Chapter 16 – Flashcards
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One aspect of financial management involves managing cash flow for a business on a daily, weekly, monthly, and yearly basis.
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true
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Transaction balances are cash on hand to pay everyday expenses.
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true
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Good money managers strive to keep just enough cash on hand to pay bills. This cash is called
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transaction balances
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Good financial managers minimize the amount of cash available to pay bills in
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marketable securities
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All of the following are ways to invest idle cash for the short term except
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certificates of deposit
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The principal is the amount of money a business pays to use a bank's funds.
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false
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Lenders first evaluate a borrower's history of borrowing and repaying loans by looking at the borrower's past credit history.
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true
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Unsecured loans are backed by collateral that the lender can claim if the borrower does not repay the loan.
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false
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Interest is a percentage of the principal that the bank charges for use of its money.
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true
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Dan bought three new trucks with a loan obtained from the First National Bank. If he fails to repay the loan, the bank will repossess the trucks. The trucks are
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collateral
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If a real estate developer borrows $100,000 from a bank and ends up paying back $120,000, the $100,000 represents the
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principal
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If Linda Wilson borrows $20,000 to buy a car and ends up paying the lender a total of $24,000, the $4,000 difference represents the
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interest
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If the interest rate on a loan changes according to the daily average of the prime rate over the life of the loan, the interest rate is said to be
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floating
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The ______ is the interest rate commercial bank lenders charge their best customers.
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prime rate
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Most business failures are the result of poor long-term financial planning
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false
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When a company invests a lot of money in a particular project, it is concerned about the amount of risk involved. In general, the longer the expected life of a project or asset, the potential risk is
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greater
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Which of the following is the most risky?
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Introducing a new product in a foreign market
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Long term liabilities are
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debts that will be repaid over a number of years.
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Retained earnings may be used to finance long-term assets.
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true
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The financial arrangements required for investment in fixed assets can be
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challenging for even the most profitable organization.
