Question 1

Which of the following is a disadvantage of debt financing?

Accepted Answer

A)   It requires firms to sell stock to new investors to acquire additional funds.
B)   It requires firms to make fixed payments.
C)   It does not yield any tax benefits.
D)   It forgoes the opportunity to use financial leverage.E) A) and D)
F) A) and C)

Question 2

Lean inventory policies can be ineffective in a firm, although they do not leave the firm vulnerable to supply disruptions.

Accepted Answer

A) True 
 B)False

Question 3

Financial capital refers to the:

Accepted Answer

A)   money that a business earns in sales, minus the expenses.
B)   costs a business incurs when its expenses are greater than its revenues.
C)   funds a firm uses to acquire its assets and finance its operations.
D)   returns that a firm pays its owners for their investments in the company.E) A) and D)
F) A) and C)

Question 4

Which of the following scenarios involves the use of corporate bonds?

Accepted Answer

A)   Nigel buys an IOU of Herbiscus Pharmaceuticals with a maturity period of eight years.
B)   Belingtin Trade Inc. issues short-term promissory notes by keeping its stock as collateral.
C)   Gary buys some shares of Transient Textiles and receives 20 percent of the profit.
D)   Porliod Films takes a loan from the local bank to pay its debts to its investors.E) All of the above
F) C) and D)

Question 5

_____ are ratios that measure the rate of return a firm is earning on various measures of investment.

Accepted Answer

A)   Liquidity ratios
B)   Activity ratios
C)   Leverage ratios
D)   Profitability ratiosE) C) and D)
F) A) and B)

Question 6

Maurio Inc., a publishing house, wants to invest in digital publishing. However, the company does not possess enough capital to kick start the project. In order to gain immediate funds, Maurio Inc. sells its accounts of credits to Restube, a financing firm, at a discount. Which of the following short-term financing options is being used by Maurio Inc. in the given scenario?

Accepted Answer

A)   Factoring
B)   Trade credit
C)   Commercial paper
D)   Short-term bank loansE) A) and C)
F) A) and B)

Question 7

Which of the following statements is true of a socially responsible firm?

Accepted Answer

A)   It increases the bargaining power of buyers.
B)   It has high employee turnover.
C)   It has an obligation to respect the needs of all stakeholders.
D)   It emphasizes maximizing shareholder value.E) B) and D)
F) None of the above

Question 8

The main disadvantage of financial leverage is that:

Accepted Answer

A)   it increases the taxes of firms that use it.
B)   it requires owners to invest more of their own money.
C)   it reduces the financial return to stockholders' investment when times are bad.
D)   it protects firms from predatory lending practices by financial institutions.E) None of the above
F) C) and D)

Question 9

In the context of the capital structure of a firm, which of the following statements is true of equity financing?

Accepted Answer

A)   It is less flexible than debt financing.
B)   It is less risky than debt financing.
C)   It requires firms to agree to burdensome covenants.
D)   It yields the same tax benefits as debt financing.E) All of the above
F) C) and D)

Question 10

Which of the following is a source of long-term funds for a firm?

Accepted Answer

A)   Revolving credit agreements
B)   Factoring
C)   Spontaneous financing
D)   Retained earningsE) A) and C)
F) A) and B)

Question 11

_____ are safe and highly liquid assets that many firms list with their cash holdings on their balance sheet.

Accepted Answer

A)   Trade credits
B)   Marketable derivatives
C)   Cash equivalents
D)   Cash certificatesE) A) and C)
F) C) and D)

Question 12

In finance, a _____ is one that can be quickly converted into cash with little risk of loss.

Accepted Answer

A)   capital asset
B)   fixed asset
C)   tangible asset
D)   liquid assetE) A) and B)
F) A) and C)

Question 13

Which of the following statements is true of commercial paper?

Accepted Answer

A)   It cannot be issued for more than 365 days.
B)   It consists of treasury bonds.
C)   It is not backed by a pledge of collateral.
D)   It is normally secured.E) C) and D)
F) None of the above

Question 14

Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Its net income is $27,500. Wild Trails Inc.'s earnings per share (EPS)  is _____.

Accepted Answer

A)   $55
B)   $0.018
C)   $13,750
D)   $27,000E) B) and C)
F) None of the above

Question 15

The following questions must be answered when setting credit terms: How long should the firm extend credit? What type of cash discount should the firm offer to encourage early payments?

Accepted Answer

A) True 
 B)False

Question 16

One drawback of offering liberal credit to customers is that it can:

Accepted Answer

A)   delay sales to a future period.
B)   increase the cost of credit to customers.
C)   delay the receipt of cash that the firm needs to meet its financial obligations.
D)   decrease sales by the extension of credit and cause a loss to the company.E) A) and D)
F) B) and C)

Question 17

The _____ is an asset management ratio that measures how quickly a firm sells its stock to generate revenue.

Accepted Answer

A)   current ratio
B)   inventory turnover ratio
C)   debt ratio
D)   working capital turnover ratioE) B) and D)
F) B) and C)

Question 18

Tusken Thaw, a shipping industry, plans to expand its customer base to other countries. To facilitate this process, Tusken Thaw seeks financial assistance from Jermino Bank. The bank agrees to lend a specified amount of money; however, it mandates Tusken Thaw to return the amount with interest in a regular schedule of fixed payments. Which of the following sources of long-term funds is being used by Tusken Thaw in the given scenario?

Accepted Answer

A)   A line of credit
B)   Commercial paper
C)   Trade credit
D)   A term loanE) B) and D)
F) B) and C)

Question 19

Which of the following is an advantage of debt financing?

Accepted Answer

A)   The interest payments a firm makes on debt are a tax-deductible expense.
B)   A firm using debt financing is not required to make fixed payments.
C)   It is less risky than equity financing.
D)   It is more flexible than equity financing.E) A) and D)
F) All of the above

Question 20

_____ are ratios that measure the extent to which a firm relies on debt financing in its capital structure.

Accepted Answer

A)   Liquidity ratios
B)   Activity ratios
C)   Leverage ratios
D)   Profitability ratiosE) A) and B)
F) A) and C)

Exam 9: Finance: Acquiring Using Funds to Maximize Value

Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Its net income is $27,500. Wild Trails Inc.'s earnings per share (EPS) is _____.

Correct Answer
verified

The following questions must be answered when setting credit terms: How long should the firm extend credit? What type of cash discount should the firm offer to encourage early payments?

Correct Answer
verified

Lean inventory policies can be ineffective in a firm, although they do not leave the firm vulnerable to supply disruptions.

Correct Answer
verified

Which of the following statements is true of commercial paper?

Correct Answer
verified

_____ are ratios that measure the extent to which a firm relies on debt financing in its capital structure.

Correct Answer
verified

The _____ is an asset management ratio that measures how quickly a firm sells its stock to generate revenue.

Correct Answer
verified

In finance, a _____ is one that can be quickly converted into cash with little risk of loss.

Correct Answer
verified

Which of the following is a source of long-term funds for a firm?

Correct Answer
verified

_____ are ratios that measure the rate of return a firm is earning on various measures of investment.

Correct Answer
verified

One drawback of offering liberal credit to customers is that it can:

Correct Answer
verified

_____ are safe and highly liquid assets that many firms list with their cash holdings on their balance sheet.

Correct Answer
verified

Which of the following is an advantage of debt financing?

Correct Answer
verified

Which of the following is a disadvantage of debt financing?

Correct Answer
verified

Which of the following scenarios involves the use of corporate bonds?

Correct Answer
verified

Which of the following statements is true of a socially responsible firm?

Correct Answer
verified

Correct Answer
verified

In the context of the capital structure of a firm, which of the following statements is true of equity financing?

Correct Answer
verified

Financial capital refers to the:

Correct Answer
verified

Correct Answer
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The main disadvantage of financial leverage is that:

Correct Answer
verified

Exam 9: Finance: Acquiring Using Funds to Maximize Value

Wild Trails Inc., an adventure resort in Texas, has 500 shares of outstanding common stock and has not issued any preferred stock. Its net income is $27,500. Wild Trails Inc.'s earnings per share (EPS) is _____.

Correct AnswerverifiedShow Answer

The following questions must be answered when setting credit terms: How long should the firm extend credit? What type of cash discount should the firm offer to encourage early payments?

Correct AnswerverifiedShow Answer

Lean inventory policies can be ineffective in a firm, although they do not leave the firm vulnerable to supply disruptions.

Correct AnswerverifiedShow Answer

Which of the following statements is true of commercial paper?

Correct AnswerverifiedShow Answer

_____ are ratios that measure the extent to which a firm relies on debt financing in its capital structure.

Correct AnswerverifiedShow Answer

The _____ is an asset management ratio that measures how quickly a firm sells its stock to generate revenue.

Correct AnswerverifiedShow Answer

In finance, a _____ is one that can be quickly converted into cash with little risk of loss.

Correct AnswerverifiedShow Answer

Which of the following is a source of long-term funds for a firm?

Correct AnswerverifiedShow Answer

_____ are ratios that measure the rate of return a firm is earning on various measures of investment.

Correct AnswerverifiedShow Answer

One drawback of offering liberal credit to customers is that it can:

Correct AnswerverifiedShow Answer

_____ are safe and highly liquid assets that many firms list with their cash holdings on their balance sheet.

Correct AnswerverifiedShow Answer

Which of the following is an advantage of debt financing?

Correct AnswerverifiedShow Answer

Which of the following is a disadvantage of debt financing?

Correct AnswerverifiedShow Answer

Which of the following scenarios involves the use of corporate bonds?

Correct AnswerverifiedShow Answer

Which of the following statements is true of a socially responsible firm?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

In the context of the capital structure of a firm, which of the following statements is true of equity financing?

Correct AnswerverifiedShow Answer

Financial capital refers to the:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The main disadvantage of financial leverage is that:

Correct AnswerverifiedShow Answer

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