Question 1

In order to obtain a short-term loan from the bank, Dillon Foods must pledge its inventory as security. In this scenario, the inventory serves as which of the following for the loan?

Accepted Answer

A)   collateral
B)   equity
C)   trade credit
D)   securitizationE) A) and B)
F) B) and D)

Question 2

Which "C" of the 5 C's of credit considers the borrower's assets or the net worth of the borrower?

Accepted Answer

A)   collateral
B)   capital
C)   conditions
D)   capacityE) B) and C)
F) A) and B)

Question 3

Which of the following is NOT a type of budget used by corporations in their financial planning process?

Accepted Answer

A)   cash budget
B)   capital budget
C)   equity budget
D)   capital budget.E) A) and D)
F) None of the above

Question 4

Which of the following is the lowest rate charged by banks for short-term loans?

Accepted Answer

A)   prime
B)   discount
C)   customary
D)   nominalE) C) and D)
F) A) and C)

Question 5

Joe's Plumbing purchases a vanity, toilet, shower enclosure, faucets, and plumbing supplies for a major bathroom renovation job. Joe has to pay the supplier but does not expect to be paid by the customer until he has completed the job. This is an example of which of the following?

Accepted Answer

A)   debt-capital needs
B)   trade credit
C)   equity financing
D)   negative cash flowE) All of the above
F) C) and D)

Question 6

All of the following would be reflected in a company's operating budget EXCEPT which one?

Accepted Answer

A)   changes to revenue resulting from a new marketing campaign
B)   the cost of replacing obsolete manufacturing capacity
C)   projected revenue and expense growth rates for the upcoming period
D)   changes to expenses resulting from changing material and/or labour costsE) B) and D)
F) C) and D)

Question 7

Disadvantages of debt financing over equity financing include all of the following EXCEPT which one?

Accepted Answer

A)   the debt must be repaid regardless of the profitability of the company
B)   the company must make interest payments to bondholders regardless of the profitability of the company
C)   unfavourable economic conditions can affect the level of interest rates
D)   major bondholders can exert significant pressure on company managementE) B) and C)
F) A) and D)

Question 8

What is it called when a company takes delivery of goods but pays for them at a later time?

Accepted Answer

A)   collateral
B)   trade credit
C)   a term loan agreement
D)   a charge accountE) A) and B)
F) None of the above

Question 9

Which form of short-term financing is similar to a credit card in that you have a maximum credit limit you can borrow against at any time and you pay interest only on the amount of funds you have used?

Accepted Answer

A)   factoring
B)   line of credit
C)   trade credit
D)   equity financingE) B) and C)
F) None of the above

Question 10

What is the movement of money into and out of an organization called?

Accepted Answer

A)   capitalization
B)   cash flow
C)   budgeting
D)   creditE) A) and B)
F) A) and C)

Question 11

Which "C" of the 5 C's of credit would consider the real estate, inventory, equipment or other assets that the borrower can pledge as security for a loan?

Accepted Answer

A)   capacity
B)   conditions
C)   capital
D)   collateralE) C) and D)
F) A) and D)

Question 12

What are all of the activities concerned with obtaining money and using it effectively called?

Accepted Answer

A)   financial management
B)   long-term financing
C)   accounting
D)   budgetingE) B) and D)
F) A) and B)

Question 13

In deciding whether to approve a loan for Grewal Properties, the lender evaluates the company's financial ability to meet its credit obligations and make regular loan payments. Which of the 5 C's of credit does this represent?

Accepted Answer

A)   capital
B)   capacity
C)   conditions
D)   collateralE) All of the above
F) B) and C)

Question 14

Thom has a culinary supply business. He orders pots and pans from a manufacturer and takes delivery. However, he has up to 10 days to pay the invoice without interest or penalty. This is an example of which of the following?

Accepted Answer

A)   commercial paper
B)   trade credit
C)   equity financing
D)   line of creditE) C) and D)
F) B) and C)

Question 15

Adelaide appears on Dragons' Den and asks the investors for $120,000 in return for a 15% stake in her company. Jim Treliving really likes her product but offers her $120,000 in return for a 25% stake in her company. What is Jim's probable reasoning for this offer?

Accepted Answer

A)   Adelaide has underestimated the amount of sales and revenue she will generate with her product.
B)   Adelaide's company is worth much more than she is valuing it at.
C)   Adelaide is valuing her company too high.
D)   In order to invest in Adelaide's company, he would require a bigger share.E) None of the above
F) All of the above

Question 16

Which of the following are property, inventory, or assets pledged as security for the repayment of a loan?

Accepted Answer

A)   commercialization
B)   collateral
C)   capital
D)   debt equityE) B) and D)
F) All of the above

Question 17

Tyson Foods considers a loan to cover the purchase of a new piece of equipment. Typically Tyson finances these types of purchases over 10 years. What is Tyson's key consideration in determining which type of financing to obtain?

Accepted Answer

A)   the influence on company operations
B)   the amount of financing needed
C)   the term of financing
D)   the cost of financingE) A) and B)
F) A) and D)

Question 18

Petro Canada seeks to obtain a loan from a commercial bank in order to build an additional oil rig. Which type of financing is this?

Accepted Answer

A)   long-term equity financing that is secured
B)   short-term equity financing that is secured
C)   long-term debt financing that is unsecured
D)   short-term debt financing that is securedE) A) and D)
F) A) and C)

Question 19

As a way to cover their short-term financial needs, Smith & Welling CPAs have access to a fixed amount of funds from their bank they can borrow as needed. Which of the following does this exemplify?

Accepted Answer

A)   trade credit
B)   line of credit
C)   promissory note
D)   commercial paperE) B) and C)
F) None of the above

Question 20

Which of the following is NOT a characteristic of short-term financing?

Accepted Answer

A)   the amounts are usually smaller than obtained through long-term sources
B)   it is easier to obtain than long-term financing
C)   it must be repaid within three years
D)   there is less risk of nonpayment to the lenderE) B) and C)
F) A) and D)

Exam 19: Recognizing the Basics of Financial Management

Which of the following are property, inventory, or assets pledged as security for the repayment of a loan?

Correct AnswerverifiedShow Answer

In order to obtain a short-term loan from the bank, Dillon Foods must pledge its inventory as security. In this scenario, the inventory serves as which of the following for the loan?

Correct AnswerverifiedShow Answer

Which of the following is NOT a characteristic of short-term financing?

Correct AnswerverifiedShow Answer

Joe's Plumbing purchases a vanity, toilet, shower enclosure, faucets, and plumbing supplies for a major bathroom renovation job. Joe has to pay the supplier but does not expect to be paid by the customer until he has completed the job. This is an example of which of the following?

Correct AnswerverifiedShow Answer

Which "C" of the 5 C's of credit would consider the real estate, inventory, equipment or other assets that the borrower can pledge as security for a loan?

Correct AnswerverifiedShow Answer

What are all of the activities concerned with obtaining money and using it effectively called?

Correct AnswerverifiedShow Answer

Tyson Foods considers a loan to cover the purchase of a new piece of equipment. Typically Tyson finances these types of purchases over 10 years. What is Tyson's key consideration in determining which type of financing to obtain?

Correct AnswerverifiedShow Answer

Which of the following is NOT a type of budget used by corporations in their financial planning process?

Correct AnswerverifiedShow Answer

Which "C" of the 5 C's of credit considers the borrower's assets or the net worth of the borrower?

Correct AnswerverifiedShow Answer

What is it called when a company takes delivery of goods but pays for them at a later time?

Correct AnswerverifiedShow Answer

Which form of short-term financing is similar to a credit card in that you have a maximum credit limit you can borrow against at any time and you pay interest only on the amount of funds you have used?

Correct AnswerverifiedShow Answer

Disadvantages of debt financing over equity financing include all of the following EXCEPT which one?

Correct AnswerverifiedShow Answer

All of the following would be reflected in a company's operating budget EXCEPT which one?

Correct AnswerverifiedShow Answer

Petro Canada seeks to obtain a loan from a commercial bank in order to build an additional oil rig. Which type of financing is this?

Correct AnswerverifiedShow Answer

Which of the following is the lowest rate charged by banks for short-term loans?

Correct AnswerverifiedShow Answer

In deciding whether to approve a loan for Grewal Properties, the lender evaluates the company's financial ability to meet its credit obligations and make regular loan payments. Which of the 5 C's of credit does this represent?

Correct AnswerverifiedShow Answer

Adelaide appears on Dragons' Den and asks the investors for $120,000 in return for a 15% stake in her company. Jim Treliving really likes her product but offers her $120,000 in return for a 25% stake in her company. What is Jim's probable reasoning for this offer?

Correct AnswerverifiedShow Answer

Thom has a culinary supply business. He orders pots and pans from a manufacturer and takes delivery. However, he has up to 10 days to pay the invoice without interest or penalty. This is an example of which of the following?

Correct AnswerverifiedShow Answer

What is the movement of money into and out of an organization called?

Correct AnswerverifiedShow Answer

As a way to cover their short-term financial needs, Smith & Welling CPAs have access to a fixed amount of funds from their bank they can borrow as needed. Which of the following does this exemplify?

Correct AnswerverifiedShow Answer

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