Exam 12: A Firms Sources of Financing

The main advantage of using credit cards for financing is the relatively low interest rate compared to bank loans.

Around 5% of the business plans reviewed by venture capitalists are funded.

Guaranty loans are

If Bill Bailey, owner of Cherokee Communications, had violated the covenants of his loan agreement,

You Make the Call-Situation 3 Steve Peplin is the president of Talan Products, a metal stamper based in Cleveland. Peplin has a long-term relationship with his banker. But recently his firm ran into financial difficulty, and the bank is demanding that Peplin personally guarantee 100 percent of the company's loans. Peplin would prefer not to do so, but isn't sure that he has a choice. (Source: "Hands On," Inc., Vol. 25, No. 8 (August 2003), p. 50.)

Pro forma statements required by bankers include all of the following EXCEPT

Borrowing money rather than issuing common stock increases the potential for higher rates of return to owners.

What sources of funds are available to businesses?

To retain control over his business, an entrepreneur should seek initially to secure _____ financing.

Most startup investors limit their investing to firms that offer potentially high returns within a one-to-three-year period.

As long as a firm's rate of return is greater than the cost of the debt (interest rate) the owner's rate of return on equity will _____ as the firm uses more debt.

List two methods of selling common stock, and discuss each method.

You Make the Call-Situation 1 David Bernstein needs help financing his Lodi, New Jersey-based Access Direct Inc., a six-year-old $3.5 million company. "We're ready to get to the next level," says Bernstein. "But we're not sure which way to go." Access Direct spruces up and then sells used computer equipment for corporations; it is looking for up to $2 million in order to expand. "Venture capitalists, individual investors, or banks," says Bernstein, who owns the company with four partners, "we've thought about them all."

Most of those who invest in startups limit their investing to firms with potentially high returns in a _____ period.

A primary source of financing for most smaller companies is

What are the four basic factors that determine how a firm is financed?

Both wholesalers and equipment manufacturers/suppliers can be used as sources of funds.

A small business should limit the amount of debt it takes on because debt can add to the firm's risk.

Private placement is the selling of stock only to selected individuals.

Small business owners sometimes accept higher levels of debt because doing so permits them to retain all of the stock and full ownership.