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Exam 18: Financial Management

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Question 71

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The terms of the agreement in a bond issue are referred to as the:

A) articles of the issue.
B) terms of indebtedness.
C) bond specifications.
D) indenture terms.

E) C) and D)
F) B) and D)

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Question 72

Multiple Choice

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As a finance manager at AllSports Communication,Charlie worries about the firm's borrowing requirements for the upcoming year.He knows the benefit of estimating AllSports' cash disbursements and short-term investment expectations.Facing these concerns,a(n) ________ would provide Charlie with valuable information by providing a good estimation of whether the firm will need to do short-term borrowing.

A) operating budget
B) cash budget
C) capital budget
D) line item budget

E) A) and C)
F) C) and D)

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Question 73

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Mini-Case Tishian's Funeral Home has been in business for over eighty 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." -After much searching,Mort located an old banking friend of his father's.The banker offered Mort up to $25,000 in unsecured funds,which Mort's firm could borrow any time within a year,as long as the bank has the money available.Mort was offered a(n) :

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

Mini-Case Tishian's Funeral Home has been in business for over eighty 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." -Mort approached the chief lending officer at First Virginia Bank about obtaining a $75,000 loan.The banker said she would approve the loan provided that the funeral home's building was pledged as collateral.The banker was offering a(n) :

Mini-Case Tishian's Funeral Home has been in business for over eighty 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 capital budget highlights a firm's spending plans for major assets,such as property,buildings,and equipment.

A firm's most recent financial statements often serve as the basis for predicting future sales,costs and expenses.

The first step in financial planning is to develop a budget to better control costs.

By purchasing stock in Entertainment Today,Veronica has become a(n) ________ the company.

Selling accounts receivable to obtain short-term funds is called:

Corporations that issue debenture bonds are required to provide collateral.

By selling shares of ownership in their company,California Scientific acquires the funds needed to finance their research and development projects.California Scientific provides for their long-term funding needs through ________ financing.

Which of the following provides the buyer with collateral?

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

Financial managers are responsible for the management of accounts receivable and accounts payable.

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

Is there something in a name? April Gardner was told that she would grow-up to be a "master gardener".She didn't really believe that stuff,but now she finds herself in charge at a large city-owned botanical garden.She is requiring her staff to pursue continuing education.To put her money where her mouth is,she will enroll in a couple of accounting and finance courses at the local community college because this is an area where she is weak.This is a good plan - especially since she is the boss.

If a company secures a one-year bank loan it is considered ______.

Preferred Pet Care,Inc. ,a mobile pet care company is planning for the future.The company owners (two seasoned veterinarians)have brought together the vice president of marketing and the director of information systems to talk about how their expansion campaign: "We come to you!" The talks are in the preliminary stages,so there is no need to concern the finance team at this time because cash flow is currently not a problem.