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HA351 Hospitality Financial Management > Exam Prep. for Chapters 2 - 6 > Flashcards

Exam Prep. for Chapters 2 - 6 Flashcards

1
Q

True or False

 The goal of financial accounting is to provide more timely operating results related to revenues and expenses to help management maximize the operating performance of the business.
A

FALSE

 "Managerial Accounting"     

      Chapter 2, Page 18.
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2
Q

True of False

 The GOING CONCERN PRINCIPLE requires business to assume they will continue to operate long into the foreseeable future.
A

TRUE

 Chapter 2, Page 19.
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3
Q

True or False

 The three, best-known systems of accounts used in hospitality are the systems for LODGING, FOOD SERVICE, and CLUB MANAGEMENT.
A

TRUE

 Chapter 2, Page 20.
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4
Q

True or False

 Capital expenses are costs related to the day-to-day operation of the business.
A

FALSE

 "OPERATING EXPENSES"  Chapter 2, Page 21.
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5
Q

True or False

 The last line on the income statement, often referred to as the BOTTOM LINE, is  NET INCOME.
A

TRUE

 Chapter 2, Page22.
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6
Q

True or False

 On a BALANCE SHEET:  

 TOTAL ASSETS + TOTAL EQUITY = TOTAL LIABILITIES.
A

FALSE

 "TL + TE = TA"  Chapter 2, Page 22.
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7
Q

True or False

 The DAILY PAYROLL REPORT summarizes revenues earned by each department within an operation.
A

FALSE

"DAILY REVENUE REPORT"  Chapter 2, Page 47 (in terms section).
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8
Q

True or False

 The ACCOUNTS RECEIVABLE AGING SCHEDULE details how long an account receivable has been outstanding or unpaid.
A

True

 Chapter 2, Page 47 (in term section).
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9
Q

True or False

 The CP3 System consists of:  a monthly commitment budget, purchase order system, daily payroll system, and a daily P&L statement.
A

TRUE

 Chapter 2, Page 47 (in term section).
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10
Q

True or False

 In CP3, the PURCHASE ORDER is the source document for all the company's expenses recorded in its accounting system.
A

TRUE

 Chapter 2, Page 38.
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11
Q

Accounting is divided into two parts. What are they?

 Hint:  think "types" of accounting.
A

Financial Accounting
Managerial Accounting

 Chapter 2, Page 18.
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12
Q

The rules and regulations governing all accounting and financial reporting, which were developed by the Financial Accounting Standards Board, and the SEC, are known as what?

 Hint:  G A A P
A

Generally Accepted Accounting Principles

 Chapter 2, Page 18.
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13
Q

Which principle states that the company must set specific time periods for measuring its financial results?

Matching Materiality Time Cost

A

The TIME PERIOD PRINCIPLE

 Chapter 2, Page 20.
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14
Q

The INCOME STATEMENT is often/also referred to as?

  • Statement of Cash Flow
  • P&L Statement
  • Source and Use of Funds Statement
  • Balance Sheet
A

The PROFIT AND LOSS STATEMENT

 Chapter 2, Page 21.
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15
Q

Which is not an operating expense?

  • Cost of goods sold
  • payroll
  • Property taxes
  • Energy expenses
A

Property Taxes

 Chapter 2, Page 22.
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16
Q

On a balance sheet, assets are:

  • Obligations the company owes
  • Items of value the company owns
  • Common or preferred stock
  • Equal to liabilities
A

Items of value the company owns.

 Chapter 2, Page 22.
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17
Q

What are RETAINED EARNINGS?

A

RETAINED EARNINGS are prior year profits that have not been paid out to owners as dividends.

 Chapter 2, Page 25.
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18
Q

What three sections are present on the STATEMENT OF CASH FLOW?

 Hint:  all are "cash flow from \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_"
A

The three sections present are:

Cash flow from OPERATIONS, … INVESTING ACTIVITIES, and… FINANCING ACTIVITIES.

 Chapter 2, Page47 (in terms section).
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19
Q

The food and beverage menu abstract tracks:

  • quality of menu items
  • portion size of menu items
  • popularity and profitability of menu items
  • overall guest satisfaction
A

The abstract tracks the POPULARITY and PROFITABILITY of menu items.

 Chapter 2, Page 33.
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20
Q

Which one is not an advantage of CP3 system?

  • payroll control
  • teamwork
  • additional paperwork
  • alignment of interests
A

The answer is: additional paperwork.

 Chapter 2, Page 41.
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21
Q

The _________ principle states all transactions, including the purchase or sale of an asset, must be recorded at its cost, rather than its market value.

A

The COST principle

 Chapter 2, Page 18.
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22
Q

The balance sheet consists of three categories of accounts, and they are:

 \_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_, LIABILITIES, AND EQUITY.
A

ASSETS

 Chapterf 2, Page 22.
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23
Q

Assets are listed in order of their _______________, which means how easily and quickly they can be converted into cash.

A

LIQUIDITY

 Chapter 2, Page 22.
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24
Q

The _______________ revenue forecast is a report that projects the number of rooms to be sold during the upcoming period and the average room rates associated with the projections.

A

The ROOMS REVENUE FORECAST

 Chapter 2, Page 47 (in terms section).
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25
Q

The _______________ system is a tool that can help hotel managers and owners budget cash properly.

A

C3PO

 Chapter 2, Page 47 (in terms section).
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26
Q

True or False

 Managers utilize financial statements to compare actual results with the budget for the period, the prior year, competitors, and industry norms.
A

TRUE

 Chapter 3, Page 57.
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27
Q

True or False

 Variable expenses should increase or decrease with the level of sales; therefore, the percentage relationship between the expense item and its respective revenue category presented in vertical analysis is an important management tool.
A

TRUE

 Chapter 3, Page 57.
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28
Q

True or False

 Horizontal analysis analyzes the change in dollar and percentage amounts on both the income statement and balance sheet.
A

TRUE

 Chapter 3, Page 60.
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29
Q

True or False

 Trend analysis represents calculations and data points over a specified period, such as occupied room-nights, revenue per available room, and food sales.
A

TRUE

 Chapter 3, Page 63.
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30
Q

True or False

 Having a very high current ratio, such as 6.7, indicates that a company has too many dollars worth of current assets that are not earning a return on investment.
A

TRUE

 Chapter 3, Page 63.
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31
Q

True or False

 Management should compare their business’s actual operating results with industry averages and norms to determine how their property compares to the industry.
A

TRUE

 Chapter 3, Page68.
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32
Q

True or False

  The menu abstract is an excellent tool to use when developing revenue management guidelines.
A

FALSE

 Chapter 3, Page 74.
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33
Q

True or False

 Profit flexing is utilized when a hotel’s actual revenues for the month fall behind budget.
A

TRUE

 Chapter 3, Page 75.
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34
Q

True or False

 Labor cost percentage is an example of an operating ratio
A

TRUE

Chapter 3, Page 67.

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35
Q

True or False

 Improper revenue recognition violates the matching principle.
A

TRUE

 Chapter 3, Page79.
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36
Q

Suppliers utilize financial statements to:

a. ensure that the proper taxes have been calculated and paid.
b. track the growth of the business, its cash in flow and out flow, and evaluate its ability to pay its obligations on a current basis.
c. present the financial story of the company, highlighting its financial strengths, upside potential, and future value.
d. track and evaluate management’s performance.

A

b. track the growth of the business, its cash in flow and out flow, and evaluate its ability to pay its obligations on a current basis.

 Chapter 3, Page 57.
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37
Q

Vertical analysis requires management to:

a. size all accounts utilizing total expenses or departmental expenses as a common base.
b. provide a breakdown of percentage and dollar change for each line item.
c. size all accounts utilizing total revenue or departmental revenue as a common base.
d. analyze only income statements because vertical analysis does not apply to balance sheets.

A

c. size all accounts utilizing total revenue or departmental revenue as a common base.

 Chapter 3, Page 57.
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38
Q

Profitability ratios:

a. measure an operation’s ability to meet its short-term obligations.
b. are used to gauge the effectiveness of how assets have been managed.
c. assist management in determining how efficient the operation is.
d. measure management’s effectiveness in achieving profit margins and return-on-investment goals

A

d. measure management’s effectiveness in achieving profit margins and return-on-investment goals

 Chapter 3, Page 63.
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39
Q

Mahoney’s Irish Restaurant Financial Information

Cost of Food Sold $360,500
Net Income $104,050
Current Assets $107,750
Total Assets $456,000
Current Liabilities $111,750
Total Equity $143,750
Food Sales $1,030,000
Total Long-term Liabilities $200,500

Calculate Mahoney’s current ratio.

a. 1.04
b. 3.17
c. 0.96
d. 9.56

A

c. 0.96

 Chapter 3
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40
Q

Mahoney’s Irish Restaurant Financial Information

Cost of Food Sold $360,500
Net Income $104,050
Current Assets $107,750
Total Assets $456,000
Current Liabilities $111,750
Total Equity $143,750
Food Sales $1,030,000
Total Long-term Liabilities $200,500

Calculate Mahoney’s debt-to-equity-ratio.

a. 1.39
b. 0.78
c. 0.72
d. 0.85

A

a. 1.39

 Chapter 3
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41
Q

Mahoney’s Irish Restaurant Financial Information

Cost of Food Sold $360,500
Net Income $104,050
Current Assets $107,750
Total Assets $456,000
Current Liabilities $111,750
Total Equity $143,750
Food Sales $1,030,000
]Total Long-term Liabilities $200,500

Calculate Mahoney’s food cost percentage.

a. 3.46%
b. 10.10%
c. 3.17%
d. 35.00

A

d. 35.00

 Chapter 3
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42
Q

Mahoney’s Irish Restaurant Financial Information

Cost of Food Sold $360,500
Net Income $104,050
Current Assets $107,750
Total Assets $456,000
Current Liabilities $111,750
Total Equity $143,750
Food Sales $1,030,000
Total Long-term Liabilities $200,500

Calculate Mahoney’s return on assets.

a. 35.00%
b. 22.82%
c. 3.18%
d. 4.38%

A

b. 22.82%

 Chapter 3
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43
Q

A common revenue management strategy is to:

a. sell guest rooms at the lower rates first and then offer the higher rates.
b. sell guest rooms at the higher rates first and then offer the lower rates.
c. open all room rates first and then when there is a limited amount remaining only offer higher rates.
d. keep all room rates open at all times and utilize different rate strategies for different groups of guests.

A

b. sell guest rooms at the higher rates first and then offer the lower rates.

 Chapter 3, Page 75.
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44
Q

Utilizing cost-volume-profit analysis determine the breakeven volume for a hotel with fixed costs of $40,000, variable costs of $70 per room, and a sales price of $200.

a. 308 rooms
b. 148 rooms
c. 212 rooms
d. 316 rooms

A

a. 308 rooms

 Chapter 3, Page 76, 77.
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45
Q

Capitalizing current operating expenses is a financial trick:

a. where managers make a company’s financial statements look more favorable.
b. in which revenues are recorded before they are actually earned.
c. to artificially reduce current expenses and increase profits.
d. in which companies keep debt related to joint ventures off of their balance sheet.

A

c. to artificially reduce current expenses and increase profits.

 Chapter 3, Page 79.
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46
Q

A _______________ is simply an expression of one number divided by another.

A

RATIO

 Chapter 3
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47
Q

_______________ scheduling should be based on accurate revenue forecasts, productivity goals, and customer service levels.

A

DECISIONS RELATED TO EMPLOYEE

 Chapter 3
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48
Q

_______________ management is an outgrowth of yield management, the goal of which is to maximize RevPar.

A

REVENUE

 Chapter 3
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49
Q

Another name for cost-volume-profit modeling is _______________ analysis.

A

BREAKEVEN

 Chapter 3
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50
Q

_______________ _______________ turnover measures the speed at which a company collects its charge sales.

A

ACCOUNTS RECEIVABLE

 Chapter 3
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51
Q

FORMULA:

 Current Ratio
A

Current Assets
———————-
Current Liabilities

 Chapter 3
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52
Q

FORMULA:

 Debt-to-Equity Ratio
A 
 Total Equity

 Chapter 3
53
Q

FORMULA:

 Food Cost Percentage
A 
     Food Sales

 Chapter 3
54
Q

FORMULA:

 Return on Assets
A 
 Total Assets

 Chapter 3
55
Q

True or False

 Working capital refers to the amount of cash required to operate a business.
A

TRUE

 Chapter 4, Page 94.
56
Q

True or False

 The smaller the percentage credit sales are of the total sales of the business, the 	more working capital the business will need.
A

FALSE

 Chapter 4, Page 95.
57
Q

True or False

 All credit card sales are treated as cash sales, with the cash payments being deposited in the business’ bank account each day.
A

FALSE

 Chapter 4, Page 95.
58
Q

True or False

 An effective way to manage working capital is to overstock restaurant menu items to insure you never run out of anything and disappoint your guests.
A

FALSE

 Chapter 4, Page 96.
59
Q

True or False

 Cash is the most important asset a business can have.
A

TRUE FALSE

 Chapter 4, Page
60
Q

True or False

 A cash forecast requires management to estimate cash inflows and project cash needs.
A

TRUE

 Chapter 4, Page 98.
61
Q

True or False

 A zero balance account is a service whereby the balances of a business’s cash 	accounts are consolidated into a single account, but separate checking statements 	are provided.
A

TRUE

 Chapter 4, Page 103.
62
Q

True or False

 Some credit card companies charge individual card users an annual fee for the right to use the credit card these companies also expect full payment at the end of the month.
A

TRUE

 Chapter 4, Page 104.
63
Q

True or False

 All credit card companies charge merchants a credit card transaction fee.
A

TRUE

 Chapter 4, Page 104.
64
Q

True or False

 A typical transaction fee charged by credit card companies can range from 5% to 10%.
A

FALSE

 Chapter 4, Page 104.
65
Q

Current assets include:

a. assets that cannot easily be converted into cash within a year.
b. cash, accounts receivables, inventories, notes receivables, and prepaid expenses.
c. owner’s equity and retained earnings.
d. accounts payable, accrued payroll, and accrued taxes.

A

b. cash, accounts receivables, inventories, notes receivables, and prepaid expenses.

 Chapter 4, Page 94.
66
Q

If a business has a large amount of uncollected accounts receivable, how does this impact the need for working capital?

a. decrease the need for more working capital
b. does not impact working capital
c. increase the need for more working capital
d. increases current liabilities

A

c. increase the need for more working capital

 Chapter 4, Page 95.
67
Q

Which of the following is a way to minimize your working capital requirements?

a. turn your inventories as slowly as possible
b. offer discounts on credit sales
c. utilize a good food and beverage turnover ratio
d. manage your accounts payable effectively

A

d. manage your accounts payable effectively

 Chapter 4, Page 96.
68
Q

Businesses must manage their accounts payable effectively:

a. by paying suppliers as soon as they receive the invoice.
b. by paying suppliers on the last day the invoice is due.
c. by paying suppliers with cash rather than a check.
d. by paying suppliers late so they can earn interest on their cash.

A

b. by paying suppliers on the last day the invoice is due.

 Chapter 4, Page 96.
69
Q

Cash includes:

a. checks, accrued taxes, and payroll.
b. checks, money orders, and marketable securities.
c. checks, stocks, and accounts receivables.
d. checks, money orders, and accounts payables.

A

b. checks, money orders, and marketable securities.

 Chapter 4, Page 97.
70
Q

The objective of a cash forecast is to alert management to:

a. probable cash shortages or surpluses in advance.
b. employee scheduling and labor issues.
c. possible management conflicts.
d. instances where cash may have been stolen by employees.

A

a. probable cash shortages or surpluses in advance.

 Chapter 4, Page 100.
71
Q

The cash sales and credit sales projected for California Café are as follows:

                         March	                April	             May	        June	    July   Cash Sales -   $ 25,000	    $ 23,250	$ 20,250	    $ 21,000	$ 24,000 Credit Sales -    $ 30,750	    $ 28,600	$ 24,900	    $ 25,800	$ 29,500

The California Café is able to collect 60% of their credit sales during the first month, and 40% during the second month.

What amount of credit sales are collected in May?

a. $17,160
b. $49,710
c. $29,460
d. $12,300

A

*For May, the 60% of credit sales collected will come from April; the 40% of credit sales collected will come from March. Thus, 60% x $28,600, and 40% x $30,750.

ANSWER: c. $29,460

 Chapter 4
72
Q

The cash sales and credit sales projected for California Café are as follows:

                         March	                April	             May	        June	    July   Cash Sales -   $ 25,000	    $ 23,250	$ 20,250	    $ 21,000	$ 24,000 Credit Sales -    $ 30,750	    $ 28,600	$ 24,900	    $ 25,800	$ 29,500

The California Café is able to collect 60% of their credit sales during the first month, and 40% during the second month.

What amount of credit sales are collected in June?

a. $26,380
b. $14,940
c. $47,380
d. $11,440

A

*For June, 60% from May, 40% from April.

ANSWER: a. $26,380

 Chapter 4
73
Q

The cash sales and credit sales projected for California Café are as follows:

                         March	                April	             May	        June	    July   Cash Sales -   $ 25,000	    $ 23,250	$ 20,250	    $ 21,000	$ 24,000 Credit Sales -    $ 30,750	    $ 28,600	$ 24,900	    $ 25,800	$ 29,500

The California Café is able to collect 60% of their credit sales during the first month, and 40% during the second month.

What is the total amount of sales collected in July (credit and cash)?

a. $24,000
b. $25,440
c. $15,480
d. $49,440

A

*This requires the calculation for credit, plus the addition of the cash amount from July, only.

ANSWER: d. $49,440

 Chapter 4
74
Q

A lockbox is recommended if a business:

a. has a large number and amount of accounts receivable.
b. wants to earn additional interest on the money they have in their account.
c. wants banks to reconcile their cash accounts into a summary report.
d. needs additional working capital

A

a. has a large number and amount of accounts receivable.

 Chapter 4, Page 103.
75
Q

The faster vendors and suppliers require a business to pay its bills, the _______________ working capital it will need to maintain.

A

MORE

 Chapter 4
76
Q

_______________ is the one asset that is convertible into any other type of asset.

A

CASH

 Chapter 4
77
Q

The best way to determine how much working capital a business needs is to develop a ninety-day rolling cash _______________.

A

FORECAST

 Chapter 4
78
Q

A cash budget is similar in format to the statement of _______________ _______________.

A

CASH FLOW

 Chapter 4
79
Q

_______________ accounts are accounts where banks automatically invest surplus cash balances in secure overnight accounts.

A

SWEEP

 Chapter 4
80
Q

True or False

Shareholder value is the market value of the company.

A

TRUE

 Chapter 5, Page 115
81
Q

True or False

Earnings per share (EPS) is calculated by dividing the company’s annual EBITDA by the number of shares of its common stock outstanding.

A

TRUE

 Chapter 5, Page 115
82
Q

True or False

A high growth rate encourages investors to buy the company’s stock, anticipating that the stock will be worth more in the future.

A

TRUE

 Chapter 5, Page 116
83
Q

True or False

The private company’s primary goal is to increase cash flow and generate a favorable return on investment for its owners.

A

TRUE

 Chapter 5, Page 117
84
Q

True or False

Market share is the percentage of demand that a company captures within a defined market area.

A

TRUE

 Chapter 5, Page 119
85
Q

True or False

Growth through diversification increases a company’s risk because they are spreading out over several markets.

A

FALSE

 Chapter 5, Page 119
86
Q

True or False

Two areas that are often overlooked when expenses must be reduced are energy conservation and capital improvements.

A

FALSE

 Chapter 5, Page 122
87
Q

True or False

Growth through management contracts is a strategy used primarily by restaurant companies.

A

FALSE

 Chapter 5, Page 124
88
Q

True or False

Owners typically take a company public to cash out of the investment.

A

FALSE

 Chapter 5, Page 125
89
Q

True or False

Equity markets are stock exchanges where the public can buy and sell shares of stock.

A

TRUE

 Chapter 5, Page 128
90
Q

The primary goals of a public company are to increase:

a. earnings per share, cash flow, and market value.
b. earnings per share, the company’s stock multiple, and the market price of its common stock.
c. cash flow, employee wages, and labor productivity.
d. market price of its common stock, cash flow, and accounts receivables.

A

b. earnings per share, the company’s stock multiple, and the market price of its common stock.

 Chapter 5, Page 115
91
Q

A company’s multiple is calculated by:

a. multiplying cash flow by the company’s beta.
b. dividing profits by cash flow.
c. dividing the current market price of a company’s common stock by its earnings per share.
d. multiplying profits by the company’s beta.

A

c. dividing the current market price of a company’s common stock by its earnings per share.

 Chapter 5, Page 115
92
Q

The higher the _____ that future earnings may not be achieved, the higher the return on investment investors demand.

a. risk
b. value
c. cost
d. probability

A

a. risk

 Chapter 5, Page 116
93
Q

What happens to a company’s stock price if the market goes down and it has a beta of 1.5 compared to the market beta of 1.0?

a. the company’s stock price will decrease less than the market
b. the company’s stock price will increase more than the market
c. the company’s stock price will increase less than the market
d. the company’s stock price will decrease more than the market

A

d. the company’s stock price will decrease more than the market

 Chapter 5, Page 117
94
Q

Employees are affected by steady company growth because:

a. they are less motivated for fears they will be transferred to a new location.
b. they are more likely to seek employment elsewhere due to uncertainty at the current company.
c. it provides a clear career path for its employees.
d. it increases employee turnover.

A

c. it provides a clear career path for its employees.

 Chapter 5, Page 118
95
Q

Which of the following would have a greater impact on bottom line profits?

a. sales growth
b. reducing expenses
c. decreasing marketing expenses
d. energy conservation

A

a. sales growth

 Chapter 5, Page 121/122
96
Q

Growth through expansion of physical facilities requires:

a. a company to establish the value of its brand.
b. large quantities of new capital to finance the growth.
c. expansion in the number of current management contracts.
d. the company to hire an investment banker to guide them through the process.

A

b. large quantities of new capital to finance the growth.

 Chapter 5, Page 123
97
Q

Which of the following is a benefit of franchising for branded companies seeking growth?

a. greater distribution system
b. not being able to maintain brand standards
c. lower profit margins
d. rapid growth with the need for large amounts of capital

A

a. greater distribution system

 Chapter 5, Page 123
98
Q

What is the major disadvantage of growing through management contracts?

a. risk of not following brand standards
b. company providing the management services has to pay all costs associated with the management of the hotel
c. the management company has to provide a significant amount of capital investment
d. risk of the contract being terminated

A

d. risk of the contract being terminated

 Chapter 5, Page 124
99
Q

The __________ was established to enforce the Securities Act of 1933 and the Securities Exchange Act of 1934.

a. New York Stock Exchange
b. Securities and Exchange Commission
c. Federal Accounting Standards Board
d. National Association of Securities Dealers Automated Quotation

A

b. Securities and Exchange Commission

 Chapter 5, Page 128
100
Q

_______________ the business of your company is essential to its long-term success.

A

GROWING

 Chapter 5, Page 115
101
Q

The primary goal of management is to increase _______________ value.

A

SHAREHOLDER

 Chapter 5, Page 115
102
Q

A popular growth strategy is to generate more sales volume with the same number of assets while maintaining the business’s current _______________ margin.

A

PROFIT

 Chapter 5, Page 120
103
Q

_______________ involves selling the rights to a company’s brand in a specific location or market for a stated number of years.

A

FRANCHISING

 Chapter 5, Page 123
104
Q

The ultimate growth strategy is to take part in an initial _______________ offering of its stock.

A

PUBLIC

 Chapter 5, Page 125
105
Q

True or False

Capital is money that is loaned to, or invested in, a business.

A

TRUE

 Chapter 6, Page 139
106
Q

True or False

The weighted average cost of capital (WACC) takes into account the mix of debt and equity financing and the tax effect.

A

TRUE

 Chapter 6, Page 139-141
107
Q

True or False

When raising capital, managers should minimize the amount of debt they can borrow and maximize the amount of equity.

A

FALSE

 Chapter 6, Page 141
108
Q

True or False

The amortization rate is the number of years on which the debt service payment calculation is based.

A

TRUE

 Chapter 6, Page 171
109
Q

True or False

A personal guarantee is a written promise that if your business fails to make regular debt service payments, the signatory agrees to use his or her personal funds to make the debt service payments.

A

TRUE

 Chapter 6, Page 145
110
Q

True or False

A prepayment penalty requires the borrower to pay the total amount of interest that would be owed to the lender for the full term of the loan, even if the loan is paid off early.

A

TRUE

 Chapter 6, Page 146
111
Q

True or False

A mezzanine loan is a second layer of debt that fills the gap between the total project cost, the amount of the first mortgage loan, and the equity capital to be invested.

A

TRUE

 Chapter 6, Page 148
112
Q

True or False

Individuals, insurance companies, and pension funds are all good sources of equity.

A

TRUE

 Chapter 6, Page 155
113
Q

True or False

The three different types of REITs are equity, mortgage, and hybrid.

A

TRUE

 Chapter 6, Page 163
114
Q

True or False

In a timeshare development each hotel room is sold as an investment rather than a right to use.

A

FALSE

 Chapter 6, Page 165-166
115
Q

The cost of debt is the _______ the borrower is obligated to pay the lender.

a. debt service
b. equity
c. liability
d. interest expense

A

d. interest expense

 Chapter 6, Page 139
116
Q

If a company takes out a loan of $400,000 for a $900,000 project, what is the weight of debt for this project?

a. 2.3%
b. 55.5%
c. 44.4%
d. 1.8%

A

c. 44.4%

 Chapter 6

400,000 divided by 900,000

117
Q

Return on investment (ROI) is calculated by:

a. dividing net income by the amount invested.
b. multiplying net income by the weight of equity invested.
c. dividing net income by retained earnings.
d. multiplying net income by the weight of debt invested.

A

a. dividing net income by the amount invested.

 Chapter 6, Page 171
118
Q

Principal repayment is:

a. the amount of money you borrow.
b. the amount of debt service and cash flow allotted to equity investors divided by the amount of capital provided.
c. an asset offered to the lender as loan insurance.
d. the portion of your debt service payment that reduces the amount of money you owe to the lender.

A

d. the portion of your debt service payment that reduces the amount of money you owe to the lender.

 Chapter 6, Page 171
119
Q

A _____ loan is a short-term loan with long-term amortization rates.

a. business
b. bullet
c. recourse
d. convertible

A

b. bullet

 Chapter 6, Page 171
120
Q

A _____ loan is a one- to two-year interest-only loan used to build, expand, acquire, or renovate a physical facility.

a. permanent
b. non-recourse
c. construction
d. mini-perm

A

c. construction

 Chapter 6, Page 171
121
Q

Today the length of a permanent loan is typically:

a. 10 years.
b. the useful life of the asset.
c. 30 years.
d. until the property is sold.

A

a. 10 years.

 Chapter 6, Page 148
122
Q

Types of equity include:

a. cash, land, and leases.
b. cash, existing buildings, and loans.
c. government subsidies, training grants, and balloon payments.
d. project infrastructure, sliver equity, and collateral.

A

a. cash, land, and leases.

 Chapter 6, Page 153
123
Q

A _____ is a tax-exempt corporation that owns real estate.

a. CMBS
b. BIDCO
c. REIT
d. REMIC

A

c. REIT

 Chapter 6, Page 173
124
Q

What type of development features a mixture of hotels, residential condominiums, entertainment venues, health club facilities, and upscale retail space?

a. timeshare development
b. retail development
c. condominium development
d. mixed-use development

A

d. mixed-use development

 Chapter 6, Page 166
125
Q

_______________ is a fixed obligation or liability of the business that must be paid back, with interest, over a specified period.

A

DEBT

 Chapter 6
126
Q

_______________ is ownership in the business that does not require immediate repayment, but a return on the capital invested is expected.

A

EQUITY

 Chapter 6
127
Q

_______________ occurs when a business’s liabilities exceed its assets and the company is unable to meet its current financial obligations.

A

BANKRUPTCY

 Chapter 6
128
Q

A _______________ loan is used to start or expand a company.

A

BUSINESS

 Chapter 6
129
Q

A _______________ rate is one that fluctuates with the market rate of interest.

A

FLOATING (or VARIABLE)

 Chapter 6

HA351 Hospitality Financial Management (1 decks)

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