Question 1

Aardvark is considering issuing corporate bonds in order to raise money.Which of the following,if true,would strengthen the case for doing this?
A) The company's customer base has been declining.
B) The company has debts that need to be paid immediately.
C) The company's main interest is in long-term solvency.
D) The company is interested in cutting costs.
E) The company's assets are rapidly depreciating.

Accepted Answer

B)Selling bonds would result in an immediate inflow of cash that could be used to pay short-term debts. Choices A, D, and E:these do not relate to the choice of issuing corporate bonds. Choice C suggests that the company should pursue some financial option that will pay dividends over the long term.

Question 2

Explain the difference between debt financing and equity financing.

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Question 3

When giving an unsecured loan,what might a bank require?

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Question 4

Mathematically explain how a stock split works if a company has 100,000 common shares outstanding that are trading at $100 per share.

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Question 5

Describe the differences between primary and secondary securities markets.

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Question 6

More Americans are investing in the stock market through online trading.Explain the value of online trading.

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Question 7

Differentiate between market value and book value.

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Question 8

Explain the Rule of 72.

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Question 9

In 2008,each share of GE stock was receiving annual dividend payments of $1.24.If,on a particular day,the share price was $33.82,what would the current yield be?

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Question 10

When are corporate bonds attractive to a firm?

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Question 11

Aardvark needs some short-term financing to meet a cash-flow gap while it makes immediate capital expenditures.Which of the following,if true,would strengthen the case for the company's using a credit card for this purpose?
A) Family members of the company owners have a lot of liquid assets.
B) The company is not sure when it will be able to repay the money.
C) The company expects to be able to repay the money next month.
D) The company needs to obtain a line of credit without interest.
E) The company can provide collateral for a secured loan.

Accepted Answer

C)Business credit cards can be a viable source of very short-term financing if the company can expect to pay off the balance within a month, thus avoiding potentially high interest charges. If the money can't be repaid within a month (Choice B), then family members (Choice A)who might be the source of short-term loans would be preferable to a credit card advance. The line of credit from a credit card is without interest for only a very limited time-usually a month, or less, depending on the card (Choice D). Choice E:Having collateral would strengthen the case that the company could obtain a bank loan, in which case it would not need to use a credit card.

Question 12

If you purchased a share of GE stock for $33.82,then sold it one year later for $36.50,what would the price appreciation be?

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Question 13

Aardvark needs to calculate its current working capital in order to assess its current financial state.Which of the following questions would BEST help answer the question of what the company's working capital is?
A) What are the company's current liabilities?
B) What is the interest rate on outstanding loans to the company?
C) How much of the company's assets are used as collateral?
D) What is the company's credit history like?
E) What is the risk rating of the company's bonds?

Accepted Answer

A)Subtracting the company's current liabilities from its current assets will give the company's current working capital. The other choices do not directly relate to the calculation of working capital.

Question 14

Describe the services provided by investment banks.

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Question 15

Which of the following,if true,might make the benefit more appealing to a prospective employee?
A) In recent months, stocks have experienced a bull market.
B) The firm pays the maintenance fees for the investments.
C) Employees may choose the amount set aside each month, up to 10 percent of gross income, which is untaxed until the money is removed from the fund.
D) Over a ten-year period, the mutual funds included in the firm's option have accrued at a rate equal to the consumer price index.
E) The firm allows employees to select from and move funds around to a wide range of mutual fund options, some more conservative than others.

Accepted Answer

E)A new employee will place more of a premium on his or her ability to participate in the investment process in the here and now, rather than assurances that the funds will accrue later. So Choice E is correct:employees will appreciate being able to protect the investment at difficult times and have the chance to move it to a fund that can bring a higher return during times of growth. Investments merely keeping up with inflation (Choice D)are not attractive, and a bull market lasting a few months might not be enough to reassure employees about the long term (Choice A). Paying overhead fees (Choice B)and letting workers choose the level of their involvement (Choice C)do nothing to make the savings option more beneficial if the value of the investment is unstable and liable to loss of principal.

Question 16

Explain the principle of compound growth.

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Question 17

Aardvark is considering undertaking an IPO in order to raise money.Which of the following,if true,would strengthen the case for doing so?
A) The company's expected stock price will be low.
B) The company wants to maintain internal control over all its decision-making.
C) The company's customer base has been in decline.
D) The company has a healthy amount of assets.
E) The company is in a significant amount of debt.

Accepted Answer

D)Offering an IPO means offering part of the company for sale, so a healthy amount of assets should ensure a decent stock price and expected performance. Choice A opens up the possibility that a corporate raider may take over the company. The other choices all weaken the case that now is a good time for an IPO.

Question 18

What is an angel investor?

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Question 19

Explain the difference between angel investors and venture capital.

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Question 20

Explain what exchange-traded funds are and how they are tracked.

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Quiz 17: Managing Business Finances

Aardvark is considering issuing corporate bonds in order to raise money.Which of the following,if true,would strengthen the case for doing this?