KEY - Final Examination A - Page 5 of 17 Finance (FINE) A large cable television
ID: 2620341 • Letter: K
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KEY - Final Examination A - Page 5 of 17 Finance (FINE) A large cable television provider is considering getting into the high end ice cream business. Which of the following questions is most relevant to evaluating this proposal? 18. A) B) C) D) What is the nature and purpose of the project? What other resources of the company are required for this project? Does the project align with the overall objectives of the company? How long will the project last and what are its key stages? 19. What is the primary factor in the creation of positive cash flow? A) B) C) D) Expense reduction Increases in sales revenue Product innovation An expanding economy 20. Which form of long-term financing, if available, is usually used before any other A) Retained earnings B) Common shares C) Preferred shares D) Leases 21. Comfort Ltd. offers customers payment terms on invoices of 2/10, n30. A customer is unable to pay the invoice when received but will have the funds by month end. The customer has the option ofborrowing on its 12% line of credit and paying off the invoice or waiting until the end of the 30 days. What should the customer do? A) Borrow the funds on the tenth day and pay the invoice B) Borrow the funds upon receipt of the invoice and pay immediately C) Borrow the funds upon receipt and pay in 30 days D) Wait until month end to borrow the funds and pay the invoice 22. What is an advantage to a small business in listing on the stock exchange? Being taken over by a larger business during a period of low sales and profits The significant cost reductions available for future debt and equity financing The opportunity to raise its profile and thus improving its chances in attracting better strategic partnerships and financing opportunities The guarantee of an immediate increase in earnings to initial owners through the inflow of cash from the initial share offering A) B) C) D) 23. What is the main role of a stock exchange? A) B) C) D) To act as a primary capital market for businesses To act as a secondary capital market for businesses To act as a primary and secondary market for businesses To act as a primary and secondary market for governmentsExplanation / Answer
19. B The primary factor in creating tht posiive cash flow is an increase in sales revenue. It represents the financial health of the company.
20 A. Retained earnings
21. C. Borrow the funds upon receipt and pay in 30 days.
22. C. An advantage to a small business in listing on the stock exchange- The opportunity to raise its profile and thus improving its chances in attracting better strategic partnerships and financing opportunities.
Advantages are-
1. Able to raise additional funds through the issuance of more stocks.
2. Additional leverage while taking loans
3. Exposure of market.
4. Brand equity
5. Attract better employees
23. B The main role of a stock exchange is to act as a secondary capital market for business. The secondary market or the stock exchanges are regulated by the regulatory authority.
In the secondary market, the securities issued in the primary market are bought and sold. One can buy securities directly from a seller and the stock exchange.
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