Business Ch. 16

Retained earnings are

• all the earnings of the corporation

• profits before taxes

• profits after taxes

• undistributed profits

• total owner's equity

The use of borrowed funds to increase the return on owners' equity is called

• financial planning

• investment management

• management leverage

• financial leverage

• return on leverage

Which of the following firms is most likely to receive venture capital?

• Virtual reality Internet company

• Laundromat

• Local fast-food resturaunt

• Book retailer

• Convenience store

A promissory note that requires a borrower to repay funds in installments is called a(n)

• term-loan agreement

• installment plan

• lease

• mortgage

• annuity loan agreement

The lowest rate of interest charged by a bank for a short-term loan is known as

• the discount rate

• dividends

• add-on interest

• the compound interest rate

• the prime interest rate

Erick's Transition​Erick is currently a manager of a small financial planning firm. He is seeking a new career with a large corporation in the banking industry. He recently applied for the financial manager opening at G & T Bank. He is concerned that the transition from his small firm to a large corporation will be difficult. To better prepare himself for this change, he has decided to enroll in a few business classes to strengthen his understanding of corporate finance. The business classes have proven to be a valuable tool for learning the critical skills needed to fully understand a financial plan, equity financing, and debt financing. Erick now believes he has strengthened his competitive advantage in his quest for the job.

6. Refer to Erick's Transition. Having taken the classes, Erick should describe cash flow as which of the following?

• The movement of money from one account to another

• Money that will be used for one year or less

• The movement of money into and out of an organization

• Money that will be used for longer than one year

• Proceeds from any sales transactions only

Although Hargrove Co. makes enough money to pay for everything it needs, it still chooses to have some debt and pay a larger portion of retained earnings back to the stockholders. What is likely the best explanation for this decision?

• reduced interest rate

• financial leverage

• return multiplier

• equity leverage

• debt multiplier

During 2010, Bedford Technology sold common stock for the first time to whoever wanted to buy it. This was the ____ for Bedford.

• public stock sale

• preferred stock offering

• initial public offering

• stock dividend

• par value

The highest cost of short-term finance generally is

• trade credit

• unsecured bank loans

• commercial paper

• factoring

• promissory notes

A written order for a bank to pay a third party a stated amount of money on a specified date is a

• banker's acceptance

• letter of credit

• bank deposit

• line of credit