Fundamentals of Finance

Lake Products is a retail hardware store. If Lake's sales increase by 25% from Year 1 to Year 2, which accounting item will likely remain unchanged, rather than naturally increase?

• Debt

• Cash

• Inventory

• Wages

Stocks are a form of

• Owning

• Lending

In which financial statement can you see the money in and money out for a business?

• Net Income Report

• Statement of Cash Flows

• Income Statement

• Balance Sheet

Determining which projects a business should invest in is known as

• Return on capital
• The cash conversion cycle
• Capital structuring
• Capital budgeting

ABC's Chief Financial Officer is uncertain about the future cost savings from investing in a new machine. With which business risk is the CFO dealing?

• Credit Risk

• Exchange Rate Risk

• Cash Flow Risk

• Price Risk

Money owed to the business is known as

• Equity
• Assets
• Accounts payable
• Accounts receivable

Which short-term financing method is considered an "IOU" (I Owe You)?

• Bank Loan

• Line of Credit

• Commercial Paper

• Bonds

What is an over-the-counter trading in corporate bonds?

• Bonds trades are arranged privately between a corporation and a purchaser

• Bond trading is not a complex as stocks, so bonds are often backed by assets.

• Purchasers go to a physical bond market to purchase a corporate bond “over the counter”

• Over the Counter trading is the same as a corporation's private debt

Portfolio diversification is a method that helps an individual receive the highest return on investment.

• True

• False

How does a company use a "cash budget" for short-term financing needs?

• A Cash budget can be used to approach a bank or other lender for a short term loan

• A cash budget provides a company with the amount of cash it has on hand at any given time

• A cash budget can determine the yield on the cash it has on hand

• A cash budget predicts a need for cash sometime in the future