Quiz 11

 Financial capital refers to the funds a firm uses to acquire its assets and fund its operations.

• True

• False

The traditional goal of financial management has been to maximize the value of the firm to its owners.

• True

• False

 The current ratio helps financial managers evaluate the ability of a firm to pay short-term liabilities as they come due.

• True

• False

 A high debt-to-asset ratio indicates that the firm is relying heavily on debt, or is "highly leveraged".

• True

• False

Key numbers that financial managers use to calculate ratios usually come from the firm's:

• a. prospectus and operating budgets.

• b. statement of cash flows.

• c. balance sheet and income statement.

• d. cost budget statement.

 Snow Trails, Inc., a ski resort in Colorado, has 500 shares of common stock.  Net income is $27,500.  Calculate its earnings per share.

• a. $55.00

• b. $0.018

• c. $13,750.00

• d. $27,000.00

 _____________________ is used to develop a forecast of net income for the planning period of the firm.

• a. budgeted income statement.

• b. estimated cash budget.

• c. budgeted balance sheet.

• d. profit and loss statement.

 The _____________________ forecasts the types and amounts of assets a firm will need to implement its future plans as well as the amount of additional financing the firm must arrange in order to acquire those assets.

• a. query report.

• b. cash budget.

• c. statement of cash flows.

• d. budgeted balance sheet.

 ___________________ is granted by suppliers when they ship materials, parts, or goods to a firm without requiring payment at the time of delivery.

• a. Revolving credit agreement.

•  b. Commercial paper.

• c. Trade credit.

• d. Promissory note.

 Timber Woods, Inc., has just arranged for a $300,000 line of credit with its banker for the next year.  Which of the following statements is true of this scenario?

• a. Timber Woods now has $300,000 more in cash in its bank account, but it must begin paying financing charges on those funds.

• b. Timber Woods now has guaranteed access to up to $300,000, but it must pay a commitment fee on any unused portion of these available funds.

• c. Timber Woods can take loans of up to $300,000 from the bank over the next year as long as its credit rating doesn't deteriorate and the bank has sufficient funds.

• d. The bank now holds commercial papers issued by Timber Woods that will be worth $300,000 plus interest when it matures.