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Exam 18: Financial Management

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Question 91

Multiple Choice

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Jackson Plumbing, a medium-sized company, wants to guarantee that it can obtain short-term funds to meet unexpected future cash needs. Which of the following strategies would best meet the financing needs of Jackson Plumbing? Financial managers at Jackson Plumbing should:

A) issue commercial paper as needed.
B) request that the firm's board of directors approve an issue of additional shares of common stock.
C) arrange for a revolving credit agreement with Jackson Plumbing's commercial bank.
D) eliminate credit sales to improve their cash inflows and reduce the firm's investment in accounts receivable.

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

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Question 92

Multiple Choice

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Delaware Aluminum uses its stock of unsold aluminum products as collateral for a short term loan. This arrangement represents:

A) a secured loan.
B) a revolving credit agreement.
C) factoring.
D) an unsecured loan.

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

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Question 93

Multiple Choice

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After earning $30 million in net income, Rolatrim Industries distributed $5 million in dividends to their stockholders. The board of directors of the firm decided to invest the remaining $25 million back into the business. This $25 million reinvestment of profits represents:

Investors and entrepreneurs should have an understanding of financial issues.

As a financial manager for a large manufacturing firm, Gail evaluates the purchase of expensive machinery and construction of new facilities. She is analyzing capital expenditure proposals.

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

Susan started a cake decorating business that failed. She is convinced that she lacked the necessary funds to promote her business and get it off the ground. Susan experienced:

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

Money has time value due to the fact that if invested, it has the potential to earn more money at some point in the future.

If a buyer is offered the terms of sale of "3/10, net 30" this means that the buyer can receive a 10 percent discount by making full payment within 30 days of the billing date.

If a company secures a three year bank loan, it is considered .

Inability to attract and retain qualified employees is one of the most common ways for a firm to fail financially.

As a financial manager for a very profitable manufacturer of specialty steel, Kurt has been asked to investigate sources of long-term funds to finance the construction of a new facility. Kurt would prefer a funding source that does not require interest payments or involve major underwriting fees. Kurt will consider using retained earnings to fund the construction project.

Which of these statements about corporate bonds is correct?

Budgets are prepared after the financial forecasts are developed.

Which of the following organizations would be most likely to acquire short-term funding by issuing commercial paper?

Sarah intends to major in finance and find employment in corporate financial management. As a finance major, Sarah will discover her knowledge to be valuable in mastering the objectives of her finance classes.

Several big firms got into financial trouble in 2008. The problems were not isolated to just a few industries. It stretched from financial services companies to the U.S. auto makers. The government proceeded with a number of bailouts.

Financial management is more important for a large firm than it is for a small firm.

The long-term financial forecast gives top management some sense of the profit potential of various strategic decisions.