Finance and Accounting: Credit Terms and Capital Structure

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Questions and Answers

What is the effective annual rate implied by the credit terms of 2/15, net 60?

26.08% (correct)

25.45%

24.63%

23.56%

Why would a manager issue dividends to investors?

To signal to investors that the firm has abundant free cash flow (correct)

To increase the firm's WACC

To decrease the firm's debt-to-equity ratio

To reduce the firm's cash holdings

What is the primary benefit of making adjustments to inventory management and credit policy?

Decreasing the firm's profitability

Increasing the firm's WACC

Reducing the firm's debt-to-equity ratio

Improving the cash conversion cycle (correct)

If a firm's WACC is 20%, how many days after the purchase should it pay its supplier?

15 days Signup and view all the answers

Why would a manager forgo dividends, opting instead for share repurchases?

To reduce the number of outstanding shares and increase earnings per share Signup and view all the answers

What is the primary goal of financial planning?

To set and achieve financial goals Signup and view all the answers

What is the main purpose of budgeting in financial planning?

To prioritize spending and allocate resources towards achieving financial goals Signup and view all the answers

What is the primary benefit of saving in financial planning?

To provide a financial cushion for unexpected expenses or emergencies Signup and view all the answers

What is the main purpose of risk management in financial planning?

To identify potential risks and implement strategies to mitigate them Signup and view all the answers

What is a key component of a diversified investment portfolio?

A variety of different investment types Signup and view all the answers

What is the comprehensive approach to managing personal finances?

Financial planning Signup and view all the answers

What is the main purpose of financial goal setting in financial planning?

To identify specific, measurable, achievable, relevant, and time-bound goals Signup and view all the answers

What does estate planning primarily involve?

Making a will, setting up trusts, and planning for the distribution of assets Signup and view all the answers

What is the primary benefit of financial planning?

To achieve financial security and stability Signup and view all the answers

What is a crucial aspect of financial planning?

All of the above Signup and view all the answers

What is the purpose of implementing strategies in retirement planning?

To implement strategies to achieve retirement goals and objectives Signup and view all the answers

What helps individuals make informed decisions about their money in financial planning?

Taking a proactive approach to financial planning Signup and view all the answers

Study Notes

Financial Planning

Financial planning is the process of setting financial goals and creating a roadmap to achieve them.
It involves understanding current financial situations, setting realistic goals, and implementing strategies to achieve those goals.

Budgeting

Budgeting is the foundation of financial planning.
It involves tracking income and expenses, identifying areas of spending, and making adjustments to ensure resources are allocated towards achieving financial goals.
A well-structured budget helps individuals prioritize spending, reduce unnecessary expenses, and ensure savings goals are met.

Saving and Investing

Saving and investing are key components of financial planning.
Saving provides a financial cushion for unexpected expenses or emergencies.
Investing helps grow wealth over time and can be in various forms, such as stocks, bonds, mutual funds, or real estate.
A diversified investment portfolio can help minimize risk and maximize returns.

Risk Management

Risk management is an essential part of financial planning.
It involves identifying potential risks, such as job loss, health issues, or market fluctuations, and implementing strategies to mitigate these risks.
Strategies include purchasing insurance, maintaining an emergency fund, or diversifying investments.

Planning for Retirement

Retirement planning is a crucial aspect of financial planning.
It involves setting financial goals for retirement, estimating retirement expenses, and implementing strategies to achieve these goals.
Strategies include saving, investing, and managing income and expenses in retirement.

Estate Planning

Estate planning is the process of managing and preserving an individual's assets after their death.
It includes making a will, setting up trusts, and planning for the distribution of assets.
Estate planning helps ensure that one's wishes are respected and that assets are passed on to the intended beneficiaries.

Financial Goal Setting

Financial goal setting is a crucial step in financial planning.
It involves identifying specific, measurable, achievable, relevant, and time-bound (SMART) goals.
Goals can be short-term, such as saving for a vacation, or long-term, such as saving for retirement.

Importance of Financial Planning

Financial planning is essential for achieving financial security and stability.
It helps individuals make informed decisions about their money, manage risk, and create a roadmap to achieving their financial goals.
By taking a proactive approach to financial planning, individuals can secure their financial future and enjoy the peace of mind that comes with financial security.

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Description

Test your understanding of credit terms, effective annual rates, and capital structure decisions. This quiz covers the calculation of effective annual rates and the impact of credit terms on a company's financial decisions.