After successfully operating for five years, Tina plans to sell her computer service center. Which of the following would be Tina's main financial management need as she exits the business through sale?

After successfully operating for five years, Tina plans to sell her computer service center. Which of the following would be Tina's main financial management need as she exits the business through sale? 

A. Obtaining increasing amounts of cash inflows

B. Building her wealth and conserving assets

C. Optimizing capital structure for profits

D. Conserving the money that the business has

Answer: C

After being in business for 24 months, Paul's auto spare parts company Chromson Inc. grows to a relatively stable size. Which of the following would be Paul's primary financial management need at this stage?

After being in business for 24 months, Paul's auto spare parts company Chromson Inc. grows to a relatively stable size. Which of the following would be Paul's primary financial management need at this stage? 

A. Building owner's wealth

B. Clearing all debts

C. Implementing bootstrapping techniques

D. Establishing internal control over assets

Answer: A

If the owner plans to _____ a business, he or she should be removing all surplus cash and tightening the cash-to-cash cycle to the shortest time possible.

If the owner plans to _____ a business, he or she should be removing all surplus cash and tightening the cash-to-cash cycle to the shortest time possible. 

A. transfer

B. sell

C. terminate

D. start

Answer: B

For an owner, the main financial management emphasis while transferring a business to family members must be to:

For an owner, the main financial management emphasis while transferring a business to family members must be to: 

A. increase the cash-to-cash cycle to the highest time possible.

B. increase asset value.

C. optimize capital structure for profits.

D. maximize debt.

Answer: B

Which of the following is true of financial management for a business exit?

Which of the following is true of financial management for a business exit? 

A. Its main emphasis is on conserving what little cash the business has.

B. Its main emphasis is on maximizing the value of the business for successors.

C. Its main emphasis is to obtain increasing amounts of cash inflows to pay for added inventory.

D. Its main emphasis is on increasing amounts of cash inflows to pay for added inventory, productive assets, and employees.

Answer: B

At the _____ stage of a business, the emphasis of financial management is to build owner wealth, to conserve assets, to match cash inflows to outflows, and to maximize the return on capital assets by making optimal investing decisions.

At the _____ stage of a business, the emphasis of financial management is to build owner wealth, to conserve assets, to match cash inflows to outflows, and to maximize the return on capital assets by making optimal investing decisions. 

A. operations

B. exit

C. growth

D. start-up

Answer: A

The emphasis of financial management during the _____ phase is to obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees.

The emphasis of financial management during the _____ phase is to obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees. 

A. start-up

B. exit

C. growth

D. operations

Answer: C

Which of the following is true of the debt-to-equity ratio?

Which of the following is true of the debt-to-equity ratio? 

A. It measures the relative risk that a business setback could cause bankruptcy.

B. It is calculated using the formula: Total Liabilities/Total Assets.

C. If the ratio is lower, it indicates lesser solvency.

D. If the ratio is greater, it indicates increased business risk.

Answer: D

____ measures the extent to which a business can meet its obligations for the long haul.

____ measures the extent to which a business can meet its obligations for the long haul. 

A. Profitability ratio

B. Current ratio

C. Return on investment

D. Debt-to-equity ratio


Answer: D

_____ is a measure of how much money can be made available to pay obligations within the fiscal year.

_____ is a measure of how much money can be made available to pay obligations within the fiscal year. 

A. Current ratio

B. Return on investment

C. Return on equity

D. Profitability ratio

Answer: A

____ measure a management's effectiveness in using the invested capital of the business to provide profits.

____ measure a management's effectiveness in using the invested capital of the business to provide profits. 

A. Profitability ratios

B. Gross margin ratios

C. Return on investments

D. Return on equity

Answer: C

____ ratios measure the relative risk that a business setback could cause bankruptcy.

_____ ratios measure the relative risk that a business setback could cause bankruptcy. 

A. Liquidity

B. Gross margin

C. Leverage

D. Profitability

Answer: C

____ ratios measure the business's ability to pay debts and expenses that are due in the current accounting period.

____ ratios measure the business's ability to pay debts and expenses that are due in the current accounting period. 

A. Liquidity

B. Profitability

C. Activity

D. Leverage

Answer: A

____ ratios measure management effectiveness in creating wealth from sales and from invested funds.

____ ratios measure management effectiveness in creating wealth from sales and from invested funds. 

A. Liquidity

B. Activity

C. Leverage

D. Profitability

Answer: D

____ ratios measure how productive a particular asset is in producing sales movement.

____ ratios measure how productive a particular asset is in producing sales movement. 

A. Current

B. Profitability

C. Activity

D. Leverage

Answer: C

Restrictions imposed by loan contracts on the operations of a business, such as requiring that a specific minimum net worth be maintained, a specific debt-to-equity ratio not be exceeded, no dividends be paid to stockholders and so on, are known as _____.

Restrictions imposed by loan contracts on the operations of a business, such as requiring that a specific minimum net worth be maintained, a specific debt-to-equity ratio not be exceeded, no dividends be paid to stockholders and so on, are known as _____. 

A. loan amortizations

B. loan yields

C. loan covenants

D. credit assurance

Answer: C

Borrowing money is a better alternative to investing additional personal funds because obtaining equity investment from others:

Borrowing money is a better alternative to investing additional personal funds because obtaining equity investment from others: 

A. reduces the potential loss for any single investor.

B. allows lesser debt to be included in the capital mix.

C. increases the cost of capital for the business.

D. increases the weighted average cost (WAC) of the business.

Answer: A

Which of the following ways does borrowing help increase potential profits?

Which of the following ways does borrowing help increase potential profits? 

A. By increasing the weighted average cost (WAC) of the business

B. By allowing less debt to be included in the capital mix

C. By providing capital funds for additional business opportunities

D. By increasing the cost of capital of the business

Answer: C

Which of the following is the formula for calculating owner's return on equity (ROE)?

Which of the following is the formula for calculating owner's return on equity (ROE)? 

A. Net Income/Average Investment

B. Net Income/Owner's Equity Investment

C. Total Liabilities/Total Owner's Equity

D. Total Liabilities/Total Assets

Answer: B

Uncertainty of returns in a business is referred to as _____.

Uncertainty of returns in a business is referred to as _____. 

A. financial risk

B. accelerated cash-out

C. overpayment

D. collateral

Answer: A