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Exam 18: Financial Management

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Question 51

Multiple Choice

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Arborview Plant Science Company has invented a drought resistant grass seed that only needs watering three times each year.In order to expand distribution world wide,the company whose product produces lush green foliage needs serious funding.The handful of seed scientists that own the company are seeking ____________,but understand that they will relinquish a sizeable share of ownership in order to obtain the funds.

A) debenture capital
B) international line of credit
C) leverage
D) venture capital

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

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Question 52

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Explain the role the operating budget,the capital budget,and the cash budget play in financial planning.

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The operating budget (master budget)ties...

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Question 53

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

A debenture bond is backed only by the reputation of the issuer.

Energy-wise Builders,Inc,a leader in residential housing,recently negotiated a financing arrangement with First Pennsylvania Bank.The short-term funding agreement guarantees a specified amount of funds would be made available upon Energy-wise's request.This arrangement represents a:

According to the Spotlight on Small Business box included in Chapter 18,the recession has caused small business customers to take longer to pay.This has placed added burden on the small business owner.

Which of these is backed only by the reputation of the issuer?

To maximize the benefits of using financial leverage,a firm should:

Undercapitalization refers to the problem of insufficient start-up funds.

Sound financial management involves determining the most appropriate sources of funds to meet short-term and long-term needs of an organization.

Companies raising funds must choose either debt or equity sources,but not both.

Which of the following represents a capital expenditure?

Commercial banks fund almost half of small business financing today.

The first time a company offers to sell its stock to the general public is called an initial private label (IPL).

Undercapitalization refers to the problem of:

Which business function involves credit management/collecting funds from customers?

Business organizations always use long-term financing for (both)short-term and long-term needs,but they never use short-term financing for (both)short-term and long-term needs.

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

A comptroller is responsible for the acquiring and managing of funds for an organization.

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 seeing Mort's advertisement: "You Aren't Gettin' Any Younger! Start Planning for Heaven Today!" a(n) ___________ firm decided the aging population was a good investment.Although they typically look at start-ups with great promise,they approached Mort with $6 million dollars for a major three-city expansion that included six new funeral homes,a crematory,and mausoleum.After researching the idea,Mort agreed to give-up 50% ownership of the business in order to secure these funds.His last thoughts as he began to sign the papers were: "Now,I'll be able to compete with the big guys!"