man. the finance function

Question 1

is an important management responsibility that deals with the procurement and administration of funds with the view of achieving the objectives of business.

Answer 1

finance function

Question 2

4 determination of fund requirements

Answer 2

1. finance daily operations
2. finance the firm’s credit services
3. finance the purchase of inventory
4. finance the purchase of major assets

Question 3

6 financing daily operations

Answer 3

1. wages and salaries
2. rent
3. taxes
4. power and light
5. marketing expenses
6. administrative expenses

Question 4

6 sources of funds

Answer 4

1. cash sales
2. collection of accounts receivables
3. loans and credits
4. sale of assets
5. ownership contribution
6. advances from customers

Question 5

cash is derived when the firm sells its products or services. SF

Answer 5

cash sales

Question 6

some engineering firms extend credit to customers. when these are settled, cash is made available. SF

Answer 6

collection of accounts receivables

Question 7

when other sources of financing are not enough, the firm will have to resort to borrowing. SF

Answer 7

loans and credits

Question 8

cash is sometimes obtained from the sale of the company’s assets. SF

Answer 8

sale of assets

Question 9

when cash is not enough, the firm may tap its owners to provide more money. SF

Answer 9

ownership contribution

Question 10

sometimes customers are required to pay cash advances on orders made. this helps the firm in financing its production activities. SF

Answer 10

advances from customers

Question 11

are those with repayment schedules of less than one year.

Answer 11

short-term sources of funds

Question 12

6 supplies of short-term funds

Answer 12

1. trade creditors
2. commercial banks
3. commercial paper houses
4. finance companies
5. factors
6. insurance companies

Question 13

refer to suppliers extending credit to a buyer for use in manufacturing, processing, or reselling goods for profit. SSTP

Answer 13

trade creditors

Question 14

3 instrument use in trade credit

Answer 14

1. open-book credit
2. trade acceptance
3. promissory notes

Question 15

is unsecured and permits the customer to pay for goods delivered to him in a specified number of days.

Answer 15

open-book credit

Question 16

is a time draft drawn by a seller upon a purchase payable to the seller as payee, and accepted by the purchaser as evidence that the goods shipped are satisfactory.

Answer 16

trade acceptance

Question 17

is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay on demand or at fixed or determinable future time.

Answer 17

promissory note

Question 18

are institutions which individuals or firms may tap as source of short-term financing.

Answer 18

commercial banks

Question 19

commercial banks 2 types of loans

Answer 19

1. does require collateral
2. does not require collateral

Question 20

are those that help business firms in borrowing funds from the money market.

Answer 20

commercial paper houses

Question 21

is sold to investors through the commercial paper house.

Answer 21

commercial paper

Question 22

are financial institution that finance inventory and equipment of almost all types and sizes of business firms.

Answer 22

business finance companies

Question 23

are institutions that buy the accounts receivables of firms, assuming complete accounting and collection responsibilities.

Answer 23

factors

Question 24

are also possible sources of short-term funds.

Answer 24

insurance companies

Question 25

long-term sources of funds are classified into 3

Answer 25

1. long-term debts 2. common stocks 3. retained earnings

Question 26

2 types of long-term debts

Answer 26

1. term loans 2. bonds

Question 27

is a commercial or industrial loan from a commercial bank, commonly used for plant and equipment, working capital, or debt repayment.

Answer 27

term loans

Question 28

have maturities of 2 to 30 years.

Answer 28

term loans

Question 29

is a certificate of indebtedness issued by a corporation to a lender.

Answer 29

bonds

Question 30

it is a marketable security that the firm sells to raise funds.

Answer 30

bonds

Question 31

the third source of long-term funds consists of the issuance. many investors are placing their money in them.

Answer 31

common stocks

Question 32

can be cheaper and more stable sources of long-term funds

Answer 32

common stocks

Question 33

refer to corporate earnings not paid out as dividends.

Answer 33

retained earnings

Question 34

this simply means that whatever earnings that are due to the stockholders of a corporation are reinvested

Answer 34

retained earnings

Question 35

8 types of bond

Answer 35

1. debentures 2. mortgage bond 3. collateral trust fund 4. guaranteed bond 5. subordinated debentures 6. convertible bonds 7. bonds with warrants 8. income bonds

Question 36

feature - no collateral requirement

Answer 36

debentures

Question 37

feature - secured by real estate

Answer 37

mortgage bond

Question 37

feature - secured by stocks and bonds owned by the issuing corporation

Answer 37

collateral trust bond

Question 38

feature - payment of interest or principal is guaranteed by one or more individuals or corporations

Answer 38

guaranteed bond

Question 39

feature - with an inferior claim over other debts

Answer 39

subordinated debentures

Question 40

feature - convertible into shares of common stock

Answer 40

convertible bonds

Question 41

feature - warrants are options which permit the holder to buy stock of the issuing company at a stated price.

Answer 41

bonds with warrants

Question 42

feature - pays interest only when earned

Answer 42

income bonds

Question 43

6 best source of financing according to schall and haley

Answer 43

1. flexibility 2. risk 3. income 4. control 5. timing 6. other factors like collateral values, flotation costs, speed, and exposure

Question 44

3 financial statement

Answer 44

1. balance sheet 2. income statement 3. statement of changes in financial position

Question 45

also called statement of financial position

Answer 45

balance sheet

Question 46

also called statement of operations

Answer 46

income statement

Question 47

2 classification of risk

Answer 47

1. pure 2. speculative

Question 48

is one in which there is only a chance of loss. this means that there is no way of making gains.

Answer 48

pure risk

Question 49

is one in which there is a chance of either loss or gain. this type of risk is not insurable.

Answer 49

speculative risk

Question 50

is an organized strategy for protecting and conserving assets and people.

Answer 50

risk management

Question 51

the purpose is to choose intelligently from among all the available methods of dealing with risk in order to secure the economic survival of the firm.

Answer 51

risk management

Question 52

5 methods of dealing with risk

Answer 52

1. risk may be avoided 2. risk may be retained 3. hazard may be reduced 4. losses may be reduced 5. risk may be shifted

Question 53

is a method of handling risk wherein the management assumes the risk.

Answer 53

risk retention

Question 54

a planned risk retention is also called --------------

Answer 54

self-insurance

Question 55

is a conscious and deliberate assumption of a recognized risk.

Answer 55

self-insurance

Question 56

exist when management does not recognize that a risk exists and unwisely believes that no loss could occur.

Answer 56

unplanned risk retention

Question 57

may be reduced by simply instituting appropriate measures in a variety of business activities.

Answer 57

hazards

Question 58

refers to making commitments on both sides of a transaction so the risks offset each other.

Answer 58

hedging

Question 59

is a very important management activity.

Answer 59

financing