Some 1) firms do not formally appoint a financial manager.
2) A firm can increase returns for shareholders through a strategic use of debt capital, a technique known as debenture financing.
Rationale: The strategy of using debt to increase returns to equity investors is known as leverage. Review this topic
3) Unsecured loans require no collateral.
Rationale: Unsecured loans are based solely on the good credit of the borrower. Review this topic
4) Interest rates are generally higher for shortterm financing.
Rationale: Interest rates are generally higher for long-term financing because the lender has to incur the risk of loss for a longer period of time. Review this topic
5) Debenture bonds are backed by some form of collateral.
Rationale: A secured bond is backed by some form of collateral; debenture bonds are backed by the good name of the company. Review this topic
6) Dividends are a distributed portion of the firm's earnings.
Rationale: Dividends are a portion of a firm's earnings that are distributed to shareholders. Review this topic
7) Float is the amount of money that has not yet been withdrawn from the company's checking account, even though the checks have been written.
Rationale: For large companies, this may represent billions of dollars. Review this topic
8) One common mistake made by new businesses is the failure to plan for sufficient _________________________.
Rationale: New businesses commonly fail to plan for sufficient start-up capital. Review this topic
9) The use of long-term debt to raise needed cash is sometimes referred as to _________________________.
Rationale: The use of long-term debt to raise capital is sometimes referred to as leverage. The borrowed cash acts like a lever to increase the purchasing power of the owner's investment. Review this topic
10) Floor planning, another option in bank financing, is most common in which industry?
Rationale: Floor planning is most common in the automobile manufacturing industry, which generally has a lot of inventory on the shop floor. Review this topic
11) Using accounts receivable as collateral for a bank loan is called _________________________.
Rationale: Using accounts receivable as collateral is called pledging. Review this topic
12) Which of the following is not one of the three most popular marketable securities into which companies place excess funds?
Rationale: Interest-bearing checking accounts are not as popular as commercial paper, U.S. Treasury bills, and CDs because the interest yield is typically lower. Review this topic
13) Which of the following would have the least inventory fluctuation?
Rationale: The detergent manufacturer would have the least inventory fluctuation because soap use is fairly constant and is not affected by growing or shopping seasons. Review this topic
14) Which of the following is not considered a start-up cost?
Rationale: Start-up costs do not include taxes, which, along with such things as rent, utilities, wages, and interest expense, are considered part of the cost of doing business. Review this topic
15) Kmart had to file bankruptcy because of ________________.