Introduction to Business – Chapter 16 Test Bank | Verified Questions & Answers for Exam Preparation

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Chapter 16 UNDERSTANDING FINANCIAL MANAGEMENT AND SECURITIES MARKETS


TRUE-FALSE QUESTIONS

Title: ANSWER: T REFERENCE: The Role of Finance and the Financial Manager LEARNING OUTCOME: 1
1. Financial management is the art and science of managing a firm's money so the firm can meet its goals.
a. True
b. False

Title: ANSWER: T REFERENCE: The Role of Finance and the Financial Manager LEARNING OUTCOME: 1
2. In finance, the opportunity for a profit is called return.
a. True
b. False

Title: ANSWER: F REFERENCE: The Role of Finance and the Financial Manager LEARNING OUTCOME: 1
RATIONALE: The potential for loss is called risk.
3. In finance, the potential for loss is called probability.
a. True
b. False

Title: ANSWER: F REFERENCE: How Organizations Use Funds LEARNING OUTCOME: 2
RATIONALE: Mortgages are not a type of marketable security.
4. Treasury bills, certificates of deposit, and mortgage loans are the most popular marketable securities.
a. True
b. False

Title: ANSWER: F REFERENCE: How Organizations Use Funds LEARNING OUTCOME: 2
RATIONALE: They are called accounts receivable.
5. Sales made, but for which payment has not yet been collected, are called accounts payable.
a. True
b. False

Title: ANSWER: T REFERENCE: How Organizations Use Funds LEARNING OUTCOME: 2
6. The benefits from capital expenditures extend beyond one year's time.
a. True
b. False

Title: ANSWER: F REFERENCE: Obtaining Short-Term Financing LEARNING OUTCOME: 3
7. Trade credit is credit extended to the buyer by the seller. It is entered in the buyer's books as an
account receivable.
a. True
b. False

Title: ANSWER: F REFERENCE: Obtaining Short-Term Financing LEARNING OUTCOME: 3
RATIONALE: A line of credit an agreement between a bank and a business that specifies the maximum
amount of unsecured short-term borrowing the bank will make available.
8. Lines of credit are short-term loans that are secured by collateral.
a. True

,b. False

Title: ANSWER: T REFERENCE: How Organizations Use Funds LEARNING OUTCOME: 2
9. Accounts receivable or inventory usually secures short-term secured loans.
a. True
b. False

Title: ANSWER: F REFERENCE: Obtaining Short-Term Financing LEARNING OUTCOME: 3
RATIONALE: This is factoring.
10. Selling a firm's accounts receivables to a financial institution at a discount is called countertrading.
a. True
b. False

Title: ANSWER: F REFERENCE: Raising Long-Term Financing LEARNING OUTCOME: 4
RATIONALE: The major advantage of debt financing is deductibility.
11. The major disadvantage of debt financing is the inability to deduct interest expenses for income tax
purposes.
a. True
b. False

Title: ANSWER: F REFERENCE: Raising Long-Term Financing LEARNING OUTCOME: 4
RATIONALE: Dividends are not tax-deductible. See Exhibit 16.2.
12. Dividends and interest payment are both tax-deductible.
a. True
b. False

Title: ANSWER: F REFERENCE: Raising Long-Term Financing LEARNING OUTCOME: 4
RATIONALE: A term loan is a loan with an initial maturity of more than one year
13. A term loan is a loan with a maturity of less than a year.
a. True
b. False
.

Title: ANSWER: T REFERENCE: Raising Long-Term Financing LEARNING OUTCOME: 4
14. A mortgage loan is a long-term loan that uses real estate as collateral.
a. True
b. False

Title: ANSWER: T REFERENCE: Equity Financing LEARNING OUTCOME: 5
15. Equity is the owner's investment in the businesses.
a. True
b. False

Title: ANSWER: F REFERENCE: Equity Financing LEARNING OUTCOME: 5
RATIONALE: Preferred stock is a form of equity financing.
16. Preferred stock is a form of debt financing because the dividend must be paid before dividends can be
paid to the equity owners.
a. True
b. False
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, Title: ANSWER: F REFERENCE: Equity Financing LEARNING OUTCOME: 5
RATIONALE: Venture capitalists provide equity financing.
17. Venture capitalists provide a source of debt financing and usually charge high interest for loans because
of the high risk of the enterprises they finance.
a. True
b. False

Title: ANSWER: F REFERENCE: Equity Financing LEARNING OUTCOME: 5
RATIONALE: Acquiring venture capital is a difficult process.
18. Of all the forms of equity capital, venture capital is the easiest to obtain.
a. True
b. False

Title: ANSWER: T REFERENCE: Securities Markets LEARNING OUTCOME: 6
19. Securities are investment certificates issued by corporations or governments.
a. True
b. False

Title: ANSWER: F REFERENCE: Securities Markets LEARNING OUTCOME: 6
RATIONALE: Investment bankers are firms that act as intermediaries. They buy securities from
corporations and governments and resell them to the public. A stockbroker buys and sells securities on
behalf of clients.
20. Investment banker is another term for stockbroker.
a. True
b. False

Title: ANSWER: T REFERENCE: Trends in Financial Management and Securities Markets LEARNING
OUTCOME: 8
21. The NYSE and NASDAQ are vying for supremacy in the U.S. securities markets.
a. True
b. False

MULTIPLE-CHOICE QUESTIONS

Title: ANSWER: B REFERENCE: The Role of Finance and the Financial Manager LEARNING OUTCOME: 1
1. _____ management is the art and science used to determine the most effective ways to acquire and use
funds to achieve the firm's goals.
A. Operations
B. Financial
C. Accounting
D. Corporate
E. Money

Title: ANSWER: B REFERENCE: The Role of Finance and the Financial Manager LEARNING OUTCOME: 1

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