MGMT1: Homework 7

Finance is the function in a business that acquires funds for the firm and manages those funds within the firm. (T/F)
True
A comptroller is responsible for the acquiring and managing of funds for an organization. (T/F)
False

A comptroller is a management level position responsible for supervising the quality of accounting and financial reporting of an organization.

One of the most common ways for a firm to fail financially is poor control over cash flow. (T/F)
True
A company’s capital budget helps management plan for cash shortages or surpluses. (T/F)
False

A capital budget highlights the firm’s planned spending on fixed assets such as buildings and equipment. It is the cash budget that provides managers with information regarding projected cash balances.

Short-term financing refers to borrowed funds that must be repaid in a year or less. (T/F)
True
Trade credit is the practice of buying goods now and paying for them later. (T/F)
True
Financially stable firms are able to sell commercial paper to raise short-term funds. (T/F)
True
The first time a company offers to sell its stock to the general public is called an initial private label (IPL). (T/F)
False
A(n) _____________ job includes forecasting, budgeting, cash flow analysis, cost control, taxes, and credit management.
a) CPA’s
b) investment banker’s
c) financial manager’s
d) portfolio manager’s
c) financial manager

Financial managers examine the financial data prepared by accountants and make recommendations to top executives regarding strategies for improving firm performance. They manage the firm’s taxes, cash, credit accounts, and inventory.

In order to assist in revenue realization, a(n) ________ allocates resources throughout the firm.
a) forecast
b) balance sheet
c) budget
d) income statement
c) budget
Which of the following would normally involve long-term financing?
a) Worker’s salaries
b) Unanticipated emergencies
c) Purchase of modern equipment
d) Expanding current inventory
c) purchase of modern equipment

Long-term financing is used for major purchases that are financed for a time period greater than one year such as new product development, building or purchasing new facilities, and replacing capital equipment.

Which of the following represents a source of short-term funding?
a) Retained earnings
b) Commercial paper
c) Common stock
d) Corporate bonds
b) Commercial paper
Typically, only highly regarded customers with financial stability receive __________.
a) secured loans
b) bank premiums
c) unsecured loans
d) commercial paper
c) unsecured loans
Which of the following provides the buyer with collateral?
a) Common stock
b) Secured bond
c) Unsecured bond
d) Debenture bonds
b) secured bond
Which of these statements about corporate bonds is correct?
a) Bonds provide equity financing.
b) Issuing new bonds dilutes the existing ownership in the firm.
c) Interest paid to bondholders represents a tax-deductible business expense.
d) Debenture bonds require assets pledged as collateral.
c) Interest paid to bondholders represents a tax-deductible business expense.

Corporate bonds are essentially long-term IOUs issued by corporations. The interest paid on long-term debt is a tax-deductible expense.

Securities markets represent the financial marketplaces for stocks and bonds. (T/F)
True
Issuing stock is considered equity financing.
True
False
True
The Securities and Exchange Commission does not intercede in any way in the process of an IPO. Doing so would disrupt the natural process of the capital markets.
True
False
False

The SEC (Securities and Exchange Commission) is the regulator of publicly traded firms, and the financial markets. Any company planning to issue an IPO must first provide the SEC with the proper documentation and financial statements that describe the firm’s intent.

The NASDAQ is a floor-based exchange.
True
False
False
Dividends represent a portion of a firm’s profits that are distributed to bondholders first then stockholders.
True
False
False
While common stockholders of corporations have voting rights, preferred stockholders generally do not.
True
False
True

Preferred stock is frequently referred to as a hybrid investment in that it has characteristics of both bonds and stocks. Normally preferred stock, like bonds, does not include voting rights in the firm.

Standard and Poor’s and Moody’s are well-known companies that rate bonds.
True
False
True
Buying a stock makes the investor an owner in the firm.
True
False
True
A mutual fund pools investors’ money and then buys stocks and bonds in many companies in accordance with the purpose of the fund.
True
False
True
An organization whose members can buy and sell securities for companies and investors is known as a:
a) public securities dealer.
b) securities facilitator.
c) transfer medium.
d) stock exchange.
d) stock exchange
Issuing ________ increases a firm’s debt and may adversely affect the financial community’s perception of the firm.
a) common stock
b) bonds
c) preferred stock
d) retained earnings
b) bonds
Creating a portfolio by buying several different types of investments to spread the risk of investing is called ______________.
a) modulation
b) diversification
c) re-allocation
d) formula investing
b) diversification
When an investor sells a security for more than the purchase price, the investor earns a(n):
a) dividend payment.
b) appreciated interest receipt.
c) corporate benefit.
d) capital gain.
d) capital gain.
An investment that pools together investors’ money in order to buy securities in many different companies or governments is a __________.
a) commercial fund
b) mutual fund
c) holding company
d) Public Investment Corporation
b) mutual fund
The Dow Jones Industrial Average represents the average price of ________ industrial stocks.
a) 11
b) 30
c) 500
d) all of these
b) 30