Financial Decisions

Question 1

What are the strategies of short-term financing?

Answer 1

Anticipate higher levels of temporary working capital that require greater agility & flexibility

Question 2

What are the advantages of short-term financing?

Answer 2

Increased liquidity, Profitability, and decreased financing cost

Question 3

What are the disadvantages of short-term financing?

Answer 3

Increased interest rate risk & credit risk

Question 4

What are the advantages of long-term financing?

Answer 4

Decreased interest rate risk & credit risk

Question 5

What are the disadvantages of long-term financing?

Answer 5

Decreased profitability, liquidity, and increased financing costs

Question 6

What is required by vendors from the bank before they extend credit?

Answer 6

Letter of Credit

Question 7

What protects value of debt by protecting credit rating on debtor?

Answer 7

Debt Covenants

Question 8

Computation of expected value

Answer 8

Multiple the probability of the outcome by its value or profit

Question 9

What type of bond maintains a constant market value?

Answer 9

Floating-rate bond

Question 10

Calculation for economic rate of return on common stock

Answer 10

(Dividends + change in price) / beginning price