Boone Chapter 18 Financial Management 491 Test Bank Answers - Contemporary Business 19e | Practice Test Bank by Louis E. Boone. DOCX document preview.
Package Title: Chapter 18, Testbank
Course Title: Boone, Contemporary Business, 19th Edition
Chapter Number: 18
Question type: Multiple Choice
1) The technique of increasing the rate of return on an investment by financing it with borrowed funds is called _____.
a) factoring
b) leverage
c) asset intensity
d) compensating balances
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
2) A(n) _____is a document that specifies the funds a company will need for a period of time, the time of inflows and outflows, and the most appropriate uses of funds.
a) capital investment analysis
b) financial plan
c) capital structure
d) compensating balances
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
3) _____ are low-risk securities that either have short maturities or can easily be sold in secondary markets.
a) Private equity funds
b) Marketable securities
c) Bonds
d) Hedge funds
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
4) An offer made by a company to the target company’s shareholders is a(n) _____.
a) private placement
b) financial plan
c) leveraged buyout
d) tender offer
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
5) A(n) _____ is a sale of assets by a company.
a) private placement
b) leveraged buyout
c) divestiture
d) spin-off
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
6) Stocks or bonds that are sold exclusively to a small group of major investors are known as _____.
a) private placements
b) factoring
c) equity capital
d) leveraged buyout
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
7) _____ consists of funds provided by a company’s owners when they reinvest earnings, make additional contributions, liquidate assets, issue stock, or raise capital.
a) Debt capital
b) Equity capital
c) Private equity funds
d) Leverage
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
8) _____ raise money from wealthy individuals and institutional investors, and invest these funds in small, start-up companies.
a) Venture capitalists
b) Private placements
c) Private equity funds
d) Spin-off
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
9) A transaction in which public shareholders are bought out and the company reverts to private status is known as a(n) _____.
a) private placement
b) leveraged buyout
c) private equity funds
d) leverage
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
10) Funds obtained through borrowing are _____.
a) factoring
b) debt capital
c) equity capital
d) private equity funds
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
11) A(n) _____ is an executive who develops and implements a company’s financial plan and determines the most appropriate sources and uses of funds.
a) venture capitalist
b) capital investment analyzer
c) financial manager
d) asset manager
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
12) A mix of a company’s debt and equity capital is its _____.
a) leverage
b) capital structure
c) debt-to-equity (D/E)
d) compensating balances
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
13) _____ is extended by suppliers when a company receives goods or services, agreeing to pay them at a later date.
a) Factoring
b) Equity capital
c) Tender offer
d) Trade credit
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
14) The process by which decisions are made regarding investments in long-lived assets is _____.
a) factoring
b) capital investment analysis
c) financial planning
d) Inventory control
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
15) Similar to venture capitalists, _____ are investment companies that raise money to invest in all types of promising companies, including mature businesses.
a) private placements
b) private equity funds
c) marketable securities
d) spin-offs
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
16) _____ is the amount of assets needed to generate a given level of sales.
a) factoring
b) capital investment analysis
c) capital structure
d) asset intensity
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
17) In _____, a business sells its accounts receivable to either a bank or finance company at a discount.
a) factoring
b) debt capital
c) trade credit
d) leverage
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
18) Certificates of indebtedness sold to investors are known as _____.
a) private placements
b) private equity funds
c) bonds
d) hedge funds
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
19) A sell-off is a type of _____.
a) equity capital
b) leveraged buyout
c) divestiture
d) spin-off
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
20) When Disney purchased Marvel using a combination of cash and securities, Disney made a(n) _____.
a) leveraged buyout
b) divestiture
c) tender offer
d) spin-off
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
21) In a(n) _____ type of transaction, the assets sold form a new firm.
a) leveraged buyout
b) divestiture
c) trade credit
d) spin-off
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
22) _____ are/is private investment companies open only to qualified large investors.
a) Private equity funds
b) Marketable securities
c) Bonds
d) Hedge funds
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
23) Earnings that are paid in dividends are not reinvested in the firm and don’t contribute additional _____.
a) debt capital
b) equity capital
c) asset intensity
d) compensating balances
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
24) _____ involves managing working capital and making sure that too much cash is not tied up in operations.
a) Factoring
b) Capital investment analysis
c) Capital structure
d) Inventory control
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
25) Periodic cash payments made to shareholders are known as _____.
a) debt capital
b) equity capital
c) divestiture
d) dividends
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
26) Companies within the automobile industry typically have higher _____ ratios.
a) debt capital
b) equity capital
c) leverage
d) debt-to-equity (D/E)
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
27) The debt-to-equity (D/E) ratio indicates how much debt a company is using to finance its assets relative to the amount of value represented by _____.
a) debt capital
b) equity capital
c) dividends
d) shareholder’s equity
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
28) In addition to fees, some lenders require the borrower to keep so-called_____—5 to 20% of the outstanding loan amount—in a checking account.
a) debt capital
b) equity capital
c) hedge funds
d) compensating balances
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
29) Which business function is responsible for planning, obtaining, and managing a company’s funds to accomplish its objectives as effectively and efficiently as possible?
a) Marketing
b) Operations
c) Finance
d) Human resources
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
30) ______ are executives who develop and implement the firm’s financial plan and determine the most appropriate sources and uses of funds.
a) Financial managers
b) Chief Executive Officers
c) Chief Operating Officers
d) Board of Directors
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
31) The vice president for financial management for a typical corporation is responsible for _____.
a) designing the accounting system
b) gathering, recording, and reporting financial information
c) preparing financial forecasts
d) preparing operating budgets for various departments
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
32) In the context of the role of the financial manager, who among the following reports directly to the chief financial officer?
a) The CEO
b) The COO
c) The treasurer
d) The investor
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
33) ______ has the direct responsibility for shareholder relations.
a) The controller
b) The chief financial officer
c) The chief executive officer
d) The treasurer
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
34) In a typical firm, the _____ is the chief accounting manager.
a) chief executive officer
b) controller
c) treasurer
d) chief financial officer
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
35) Carter works in the financial division of his company and is responsible for preparing monetary forecasts and analyzing major investment decisions. What is Carter’s title?
a) Treasurer
b) Chief financial officer
c) Vice president for financial management
d) Controller
Difficulty: Medium
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
36) Which of the following is the best definition of financial risk?
a) It is the uncertainty about the gain or loss from an investment
b) It is the uncertainty that an investment's actual return will be less than its expected return
c) It is the possibility that an investment will earn a negative return
d) It is the possibility that an investment will lose money
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
37) The gain or loss that results from an investment over a specified period of time is known as _____.
a) risk
b) return
c) probability
d) value
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
38) The process that periodically checks actual revenues, costs, and expenses against forecast values is _____.
a) strategic planning
b) leveraging
c) budgeting
d) financial control
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
39) Which of these specifies the funds a company will need for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds?
a) Asset management plan
b) Leverage plan
c) Strategic plan
d) Financial plan
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
40) Which of these are short-term in nature, focusing on projections no more than a year or two in the future?
a) Asset management plan
b) Leverage plan
c) Strategic plan
d) Operating plans
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
41) Which of these have a longer time horizon, perhaps up to 5 or 10 years?
a) Inventory management plan
b) Current liability plan
c) Strategic plan
d) Operating plan
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
42) What is the first step in preparing a financial plan?
a) Determine the expected level of profits for future periods
b) A forecast of revenue over some future time period
c) Estimate the funds needed to implement the strategies
d) Estimate how many additional assets the company will need
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
43) What is the second step in preparing a financial plan?
a) Determine the expected level of profits for future periods
b) A forecast of revenue over some future time period
c) Estimate the funds needed to implement the strategies
d) Estimate how many additional assets the company will need
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
44) What is the final step in preparing a financial plan?
a) Determine the expected level of profits for future periods
b) A forecast of revenue over some future time period
c) Estimate the funds needed to implement the strategies
d) Estimate how many additional assets the company will need
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
45) A company’s financial plan should answer all of the following questions EXCEPT _____?
a) what is the contingency plan in case of bankruptcy
b) what funds will the company require during the appropriate period of operations
c) where will it obtain the necessary funds
d) when will it need more funds
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
46) Major current assets include all of the following EXCEPT _____.
a) accounts receivable
b) stockholders’ equity
c) marketable securities
d) cash
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
47) All of the following actions result in equity capital EXCEPT _____.
a) issuing bonds
b) liquidating assets
c) issuing stock
d) reinvesting earnings
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
48) Daniel’s company needs to obtain funds in order to keep the business going; however, he does not want stockholders influencing the direction of his company. What type of financing should Daniel acquire?
a) Angel investment
b) Venture capital
c) Debt capital
d) Equity capital
Difficulty: Medium
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
49) Team-All Pharmaceuticals needs to raise funds to buy new production equipment. The financial manager would probably suggest that his company raise debt capital by _____.
a) using accumulated earnings
b) selling stock
c) selling marketable securities
d) borrowing money from a bank
Difficulty: Medium
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
50) Melissa is the financial manager for Branson Inc. and has decided to raise additional funds for the company by raising equity capital. She might do so by _____.
a) selling bonds
b) persuading existing owners to contribute additional funds
c) selling marketable securities
d) establishing a line of credit with a local bank
Difficulty: Medium
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
51) Leverage _____ the return to shareholders and _____ the risk of their investment.
a) lowers; lowers
b) lowers; increases
c) increases; lowers
d) increases; increases
Difficulty: Medium
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Analysis
52) Borrowing money _____.
a) creates leverage
b) increases equity
c) decreases risk
d) reduces liquidity
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
53) All of the following are sources of short-term funds EXCEPT _____.
a) commercial paper
b) trade credit
c) corporate bonds
d) bank loans
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
54) Which of the following is true of short-term funds?
a) They are more expensive than long-term funds
b) They are less risky than long-term funds
c) They have volatile interest rates
d) They include equity and exclude current liabilities
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
55) ABC Tools received goods or services from a supplier and agrees to pay for them at a later date. This arrangement is called _____.
a) a short-term loan
b) a repurchase agreement
c) trade credit
d) commercial credit
Difficulty: Medium
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
56) Short-term sources of funds are repaid within _____.
a) a month
b) a year
c) four months
d) six months
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
57) Which of the following assets would a firm most likely finance using long-term sources?
a) Inventory
b) Accounts receivable
c) Marketable securities
d) Another company
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
58) _____ would be the LEAST likely to obtain a private placement.
a) Small individual investors
b) Life insurance companies
c) Commercial banks
d) Pension fund managers
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
59) Most private placements involve _____.
a) U.S. government securities
b) corporate debt securities
c) corporate equity issues
d) municipal debt issues
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
60) Jermaine raises money from wealthy individuals and institutional investors, and invests them in a variety of promising new companies. In exchange, he will become part owner of those businesses. Jermaine is a(n) _____.
a) angel investor
b) underwriter
c) entrepreneur
d) venture capitalist
Difficulty: Medium
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
61) Which of these are investment companies that raise funds from wealthy individuals and institutional investors and use the funds to make investments in both public and private companies?
a) Venture capitalists
b) Private placements
c) Hedge funds
d) Private equity funds
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
62) The sovereign wealth fund is a variation of _____.
a) market securities
b) private equity fund
c) private placements
d) debt capital
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
63) The term used to describe the benefits produced by a merger or acquisition is _____.
a) partnership
b) leverage
c) synergy
d) profit
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
64) A(n) _____ is a transaction in which one company buys another.
a) acquisition
b) merger
c) takeover
d) synergy
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
65) The two types of divestitures are _____.
a) sell-offs and trade-offs
b) trade-offs and spin-offs
c) buy-offs and spin-offs
d) sell-offs and spin-offs
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
66) In a sense, a(n) ________ is the reverse of a merger.
a) tender offer
b) leverage buyout
c) divestiture
d) acquisition
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
67) Allen has three subordinates that report to him. They include the treasurer, the controller, and the vice president for financial management. In the context of the role of a financial manager, Allen is the _____ of his organization.
a) CEO
b) COO
c) CFO
d) CRO
Difficulty: Medium
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
68) Selma, a financial manager at AJS Inc., has to organize the finances of her company for one to two years. In the context of financial planning, she should develop a(n) _____ plan to accomplish this purpose.
a) strategic
b) operating
c) security
d) leverage
Difficulty: Medium
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
69) Daniel, a financial manager at Faxeltel Inc., holds a meeting to discuss various aspects of investment in long-lived assets. The meeting takes into consideration the buying of new assets and the replacement of old assets. In the context of financial management, this type of decision making is called _____.
a) capital investment analysis
b) risk-return trade-off
c) leveraged buyout analysis
d) divestiture planning
Difficulty: Medium
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
70) In a quarterly meeting, Antonio, a financial manager at InVest Inc. states that the company will benefit in the long term by utilizing a mix of debt and the issuing of new shares. He states that this strategy will give his company a positive _____, which will increase the rate of return of the firm.
a) risk-return trade-off
b) leverage
c) hedge fund advantage
d) divestiture
Difficulty: Medium
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
71) Altitel Inc. has difficulties with managing operating costs of their company due to shortage of short-term finance. The company needs liquid assets and some capital to improve its performance in the market. Samuel, an established businessman, raises money from wealthy individuals and invests it in the company. He also gives the company critical advice about managing their processes effectively. In exchange, Samuel owns a small part of the company. In the context of the sources of financing, Samuel is a _____.
a) leverage advisor
b) risk-return trader
c) venture capitalist
d) hedge fund consultant
Difficulty: Medium
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
72) A start-up is being financed by a long-standing and established company. This company takes financial support from wealthy investors. In this context, the company that is financing the start-up is a(n) _____.
a) finance manager
b) borrower
c) angel investor
d) venture capitalist
Difficulty: Medium
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
73) Which of these deals with the process of planning, obtaining, and managing a company’s funds to accomplish its objectives as effectively and efficiently as possible?
a) Accounting
b) Finance
c) Knowledge management
d) Business analytics
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
74) Heath is hired as the chief accounting manager in an automobile company. Which of the following is not likely to be included in his list of functions?
a) Conducting internal audits
b) Analyzing major investment decisions
c) Preparing financial forecasts
d) Planning and preparing tax
Difficulty: Medium
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
75) Which of these is a calculation that determines the difference in revenue of a retailer’s existing stores over a certain period of time, usually quarterly, compared to the identical period of time, in a prior year?
a) Asset intensity
b) Risk–return tradeoff
c) Same-store sales
d) Capital investment analysis
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
76) The chief executive officer (CEO) of a retailer of clothes plans to expand business into the accessories market. For this expansion, the CEO asks the chief financial officer (CFO) of the company to calculate the amount of funds the company will have to borrow from the bank. Which of the following types of funding is the CEO planning to obtain?
a) Factoring
b) Trade credit
c) Equity capital
d) Debt capital
Difficulty: Medium
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
77) Which of the following is true of compensating balances?
a) Compensating balances increase the effective cost of a loan
b) Compensating balances allow firms to convert their receivables into cash quickly
c) Only a small percentage of businesses can issue compensating balances
d) Most compensating balances are unsecured
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
78) Identify a true statement about commercial paper.
a) Access to the commercial paper market is restricted to small and medium enterprises
b) Commercial paper has a maturity that ranges from 10 to 27 years
c) Most commercial paper is secured
d) Commercial paper is typically sold in multiples of $100,000 to $1 million
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
79) _____ is an attractive short-term financing option because large amounts of money can be raised at rates that are typically 1% to 2% less that those charged by banks.
a) Short-term loans
b) Commercial paper
c) Equity capital
d) Trade credit
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
80) Which of the following types of funding is likely to help a newer, small business who needs funding?
a) Factoring
b) Trade credit
c) Commercial paper
d) Venture capital
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
81) Liquid Asset, Inc. (LAI) is a beverage company. Three years ago, LAI split its wine business into an entirely separate business called WineYard Treasure. Which of the following concepts does this scenario exemplify?
a) Spin-offs
b) Sell-offs
c) Angel capitalism
d) Venture capitalism
Difficulty: Medium
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
82) To purchase two electronic retailers, SoundTrak Inc. borrows $40 million from banks and raised $8 million through preferred stock. After the deal closes, SoundTrak Inc. uses cash and assets from one of the acquired retailers to the stocks back. This is an example of _____.
a) trade credit
b) leveraged buyout
c) angel capitalism
d) venture capitalism
Difficulty: Medium
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
83) If automobile company ABC purchases an accessory manufacturing division from another automobile company, DEF, then DEF’s transaction with ABC is an example of a _____.
a) consignment
b) wharfage
c) sell-off
d) spin-off
Difficulty: Medium
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
84) Time Warner’s decision to sell America Online is an example of _____.
a) divestiture
b) angel capitalism
c) venture capitalism
d) factoring
Difficulty: Medium
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
85) If a giant corporation puts up its under-performing or non-core brands for sale to other large corporations, then the former corporation is _____ companies that are not a part of the its core business.
a) acquiring
b) compensating
c) divesting
d) factoring
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
86) An automobile manufacturer, Diamond Securities Inc. offers to purchase 58% shares of a mid-sized start-up that deals with digital accessories for automobiles. According to the contract, the price of the purchase will be determined based on the market value of the share on the day of the purchase. This deal is an example of _____.
a) a tender offer
b) factoring
c) a spin-off
d) venture capitalism
Difficulty: Medium
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
87) Government-owned companies that invest in a range of financial and real assets together make up the _____.
a) factors
b) private equity fund
c) target markets
d) sovereign wealth fund
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
88) Which of the following is true of the lines of credit type of short-term bank loans?
a) Banks typically charge a fee, on top of interest, for lines of credit agreements
b) It specifies the maximum amount the firm can borrow over a period of time, usually a year
c) The bank is obliged actually to lend the money, even if there is a shortage of funds
d) The borrower compulsorily has to repay the original amount, plus interest, within six months
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
89) Which of the following is TRUE of trade credit?
a) A company can borrow any amount of funds without restrictions
b) Its availability is restricted to large corporations
c) The rate of interest is relatively higher for trade credit
d) It is free of cost if suppliers do not offer a cash discount
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
90) Garden Toys Ltd. pays dividends to its shareholders, irrespective of the market status. Which of the following can be inferred about Garden Toys Ltd. based on its dividend policy?
a) The company has limited investment opportunities
b) The company wants to keep its shareholders satisfied
c) The company is likely to adopt a “no dividend” policy
d) The company has weak financial health
Difficulty: Medium
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Application
91) Quarterly cash payments to shareholders are known as _____.
a) trade credit
b) special dividends
c) regular dividends
d) compensating balances
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
Question type: True/False
92) Financial managers are responsible for increasing profits to shareholders.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
93) The treasurer is the chief financial officer of most firms.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
94) In most firms, the controller is the chief accounting manager.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
95) In most companies, the CEO is promoted to the position of CFO.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
96) Virtually, all financial decisions involve a trade-off between risk and return.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
97) Risk is defined as the uncertainty of a profit or a loss.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
98) Investments that promise the highest returns tend to involve the lowest amount of risk.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
99) Financial plans that focus on projections no more than a year or two in the future are known as strategic plans.
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
100) The first step in preparing a financial plan is a forecast of sales or revenue over some future time period.
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
101) After coming up with the sales and profit forecast, the CFO needs to estimate how many additional assets the company will need to support projected sales.
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
102) A good financial plan also includes financial control, a process of comparing actual revenues, costs, and expenses with forecasts.
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
103) The major purpose of cash is to pay day-to-day expenses.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
104) Managing assets for an international company creates several new challenges for a financial manager.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
105) A balance sheet hedge provides a method for global companies to reduce risks associated with exchange rate fluctuations.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
106) The balance sheet hedge is often one of the most difficult activities for minimizing the challenges that come with exchange rates.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
107) Debt is frequently the least costly method of raising additional financing dollars, one of the reasons it is so frequently used.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
108) When a company borrows money in addition to shares, it creates leverage.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
109) Increasing leverage decreases management's flexibility in future financing decisions.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
110) Leverage increases the potential return to a firm's shareholders, but also reduces the risk of their investment because shareholders have contributed less capital.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
111) Firms often rely on short-term sources of funds to pay for large, permanent assets, such as machinery and buildings.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
112) Short-term sources of funds are loans that are repaid within one year.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
113) Interest rates on short-term funds move up and down frequently.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
114) Trade credit is a major source of short-term financing.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
115) With low interest rates and the possibility of an increase, there will not be a significant return from bond holdings.
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
116) All short-term bank loans are secured, meaning that the borrower pledges specific assets as collateral.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
117) A significant benefit of commercial paper, which makes it cost effective, is that it does not need to be registered with the Securities and Exchange Commission (SEC), as long as it matures before nine months, or 270 days.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
118) Hedge funds are private investment companies open only to large qualified investors.
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
119) Corporate debt securities are the most common type of security sold privately.
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
120) Unlike private equity funds, which tend to focus on small, start-up companies, venture capital funds invest in all types of businesses, including mature ones.
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
121) Acquisitions are the opposite of mergers, in which companies sell assets such as subsidiaries, product lines, or production facilities.
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
122) When a buyer makes what is known as a tender offer for the target’s shares, it specifies a price and the form of payment.
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
Question type: Essay
123) Describe each role in the hierarchy of financial management at a large firm.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
124) How is the growing importance of financial professionals reflected in businesses?
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
125) Briefly describe the concept of risk-return trade-off.
Difficulty: Easy
Learning Objective 1: 18-01: Define the role of the financial manager.
Section Reference 1: The Role of the Financial Manager
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
126) What is the purpose of a financial plan?
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
127) What is the process involved in preparing a financial plan? Explain.
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
128) Explain how the cash inflows and outflows of a business are similar to those of a household.
Difficulty: Easy
Learning Objective 1: 18-02: Describe financial planning.
Section Reference 1: Financial Planning
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
129) Differentiate between an expansion decision and a replacement decision.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
130) Explain the responsibilities of financial managers.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
131) Explain the educational requirements and skills that are essential to become a financial manager.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
132) Briefly describe the concept of inventory control.
Difficulty: Easy
Learning Objective 1: 18-03: Outline how organizations manage their assets.
Section Reference 1: Managing Assets
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
133) Explain why companies frequently choose to use debt.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
134) What is leverage? Explain.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
135) Describe a disadvantage of equity capital.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
136) Why do automobile companies have high debt-to equity ratios? Explain, using a suitable example.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
137) Does a company’s investment opportunities influence its dividend policy? Explain.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
138) Discuss why companies tend to rely on long-term funds instead of short-term funds.
Difficulty: Easy
Learning Objective 1: 18-04: Discuss the sources of funds and capital structure.
Section Reference 1: Sources of Funds and Capital Structure
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
139) Briefly describe the two types of short-term bank loans.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
140) Define factoring.
Difficulty: Easy
Learning Objective 1: 18-05: Identify short-term funding options.
Section Reference 1: Short-Term Funding Options
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
141) Describe hedge funds.
Difficulty: Easy
Learning Objective 1: 18-06: Discuss sources of long-term financing.
Section Reference 1: Sources of Long-Term Financing
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension
142) Define an LBO.
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
143) Why do firms divest assets?
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Knowledge
144) Illustrate the concept of synergy.
Difficulty: Easy
Learning Objective 1: 18-07: Describe mergers, acquisitions, buyouts, and divestitures.
Section Reference 1: Mergers, Acquisitions, Buyouts, and Divestitures
Standard 1: AACSB || Analytic
Standard 2: Bloom’s || Comprehension