Question 1

Which of the following is NOT a key responsibility of financial managers in a firm?

Accepted Answer

Setting product prices

Question 2

A company receives an invoice with terms 2/10, net 30. If the invoice amount is $5,000, how much will the company pay if it settles the invoice within 10 days?

Accepted Answer

$4,900

Question 3

Which budget in the financial planning process is most detailed and ties together all other budgets?

Accepted Answer

Operating (master) budget

Question 4

A business is considering a major investment in new equipment. Which type of budget should the financial manager consult?

Accepted Answer

Capital budget

Question 5

Which of the following is a major reason firms fail financially?

Accepted Answer

Undercapitalization

Question 6

A secured loan is best described as:

Accepted Answer

A loan backed by collateral such as property

Question 7

Which of the following is an example of equity financing?

Accepted Answer

Selling shares of stock to the public

Question 8

A company issues a bond with a face value of $100,000, a maturity of 10 years, and an annual interest rate of 5%. What is the annual interest payment?

Accepted Answer

$5,000

Question 9

Which of the following sources of short-term financing is typically the most expensive for a firm?

Accepted Answer

Factoring accounts receivable

Question 10

What is the main advantage of using a term-loan agreement for long-term financing?

Accepted Answer

Interest paid is tax-deductible

Question 11

If a company wants to minimize its tax liability, which type of financing should it consider?

Accepted Answer

Debt financing, because interest is tax-deductible

Question 12

Which of the following statements about commercial paper is correct?

Accepted Answer

It consists of unsecured promissory notes with maturities of 270 days or less

Question 13

A business has $50,000 in accounts receivable and decides to factor them at a 10% discount rate. How much cash will the business receive?

Accepted Answer

$45,000

Question 14

Which of the following is NOT a feature of preferred stock?

Accepted Answer

Voting rights in company decisions

Question 15

The time value of money concept implies that:

Accepted Answer

A sum of money is worth more today than the same sum in the future

Question 16

Which of the following is a disadvantage of debt financing?

Accepted Answer

It increases the firm's financial risk due to repayment obligations

Question 17

A start-up company with few assets and no market track record is most likely to obtain funding from:

Accepted Answer

Venture capital firms

Question 18

Which of the following is true about unsecured loans?

Accepted Answer

They do not require any assets as security

Question 19

A company is planning to expand into a new market and needs funds for this long-term project. Which source of financing is most appropriate?

Accepted Answer

Issuing bonds

Question 20

Which of the following best describes leverage in financial management?

Accepted Answer

Raising funds through borrowing to increase the firm's rate of return

Financial Management: Roles, Planning, and Sources of Funds

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