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Exam 8: Finance: Acquiring and Using Funds to Maximize Value

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Question 81

Multiple Choice

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Which term is used to describe the use of debt in a firm's capital structure?

A) debt loading
B) discounting
C) liquidity boosting
D) financial leverage

E) B) and D)
F) A) and B)

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Question 82

Multiple Choice

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In which scenario can firms achieve their objective by developing a relationship with a firm that offers factoring services?

A) the firm has established a source of long-term financing that avoids fees and commissions
B) the firm plans to issue large sums of commercial paper in the near future
C) the firm has larger than necessary cash balances and wants to find a safe way to invest the excess cash
D) the firm relies heavily on credit sales and wants to speed up the receipt of cash

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

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Question 83

Multiple Choice

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Investing in fixed assets would be classified as which type of budgeting?

Companies with rapidly growing sales seldom experience cash flow problems.

Today many financial managers accept the view that serving the needs of other stakeholders can be consistent with the goal of maximizing the value of the firm to its owners.

Financial managers usually focus almost exclusively on meeting the financial needs of their firms in the short run,leaving long-run financial issues to top management.

The time value of money is the principle that a dollar received today is worth less than a dollar received in the future.

Commercial paper is a short-term unsecured promissory note issued by large corporations.

George's Car Repair Shop buys parts from a local parts distributor.The distributor delivers the parts promptly under terms stated on the invoice that say: 3/15 net 30.George has always paid the bill in just 30 days and has never really worried about these invoice terms.Which of the following would you choose as your advice to George?

Net working capital is the difference between a firm's current assets and its fixed assets.

Snow International,a ski company in Canada,has 500 shares of outstanding common stock and has not issued any preferred stock.Net income is $27 500.What would be the earnings per share calculation?

Pro forma statements are idealized financial statements that show the firm's average financial performance over the past 10 years.

Financing provided by a firm's owners is classified as what type of financing?

A low burn rate is an indication that the firm is losing cash at a faster rate than other firms in its industry.

Kendra Wright was recently hired by High Adventure Inc.to be a financial manager.She is surprised to learn that the company currently operates "by the seat of its pants." As she seeks to develop a more rigorous financial plan,what will she have to do?

Which of the following consists of the stocks of goods,materials,parts,and work-in-process that firms hold as part of doing business?

What role does a factor play in providing short-term financing to a firm? Why would firms that rely heavily on credit sales find factoring attractive?

When an invoice lists the terms as 3/15 net 45,the "net 45" means that the seller requires payment in full within 45 days.

Which ratio measures the extent to which a firm relies on debt to meet its financing needs?

A drawback of commercial paper is that it takes a long time to mature,thus making it a risky asset to hold if the firm is likely to need cash in the near future.