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Exam 19: Mastering Financial Management

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Question 31

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Retained earnings are

A) the same as net profit.
B) interest earned on bond investments.
C) nontaxable income.
D) a form of equity financing.
E) the portion of the profit paid to stockholders.

F) A) and B)
G) A) and C)

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Question 32

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For the majority of businesses, newly proposed financial reforms by the U.S. House of Representatives and the Senate will likely increase the time and cost of obtaining financing.

A) True
B) False

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Question 33

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When a firm makes annual deposits to repay bondholders at maturity, it is using a

If money is reserved each year to guarantee that a bond will be paid off at maturity, the money will be held in a ____ fund.

What does it mean to use equity financing? Why might a large corporation want to do this?

When constructing budgets, most managers begin with departmental budgets for sales and various expenses that are then combined into a company-wide cash budget.

Although a corporation does not have to pay dividends on common stock, it is required to pay dividends on preferred stock.

Bonds from a single issue that have staggered maturity dates are called serial bonds.

The denominations for corporate bonds range from $1,000 to $50,000.

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

Maria has been asked by top management to develop financial ____ that the company will achieve over the next one- to ten-year period.

A promissory note that requires a borrower to repay funds in installments is called a(n)

The quality of a firm's accounts receivables is the credit standing of the firm's customers, coupled with the customers' ability to repay their credit obligations.

The representative for bond owners is called a(n)

Debbie Brooks purchased a $1,000 corporate bond that pays 9 percent interest. The face value of her bond is $1,000. What is the amount of interest that she will receive each year?

The most basic form of corporate ownership is common stock.

Most small businesses can expect to obtain venture capital financing if they have a good credit history of paying their bills on time.

If a firm's earnings should drop below the interest cost of borrowed money, the return on owners' equity will increase.

Explain the primary differences between the primary market and the secondary market. Which is needed (or both) in order for a corporation to raise capital for the firm by selling stock?

Although Hargrove Co. makes enough money to pay for everything it needs, it still chooses to have some debt and pay a larger portion of retained earnings back to the stockholders. What is likely the best explanation for this decision?