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Exam 18: Financial Management

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Question 121

Multiple Choice

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Charging interest on past due customer accounts reflects that:

A) credit sales cost more to manage than they are worth.
B) credit customers receive preferential treatment.
C) money has a time value.
D) government regulations protect customers who are late in making payments.

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

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Question 122

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Accountants truly represent the financial managers of a business.

A) True
B) False

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Question 123

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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:

Corporations that issue stock to raise long-term funds accept the legal obligation to repay the amount borrowed.

Allison O'Toole sells high end accessories at her resort boutique in Destin,FL.During the past ten years,Allison's business has performed quite well.Even when she made the decision to expand her store by purchasing the building next door,she financed this event by reinvesting her profits.Up until now,Allison has:

According to the Spotlight on Small Business box in Chapter 18,small business owner,James "Hoss" Boyd knows all too well about potential financial failure.Of the three common reasons for financial failure,only one,his inability to control his own costs is keeping his business on the brink of failure.

A financial manager makes recommendations to top executives regarding strategies for improving the financial strength of a firm.

As a financial manager,Sabrina's responsibilities include the interpretation of financial statements provided by the firm's accountants and the preparation of recommendations to top management.

Preferred Pet Care,Inc.plans to purchase a second mobile unit next year that will cost an estimated $55,000.The finance manager will include this projected purchase in the company's capital budget.

Trade credit represents one of the most expensive forms of short-term financing.

Allison Robards,owner of Backstreet Books,an eclectic bookstore near a large university,is seeking additional financing for books and CDs that she plans to buy and sell in the same fiscal year.Even though it will be a sizeable investment in inventory,Allison is seeking short-term financing.

As a management consultant,Lamont knows that regardless of how good his firm's product might be,the business has little chance of success without a(n) :

The need for operating funds:

Small businesses rely heavily on long-term financing.

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.

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

As the chief financial officer (CFO)for a medium-sized service company,Shelley is concerned about the possibility of temporary cash shortages.Given the irregular cash flows from seasonal sales,she wants to ensure that her company's bank will provide adequate funds to cover any potential cash flow problem.The best strategy to ease Shelley's concern would be to arrange a revolving credit agreement with the bank.

________ is a form of short-term financing.Businesses buy merchandise from their suppliers,but are not required to pay for their purchases until some future date.

Venture capitalists expect lower than average returns on their investment since they are exposed to little risk.

Bill is a financial manager for Great View Eye Care,a local chain of Milwaukee retail stores offering glasses and optical health care.The majority of Bill's day likely involves efforts to locate and secure long-term financing to fund Great View Eye Care's capital expenditures.