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Exam 16: Mastering Financial Management

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Question 81

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Mrs.Thomas has received an invoice from the manufacturer for which she distributes products.The invoice states credit terms of 3/10, net/30.Puzzled by this, she calls on you to explain.You indicate that the notation 3/10 means that

A) she may take a 30 percent discount if she pays the invoice within three days.
B) she must pay the entire amount in three days.
C) after three days, she must pay the new amount in ten days.
D) her line of credit is equivalent to three-tenths of the dollar value of her business.
E) she may take a 3 percent discount if she pays the invoice within ten days.

F) B) and E)
G) C) and D)

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Question 82

Multiple Choice

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When bonds issued at the same time mature on different dates, they are referred to as ____ bonds.

A) callable
B) serial
C) mortgage
D) debenture
E) convertible

F) B) and E)
G) C) and E)

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Question 83

Multiple Choice

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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.

Jacob and Molly decide to start a new cake-decorating business.They each contribute $10,000 to get the business off the ground.This money is considered _____.

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 a client asks, Derrick should be able to identify that ____ is the type of stock the owner may exchange for a specified number of shares of common stock.

State the purpose of a promissory note.Describe why a supplier would use a promissory note for short-term financing instead of trade credit.

The two types of stock a company can sell are

The typical denomination for a corporate bond ranges from $1,000 to $50,000.

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.Morgan's business classes taught him that the financial manager should do which of the following?

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.Having taken the classes, Morgan should describe cash flow as which of the following?

Financial managers should

Venture capital firms invest in

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

If Sun Microsystems were to take out a short-term loan from Chase Manhattan for $5 million and were required to keep $500,000 of that in its Chase account, this would be called a(n) _____.

The lowest rate of interest charged by a bank for a short-term loan is known as _____.

When the owner of preferred stock has the option to exchange preferred stock for a fixed number of shares of common stock, the stock is called ____ preferred stock.

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

In order to catch problems before they get out of hand, a business firm should compare its financial performance against various budgets.

Which of the following is not a characteristic of short-term financing?

When Platinum Fitness sells its accounts receivable to a financial institution, it receives less than the full value of the accounts receivable.Which of the following is a benefit Platinum Fitness receives from this arrangement?