taking any finance courses if possible. Robert should:
188. Which of the following activities is most likely to be performed by a financial manager?
189. When Preferred Pet Care Inc., a mobile veterinary care company, first started operations,
it extended three months of credit to customers. It soon began to experience a cash flow
problem. A finance professional was hired to:
190. The overall objective of financial planning is to:
191. The first step in the financial planning process is:
192. A _________ forecast predicts the revenues, costs, and expenses a firm will incur for a
period of one year or less.
193. A _________ forecast predicts the future cash inflows and outflows in future periods.
194. A _________ forecast predicts the revenues, costs, and expenses a firm will incur for a
period longer than one year.
195. In order to assist in revenue realization, a(n) ________ allocates resources throughout the
firm.
196. Which of the following shows a firm's spending plans on fixed assets such as large
equipment?
197. 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.
198. ___________ refers to the process that identifies variances by comparing actual revenues
and expenses to projected revenues and expenses.
199. An effective budget requires:
