Question 1

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 2

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, more 
A)  greater, increase, less 
B)  greater, decrease, more 
C)  greater, increase, more 
D)  less, increase, more C

Question 3

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

Accepted Answer

A) True 
 B)False  False

Question 4

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. 
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.

Question 5

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Intangible assets are those that can be seen and touched.

Accepted Answer

A) True 
 B)False

Question 8

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 9

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 10

One of the major sources of early financing is

Accepted Answer

A)  family members. 
B)  commercial banks. 
C)  business suppliers. 
D)  asset-based lenders. 
A)  family members. 
B)  commercial banks. 
C)  business suppliers. 
D)  asset-based lenders.

Question 11

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. 
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.

Question 12

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. 
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.

Question 13

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 14

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. 
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.

Question 15

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

Accepted Answer

A) True 
 B)False

Question 16

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. 
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.

Question 17

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. 
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.

Question 18

Business angels provide

Accepted Answer

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

Question 19

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

Question 20

Venture capitalists restrict their investment in startup companies.

Accepted Answer

A) True 
 B)False

Exam 12: A Firms Sources of Financing

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

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

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

A balloon payment

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

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

Intangible assets are those that can be seen and touched.

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.

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

One of the major sources of early financing is

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

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

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.

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

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

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

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

Business angels provide

A loan covenant is very unlikely to require

Venture capitalists restrict their investment in startup companies.

The Entrepreneurial Life

Entrepreneurial Integrity and Ethics

Getting Started

Franchises and Buyouts

The Family Business

The Business Plan: Visualizing the Dream

The Marketing Plan

The Human Resources Plan: Managers, Owners, Allies, and Directors

The Location Plan

Understanding a Firms Financial Statements

Forecasting Financial Requirements

Planning for the Harvest

Building Customer Relationships

Product and Supply Chain Management

Pricing and Credit Decisions

Promotional Planning

Global Opportunities for Small Business

Professional Management in the Entrepreneurial Firm

Managing Human Resources

Managing Operations

Managing the Firms Assets

Managing Risk in the Small Business

Filters

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