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Exam 18: Financial Management

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Question 91

True/False

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The legal document detailing all the conditions relating to a bond issue is called a bond indenture.

A) True
B) False

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Question 92

Multiple Choice

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A feature of corporate bonds is that they

A) pay interest until maturity.
B) carry voting rights.
C) represent ownership in a firm.
D) pay dividends.
E) have residual claims to assets after ordinary share.

F) A) and D)
G) D) and E)

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Question 93

Multiple Choice

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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.From his work experience, Derrick should have learned that ____ has a repayment period of thirty to sixty days.

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.

The ____ ratio is based on the principle that a high-risk investment should generate higher financial returns for a business and more conservative decisions often generate lesser returns.

Over the years, Zebra Productions has been slow making payments to its bank.Now it is in need of financing.Based on past experience, the interest rate Zebra will pay is the

Kliting Co.is concerned with whether or not it will be able to pay its bills with money coming in from sales.It would be helpful for Kliting to prepare a ____ to better understand its needs.

Borrowed money that will be used for more than one year is called

The two types of stock a company can sell are

Rick's Wholesale Office Supplies prefers to handle its accounts receivable itself, but it also needs to use them to facilitate short-term borrowing.What can Rick's do?

The first step in building a budget is to identify sources of debt financing.

The type of corporate ownership that has first claim on profits and assets is called a

Morgan's Transition Morgan is currently a manager of a small financial planning firm.He is seeking a new career with a large corporation in the banking industry.He recently applied for the financial manager opening at G & T Bank.He is concerned that the transition from his small firm to a large corporation will be difficult.To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance.The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing.Morgan now believes he has strengthened his competitive advantage in his quest for the job. -Refer to Morgan's Transition.When Morgan creates a financial plan, his first step should be which of the following?

Kevin received unsecured financing from a bank for his plumbing business.This means that Kevin did not have to provide the bank with any

Some equity capital generally is used to start a

As a stockholder in 3M, Doug knows that corporations are required by law to have a stockholder meeting

The NASDAQ only carries small company's stocks; by regulation, large firms' stock must trade on the NYSE, not on the NASDAQ.

What right do most ordinary shareholders have that most preferred stockholders do not have?

At Furman Company, managers go through a lengthy budgeting process wherein each department manager is required to provide documentation justifying every expected expense.Furman uses ____ budgeting.

Chelsea notices that her preferred stock from Landings, Inc., has a par value of €40.She knows that this €40