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Exam 18: Financial Management

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Question 31

True/False

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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

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Question 32

Multiple Choice

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A statement that projects income and/or expenditures over a specified future period is called a

A) financial plan.
B) cash flow plan.
C) resources plan.
D) resource allocation statement.
E) budget.

F) A) and E)
G) None of the above

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Question 33

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McGines, Inc. Sam McGines, CEO of McGines, Inc., decided that upon his retirement, he would elect his son Derrick to become the new CEO.Sam thought it would be a good idea to have Derrick shadow him at work to understand the roles and responsibilities of a CEO.Derrick shadowed his father for months in order to learn every aspect of the business.Sam knew that the best way for Derrick to learn was to actually perform some of the tasks he did on a daily basis, rather than simply describe them.The company generally focused on short-term financing, and Sam felt that it was important for Derrick to understand the different types of financing.Derrick learned about the type of bonds that the company usually offered to raise capital.These bonds allow the purchasers of the bond to keep them until maturity.Derrick also learned the process of obtaining bonds and the various types of long-term financing methods.Job shadowing was indeed a worthwhile experience for Derrick. -Refer to McGines, Inc.If Derrick has learned and understood the business, he should know that today most corporate bonds are

Sanchez Company sells its garden hoses to Gary's Lawn and Garden Centre but does not require Gary's to pay for them right away.If this is a standard trade-credit agreement, Gary's will have to pay for the garden hoses in

Baxter Equipment earned €300,000 last year.Its owners' equity totaled €2,500,000.Based on these amounts, what is the firm's return on owners' equity?

Most financial managers agree that since the recent financial crisis, financing has become more difficult and expensive to obtain.

Financial managers should

A term-loan agreement is a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments.

The least expensive form of short-term financing is

Money received from the sale of shares of ownership in a business is called

The NASDAQ, part of the ___ market, provides price information on more than 3,600 stocks.

When a firm makes the decision to borrow money, it is a clear sign that the firm is in financial trouble.

Of the following, only ___ would not be considered proper financial management during both good and bad times.

Zero-base budgeting is a budgeting approach in which every expense must be justified in every budget.

Retained earnings are

Most firms like lines of credit because the compensating balance requirement frees up their capital to pay short-term debts.

Beard Auction receives an invoice from one of its European suppliers for antiques.The amount of the invoice is €40,000 with terms of 3/10, net/60.If the invoice is paid on day 20, Beard is entitled to a ____ cash discount and will write the check for ____.

Surf 'N' Sun Shop sells ski boats and other boating accessories.It receives most of its inventory about three months in advance of the summer season, but it is not able to pay for the inventory up front.Instead, its suppliers allow Surf 'N' Sun to use its inventory as collateral.This type of agreement is called

____ is (are) the earnings of a corporation that are distributed to the stockholders.

The use of borrowed funds to increase the return on owner's equity is called