Question 1

Instead of borrowing money from suppliers to purchase equipment, an increasing number of small businesses are

Accepted Answer

A)   obtaining trade credit instead.
B)   making these purchases outright.
C)   choosing to lease the equipment.
D)   opting to streamline assembly processes to reduce expenditures.E) A) and B)
F) B) and C)

Question 2

State and local governments are becoming less involved in financing new businesses.

Accepted Answer

A) True 
 B)False  False

Question 3

Venture capitalists restrict their investment in startup companies.

Accepted Answer

A) True 
 B)False

Question 4

A loan covenant is very unlikely to require

Accepted Answer

A)   provision of timely and complete information.
B)   salary limitations.
C)   a personal guarantee.
D)   a fixed business strategy.E) B) and D)
F) A) and B)

Question 5

For every firm, there is a "right" answer to the question of balancing debt and equity, and it is important that the small business owner find that balance.

Accepted Answer

A) True 
 B)False

Question 6

When entrepreneurs "bootstrap" their financing, this means that they are

Accepted Answer

A)   enhancing the "corporate image" of their enterprise by the way they raise capital.
B)   depending on their own initiative to come up with the capital necessary to start up and grow.
C)   subordinating future capital formation to short-term financial performance.
D)   waiting to establish a reputation in the marketplace before raising the bulk of their capital.E) A) and B)
F) All of the above

Question 7

One of the major sources of early financing is

Accepted Answer

A)   family members.
B)   commercial banks.
C)   business suppliers.
D)   asset-based lenders.E) None of the above
F) A) and B)

Question 8

Intangible assets are those that can be seen and touched.

Accepted Answer

A) True 
 B)False

Question 9

The basic factors that determine how a firm is financed include the following: the firm's past economic performance, the nature of its assets, the maturity of the firm, and the personal preferences of owner(s) with respect to the marketing mix.

Accepted Answer

A) True 
 B)False

Question 10

When bankers look for evidence of whether a business will be able to repay a loan, they usually base their assessment of this on

Accepted Answer

A)   what the firm has done in the past.
B)   what the owner says the firm will do in the future.
C)   the opinion of investment analysts.
D)   the business plan of the enterprise.E) B) and D)
F) A) and B)

Question 11

Business angels provide

Accepted Answer

A)   asset-based loans.
B)   factoring.
C)   informal venture capital.
D)   trade credit.E) A) and B)
F) A) and C)

Question 12

If a firm finances with equity rather than with debt, it will bear no interest expense and thus yield greater net income.

Accepted Answer

A) True 
 B)False  True

Question 13

How likely is the typical startup to succeed in getting funded by a venture capitalist?

Accepted Answer

A)   Very unlikely (1-2 percent) 
B)   Unlikely (10-20 percent) 
C)   Likely (60-75 percent) 
D)   Very likely (90 percent) E) A) and B)
F) B) and C)

Question 14

A chattel mortgage is a loan for which real property, such as land or a building, serves as collateral.

Accepted Answer

A) True 
 B)False

Question 15

One of the factors that influences the choice between debt and equity is the

Accepted Answer

A)   returns anticipated from the enterprise.
B)   risk of nationalization.
C)   degree of control the owners hope to retain.
D)   state of the owners' estate plan.E) A) and C)
F) All of the above

Question 16

If the firm's rate of return on its assets is _____ than the cost of borrowing, then the owners' rate of return on equity will _____ as the firm uses _____ debt

Accepted Answer

A)   greater, increase, less
B)   greater, decrease, more
C)   greater, increase, more
D)   less, increase, moreE) A) and B)
F) A) and C) C

Question 17

If a firm finances with equity rather than debt, net income will be greater because

Accepted Answer

A)   equity financing almost always leads to better firm performance than debt financing.
B)   the terms of equity financing are more stable than the terms of debt financing.
C)   this impacts asset selection for the better.
D)   there is no interest expense.E) A) and B)
F) B) and D)

Question 18

Return on equity is a better measure of performance than net income.

Accepted Answer

A) True 
 B)False

Question 19

Capital financing with no established marketplace is financing from commercial banks.

Accepted Answer

A) True 
 B)False

Question 20

A balloon payment

Accepted Answer

A)   is an upfront payment to obtain a loan.
B)   is due when a loan comes due.
C)   may be due at any time during the term of a loan.
D)   is used to lift (remove)  a loan covenant.E) B) and C)
F) A) and D)

Exam 12: A Firms Sources of Financing

Instead of borrowing money from suppliers to purchase equipment, an increasing number of small businesses are

Correct AnswerverifiedShow Answer

State and local governments are becoming less involved in financing new businesses.

Correct AnswerverifiedFalse

Venture capitalists restrict their investment in startup companies.

Correct AnswerverifiedShow Answer

A loan covenant is very unlikely to require

Correct AnswerverifiedShow Answer

For every firm, there is a "right" answer to the question of balancing debt and equity, and it is important that the small business owner find that balance.

Correct AnswerverifiedShow Answer

When entrepreneurs "bootstrap" their financing, this means that they are

Correct AnswerverifiedShow Answer

One of the major sources of early financing is

Correct AnswerverifiedShow Answer

Intangible assets are those that can be seen and touched.

Correct AnswerverifiedShow Answer

The basic factors that determine how a firm is financed include the following: the firm's past economic performance, the nature of its assets, the maturity of the firm, and the personal preferences of owner(s) with respect to the marketing mix.

Correct AnswerverifiedShow Answer

When bankers look for evidence of whether a business will be able to repay a loan, they usually base their assessment of this on

Correct AnswerverifiedShow Answer

Business angels provide

Correct AnswerverifiedShow Answer

If a firm finances with equity rather than with debt, it will bear no interest expense and thus yield greater net income.

Correct AnswerverifiedTrue

How likely is the typical startup to succeed in getting funded by a venture capitalist?

Correct AnswerverifiedShow Answer

A chattel mortgage is a loan for which real property, such as land or a building, serves as collateral.

Correct AnswerverifiedShow Answer

One of the factors that influences the choice between debt and equity is the

Correct AnswerverifiedShow Answer

If the firm's rate of return on its assets is _____ than the cost of borrowing, then the owners' rate of return on equity will _____ as the firm uses _____ debt

Correct AnswerverifiedC

If a firm finances with equity rather than debt, net income will be greater because

Correct AnswerverifiedShow Answer

Return on equity is a better measure of performance than net income.

Correct AnswerverifiedShow Answer

Capital financing with no established marketplace is financing from commercial banks.

Correct AnswerverifiedShow Answer

A balloon payment

Correct AnswerverifiedShow Answer

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False

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True

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If the firm's rate of return on its assets is ___ than the cost of borrowing, then the owners' rate of return on equity will _ as the firm uses ___ debt

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C

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