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Exam 18: Financial Management

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Question 41

Multiple Choice

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Charlie Chicken Restaurants announced it plans to issue $300 million in debenture bonds to fund the expansion of its fast food chain of restaurants. In financial terms, this means

A) the corporation will borrow $300 million worth of long-term financing. The bond issue will not carry any collateral.
B) the corporation will issue $300 million worth of equity financing. The bond issue will be backed by the property and buildings purchased with the funds.
C) the corporation will borrow $300 million worth of long-term financing. The issue will be backed by the property and buildings purchased with the funds.
D) the corporation will issue $300 million worth of interest-free bonds. Financiers will be paid from the revenues created by the individual franchises.

E) All of the above
F) A) and C)

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Question 42

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Tax payments are important to the finance manager because they represent a cash inflow to a firm.

A) True
B) False

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Question 43

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A comptroller is the chief accounting officer of an organization.

A bond represents a long-term debt obligation of a corporation or government.

Accountants truly represent the financial managers of a business.

Equity financing refers to the money a firm receives from the sale of bonds.

The cost of capital is the rate of return a firm must earn in order to meet the demands of its lenders and expectations of its equity holders.

An internal auditor is responsible for paying the company's bills and collecting overdue payments from customers.

A company's capital budget helps management plan for cash shortages or surpluses.

Gavin, a financial manager of a small firm, needs to determine how much his company will have to borrow in the coming months. He also needs to establish when the borrowed funds will be needed. The preparation of the cash budget will help.

Managing a firm's resources so that it can meet its goals and objectives is the goal of financial accounting.

Factoring represents the least expensive way for a firm to raise short-term funds.

Trade credit means the seller will sell and deliver products and/or services to the buyer, with the understanding that the buyer will pay for these products and/or services at a later date.

Which of the following would be most helpful for a company looking to know the income potential during the next five years?

Since short-term financial forecasts predict expected future events, they should not be influenced by recent financial statements.

One very important responsibility of the finance department in both large and small businesses involves acquiring needed funds to operate the business.

A capital budget combines all of the other budgets into one detailed plan for monitoring the operations of the firm.

While finance is a critical activity for profit-seeking organizations, by definition nonprofit organizations are not required to fulfill the finance function.

The interest paid for debt financing is a tax-deductible expense for the firm.

The effective management of accounts receivable requires financial managers to