273. The interest paid on ________ represents a tax-deductible business expense.
274. Which of these is a common source of long-term financing for a corporation?
275. One of the primary factors that influences the interest rate a firm pays on long-term loans
is the:
276. Venture capital firms look to invest their funds in firms that _________.
277. Which of these statements about corporate bonds is correct?
278. Successful use of financial leverage requires a firm to:
279. To maximize the benefits of using financial leverage, a firm should:
280. As John considers approaching a venture capital firm to provide funding for his new
software firm, he should realize that a venture capital firm will:
281. By purchasing stock in Entertainment Today, Veronica has become a(n) ________ the
company.
282. After earning $30 million in net income, Rolatrim Industries distributed $5 million in
dividends to their stockholders. The board of directors of the firm decided to invest the remaining
$25 million back into the business. This $25 million reinvestment of profits represents:
283. After enjoying increased sales of and profits from several popular products, Braggs &
Stritton plans to expand their production facilities. The firm, a well-known producer of lawn care
products, prefers financing this project with a funding source that avoids interest and dividend
payments as well as underwriting costs. Which of the following best meets the needs of Braggs &
Stritton?
284. Chunky Chicken, Inc., announced yesterday that it plans to issue $100 million in
debenture bonds to fund the expansion of its fast food chain of restaurants. In financial terms,
this means:
285. Arborview Plant Science Company has invented a drought resistant grass seed that only
needs watering three times each year. In order to expand distribution worldwide, the company
whose product produces lush green foliage needs a large amount of funding—fast! The handful
of seed scientists that own the company decide to offer shares of stock to general investors. This
first-time offering is a(n):
286. Arborview Plant Science Company has invented a drought resistant grass seed that only
needs watering three times each year. In order to expand distribution worldwide, the company
whose product produces lush green foliage needs serious funding. The handful of seed scientists
that own the company are seeking ___________, but understand that they will relinquish a
sizeable share of ownership in order to obtain the funds.
287. Which of the following situations represents a successful use of financial leverage?
Mini-Case
Tishian’s Funeral Home has been in business for over 80 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.”
288. 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):
289. Mort is seriously considering a major expansion in the size of his funeral home. The
money spent on this type of project would be classified as a(n):