Question

1- Which of the following statements represents good advice prior to making capital expenditures?

A. Capital expenditures represents borrowed funds that must be repaid in one year or less. It is important to seek the advice of your accountant prior to committing.

B. Capital expenditures represent investment in inventories and expendable type assets that the firm will use in one year or less. It is important to maintain the appropriate level of monthly cash flow to pay for these expenditures.

C. Most firms do not value capital expenditures on their balance sheets, so it is important to stay abreast of the market value of these assets at all times, in case you want to sell them.

D. Capital expenditures are major investments - meaning they require large sums of funds. Companies should weigh all possible options before committing available resources to projects that take significant amounts of funds and extend time.

2-. After enjoying increased sales and profits of several popular products, Braggs & Stritton plans to expand their production facilities. The firm, a well-known producer of lawn care products, prefers financing this project with a funding source that avoids interest and dividend payments as well as underwriting costs. Which of the following best meets the needs of Braggs & Stritton? A. Venture capital

B. Debenture bonds

C. Common stock

D. Retained earnings

3- Arbor-view Plant Science Company has invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution worldwide, the company whose product produces lush green foliage needs a large amount of funding fast! The handful of seed scientists that own the company decides to offer shares of stock to general investors. This first-time offering is a (n):

A. Stock Equity Commission (SEC)

B. Stock Fund Offering (SFO)

C. Broad Based Offering (BBO)

D. Initial Public Offering (IPO)

4-. Arbor-view Plant Science Company has invented a drought resistant grass seed that only needs watering three times each year. In order to expand distribution worldwide, the company whose product produces lush green foliage needs serious funding. The handful of seed scientists that own the company are seeking ____________, but understand that they will relinquish a sizeable share of ownership in order to obtain the funds.

A. debenture capital

B. international line of credit

C. leverage

D. venture capita

Answer 1

Answer to 1

Capital Expenditures are those big tikcet expenditures which requires sizable investments and are generally used for more than 1 Year. These Expenditures include expansion plans of new factories, setting up new buildings, plant and eqipments etc.
These expenditures are genreally financed using debt and/or equity.

Therefore A and B are incorrect

Now, capital expenditures are duly recongnized in the books of accounts of a company. They are included in the Tangible Fized Asset bucket and therefore option c is incorrect.

Therefore the coorect option is Option D. Companies should analyse the finance options as they require large sums of money.

Answer to 2

The debenture bonds require interest Payments to be made either quaterly, semi annually, annually, or as per the terms of issuing the bonds.

Common Stock holders require dividend payments.

Now if the firm wishes to avoid interest and Dividend payment, the option B and C are not correct.

Now, Venture Capital investors are those investors who invest in new inventions and budding companies. They do not invest in known products or well established companies. Therefore option A is incorrect

Retained Earnings are accumalted earnings of a company. funding via these earnings do not require a interest or a dividend payment.

Therefore the correct answer is D.

Answer to 3

The Correct answer is D.

Offering of Shares to public for the first time is called Initial Public Offering.In an IPO the promoters of the company generally offload there shareholding, Therefore in this case the scientist who own shares of the company are willing to sell there stake to the public via IPO.

Answer to 4

Debenture Capital, international Line of Credit and leveraging are all options of debt financing where the debt holders do not become the owners or equity shareholders of the company and therefore the companies do not need to relinquish a portion of ownership.

Therefore Option A, B and C are incorrect. Venture Capitals on the other hand invest in budding stage companies and their new inventions. These investors generally invest for a sizable ownership of these companies. The Correct Answer is D