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Exam 18: Financial Management

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Question 141

Multiple Choice

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No matter the size of the business, finance is a critical activity for

A) profit-seeking, but not for nonprofit organizations.
B) profit-seeking and nonprofit organizations.
C) nonprofit organizations, but not for profit-seeking businesses.
D) accountants, but not for financial managers.

E) A) and C)
F) A) and B)

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Question 142

Multiple Choice

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Shopper's Choice Department Stores has fallen behind in payments to suppliers due to cash flow shortages. Some suppliers are withholding shipments to Shopper's Choice until they receive payments on overdue accounts. To meet their immediate needs, Shopper's Choice Department Stores should utilize

A) vulture capital.
B) long-term financing.
C) contingency capital.
D) short-term financing.

E) A) and B)
F) A) and C)

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Question 143

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The concept of the time value of money is based on the interest-earning power of money.

Burger Barn is a chain of hamburger restaurants on the West Coast. The corporation plans to expand to the Midwest and then along the East Coast. The acquisition of land and construction of new restaurants represent major capital expenditures.

The primary focus of a cash flow forecast is the firm's revenue and costs for the current operating period.

Gemstone Jewelers obtains needed short-term funds by selling its accounts receivable to the Friendly Finance Company. Friendly Finance usually pays Gemstone about 80% of the value of the receivables. Gemstone Jewelers utilizes ________ as a means of raising short-term funds.

Which of the following represents a source of short-term funding?

Mini-Case Tishian's Funeral Home has been in business for over 80 years. Throughout its history, the firm has been a family-run operation. Today, the business is managed by Mort Tishian, a grandson of the founder. Unfortunately, Mort Tishian's tenure has been plagued with problems neither his father nor grandfather before him experienced. The reason is simple: the funeral business is undergoing rapid change. Small, family-owned funeral homes are losing ground to a new type of competitor, a large national network service that resembles a franchise system. More and more families "in their time of need" are choosing the new, highly promoted competitors instead of the traditional small family-operated funeral homes. This trend has required a response from organizations like Tishian's Funeral Home. Bigger and better facilities are needed to remain competitive. All of this puts more pressure on the family owners to be more active in the financial side of the business. Mort summed it up best when he said, "Grandpa told people, 'You pay me when you can, I ain't goin' nowheres.'" His creditors did the same with him. Today, it's a different game. Cash flow is key, and obtaining funds is no simple task. Additionally, creditors want their money now, not later. Banks are also more demanding. "Heck, Grandpa knew all the bankers he dealt with personally. I see new faces every time I go to the bank. If things don't get better, I suspect after eighty years of service, Tishian's Funeral Home will have its own funeral." -To raise the funds for the major improvements needed at the funeral home, Mort has talked to two investors about incorporating his business and selling them shares of stock in the company. Mort is considering the use of

A ________ represents a long-term debt obligation issued by a corporation or a government.

By purchasing stock in Film Files, Mackenzie has become a(n) ________ the company.

Equity financing may involve the sale of stock (representing ownership) to new investors.

Sound financial management involves determining the most appropriate sources of funds to meet short-term and long-term needs of an organization.

Financial managers devote the majority of their time to obtaining long-term financing to fund the firm's capital expenditures.

Budgets assist managers in performing the functions of planning and control.

Willow's small floral shop specializes in weddings. Though she knows her competitors allow customers to buy on credit, she is concerned about the risk and expense of unpaid customer accounts. One strategy to reduce risk and collect sales revenue more quickly would be to accept bank-issued credit cards.

Which of the following commonly results in the financial failure of a firm?

Long-term financing would normally be used to purchase

Shoreline Supply offers their customers trade credit with terms 2/15 net 30. This implies that

Portable Pet Care, a mobile veterinary service, wants to expand. After thoroughly reviewing the possibility of expansion, Portable Pet Care plans to offer a similar service in the Indianapolis metropolitan area as it does in its original Columbus, Ohio area. This will require a large capital expenditure. Due to the nature of this project, the firm will consider only equity financing.

When Newport Industries renegotiated their loan agreement, they borrowed an additional $2 million. The new loan requires Liberty to repay the new amount in nine months. Liberty's activity represents ________ financing.