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Exam 18: Financial Management

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Question 131

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Which of the following statements represents good advice prior to making capital expenditures?

A) Capital expenditures represent borrowed funds that must be repaid in one year or less. It is important to seek the advice of your accountant prior to committing.
B) Capital expenditures represent investment in inventories and expendable assets that the firm will use in one year or less. It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.
C) Most firms do not value capital expenditures on their balance sheets, so it is important to stay abreast of the market value of these assets at all times, in case you want to sell them.
D) Capital expenditures are major investments, meaning they require large sums of funds. Companies should weigh all possible options before committing available resources to projects that take significant amounts of funds and extended time.

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Question 132

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Financial managers understand the time value of money. They try to maximize cash expenditures, as opposed to minimizing cash expenditures.

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Question 133

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Acquiring funds through debt financing enhances the firm's ability to increase profits.

Financial managers at Epic Electronics have always had a conservative attitude toward long-term financing. In particular, they are interested in keeping risk to a minimum. This philosophy suggests that managers at Epic consider the extensive use of leverage an attractive financial strategy.

Successful businesses establish restrictive credit policies encouraging customers to pay cash.

________ is the function in business that is responsible for acquiring funds for the firm, and managing funds within the firm.

Which of the following provides the buyer with collateral?

To reduce the time and expense of collecting their accounts receivable, some firms

A share of stock represents a company-issued IOU including a promise to repay on a certain date.

In order to assist in revenue realization, a(n) ________ allocates resources throughout the firm.

________ offer short-term secured loans to high-risk borrowers. These loans usually require collateral.

________ provide financing to new or emerging companies with high profit potential. In return, these organizations expect a share of ownership in the company.

Epic Electronics holds commercial paper issued by SafeONE Insurance that matures in 180 days. However, shortly after Epic purchased the commercial paper, SafeONE went out of business. The finance manager for Epic is not worried because his loan to the corporation is secured by collateral that he can now claim.

The chief financial officer of a company is responsible for managing cash, accounts receivable, and inventory.

According to the box, Adapting to Change, most online loans are safe with a low interest rate.

Roman, the finance manager at Outdoor Adventure Sporting Goods, has asked his assistant, Vincent, to prepare the ________ budget. Vincent will gather as much information as possible by utilizing the firm's other budgets and any documents that summarize proposed financial activities.

A debenture bond is backed only by the reputation of the issuer.

________ refers to the strategy of using borrowed funds to increase the rate of return for stockholders.

Generally accepted accounting principles require that any assessment of a firm's financial statements be performed by independent outside auditors.

Bigbux Savings and Loan agreed to extend Appleman's Orchards $250,000 of unsecured short-term funds, contingent upon the bank having the funds available. This arrangement represents a