act

Question 1

Working Capital Management

Answer 1

Involves the financing and management of the current assets and current liabilities of the firm.

Question 2

Permanent current assets

Answer 2

Current assets that will not be
reduced or converted to cash within the normal operating
cycle of the firm.

Question 3

Temporary current assets

Answer 3

Current assets that will be reduced or converted to cash within the normal operating cycle of the firm.

Question 4

Alternative plans

Answer 4

Creating a perfect financial plan for working capital. Determining the temporary and permanent nature of current assets

Question 5

Long-Term Financing

Answer 5

To mitigate risks during tight money periods, financial managers may use long-term funds to cover some short-term needs.

Question 6

Short-Term Financing

Answer 6

The use of credit that is repaid in one year or less. Credit is often used because it is more
convenient than keeping cash on hand for payments or because cash flows can be uneven at different points in time.

Question 7

Cash Inflow

Answer 7

It’s the money going into a business which
could be from sales, investments, or financing.

Question 8

Payback Period

Answer 8

The amount of time required for a firm to
recover its initial investment in a project as calculated from
cash inflows.

Question 9

DECISION CRITERIA
Accept

Answer 9

• If the payback period is less than the maximum
  acceptable payback period, accept the project.

Question 10

DECISION CRITERIA
Reject

Answer 10

• If the payback period is greater than the maximum
  acceptable payback period, reject the project.

Question 11

management

Answer 11

The length of the maximum acceptable payback period is
determined by

Question 12

Strategic Financing Choices

Answer 12

The ability to access various financing alternatives helps minimize the overall cost of funds.

Question 13

5 C´s of Credit

Answer 13

Character
Capacity
Capital
Collateral
Conditions

Question 14

Character

Answer 14

Refers to your credit history, or how
you’ve managed debt in the past.

Question 15

Capacity

Answer 15

Refers to your ability to repay loans.

Question 16

Capital

Answer 16

the savings, investments and
assets you are willing to put toward a loan.

Question 17

Collateral

Answer 17

Something that you can provide as
security

Question 18

Conditions

Answer 18

information that helps
determine whether you qualify for credit

Question 19

Common stock

Answer 19

form of ownership in a
corporation

Question 20

Preferred stock

Answer 20

Preferred stockholders have a higher claim

Question 21

Retained earnings

Answer 21

cumulative net earnings or profits
of a company

Question 22

Large companies commonly use the net present value (NPV)
method

Answer 22

to assess investment projects

Question 23

NPV considers

Answer 23

the time value of investors’ money and compares the present
value of a project’s cash flow to the initial investment cost.

Question 24

This method

Answer 24

accounts for the firm’s cost of capital,
representing the minimum return needed to satisfy investors

Question 25

The net present value (NPV)

Answer 25

Present value of cash inflows - Initial investment.

Question 26

Capital budgeting cash flows

Answer 26

the analysis of the cash inflows and outflows associated with potential investment projects

Question 27

Relevant cash flows

Answer 27

The incremental cash outflow

Question 28

Incremental cash flows

Answer 28

additional cash flows —expected to result from a proposed capital expenditure.

Question 29

Major Cash Flows Components

Answer 29

(1) an initial investment (2) operating cash flows (3) terminal cash flow

Question 30

Sunk costs

Answer 30

Cash outlays that have already been made and therefore have no effect on the cash flows relevant

Question 31

Opportunity costs

Answer 31

Cash flows that could be realized from the best alternative use of an owned asset

Question 32

Book Value

Answer 32

its strict accounting value

Question 33

Terminal cash flow

Answer 33

cash flow resulting from termination and liquidation of a project at the end of its economic life.

Question 34

Cash inflow

Answer 34

After-tax proceeds from selling the new asset at the end of the project's life

Question 35

Cash outflow

Answer 35

After-tax proceeds that the firm would have received from disposal of the old asset if it had not been replaced.

Question 36

pros payback analysis

Answer 36

1. simplicity 2. quick assessment 3. decision-making tool

Question 37

cons payback analysis

Answer 37

1. ignores time value of money 2. ignores profiability 3. biased towards short-term projects

Question 38

simplicity:

Answer 38

easy to understand making it accesible for decision makers with limited financial knowledge

Question 39

quick assessment (pro payback analysis)

Answer 39

provides quick assessment of how long it will take to recover the inicial investment

Question 40

decision-making tool (pro payback analysis)

Answer 40

helps businesses to prioritize projects based on time it takes to recover inicial investment

Question 41

ignores time value of money (cons payback analysis)

Answer 41

it doesn´t account for the fasct that a dollar today is worth more than in the future

Question 42

(cons payback analysis) ignores profitability

Answer 42

lead to missed opportunities for projects with higher long-term profitability

Question 43

biased towards short-terms projects

Answer 43

overlooking the benefits of long term with higher overall returns

Question 44

financial decision

Answer 44

long term lease short term

Question 45

long term

Answer 45

securitization debt convertible security equity

Question 46

securitization (long term) (financing decision)

Answer 46

marketable asset backed securities

Question 47

debt (long term) (financial decision)

Answer 47

term loan secured unsecured

Question 48

equity (long term) (financial decision)

Answer 48

common stock preferred stock retained earnings

Question 49

lease

Answer 49

financial lease operating lease

Question 50

short term (financial decision)

Answer 50

bank loan commercial paper collateralized loans sale of receivables and inventory

Question 51

bank loan (short term) (financial decision)

Answer 51

notes line of credit

Question 52

collateralized loans (short term) (financial decision)

Answer 52

pledging receivables pledginng inventory

Question 53

sales of receivables and inventory (short term) (financing decision)

Answer 53

factoring securitization