Question 1

Borrowing allows owners to retain voting control of the company.

Accepted Answer

A) True 
 B)False

Question 2

Asset-based lending is a type of financing secured by assets such as receivables, inventory, or both.

Accepted Answer

A) True 
 B)False

Question 3

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 4

The federal government provides funds to small businesses through

Accepted Answer

A)  venture capital companies. 
B)  the Small Business Administration. 
C)  business angels. 
D)  the Securities and Exchange Commission. 
A)  venture capital companies. 
B)  the Small Business Administration. 
C)  business angels. 
D)  the Securities and Exchange Commission.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

Intangible assets are those that can be seen and touched.

Accepted Answer

A) True 
 B)False

Question 7

A firm with potential for large profits has many more possible sources of financing than does a firm that offer only unattractive returns, but high growth potential does not seem to have a similar effect on financing options.

Accepted Answer

A) True 
 B)False

Question 8

What sources of funds are available to businesses?

Accepted Answer

Major sources of equity financing are pe

Question 9

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.

Accepted Answer

A)  decrease 
B)  increase 
C)  remain the same 
D)  fluctuate 
A)  decrease 
B)  increase 
C)  remain the same 
D)  fluctuate

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

Drawbacks of selling stock as a source of funds include

Accepted Answer

A)  enhanced corporate image. 
B)  loss of voting control of the company. 
C)  future financing. 
D)  estate planning. 
A)  enhanced corporate image. 
B)  loss of voting control of the company. 
C)  future financing. 
D)  estate planning.

Question 12

Approximately one-half of the financing for startups comes from personal savings.

Accepted Answer

A) True 
 B)False

Question 13

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 14

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 15

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 16

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 17

The age of a company has little impact on the types of financing available to it.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

Lines of credit are legal obligations to provide capital.

Accepted Answer

A) True 
 B)False

Question 20

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.

Exam 12: A Firms Sources of Financing

Borrowing allows owners to retain voting control of the company.

Asset-based lending is a type of financing secured by assets such as receivables, inventory, or both.

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

The federal government provides funds to small businesses through

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

Intangible assets are those that can be seen and touched.

A firm with potential for large profits has many more possible sources of financing than does a firm that offer only unattractive returns, but high growth potential does not seem to have a similar effect on financing options.

What sources of funds are available to businesses?

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.

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

Drawbacks of selling stock as a source of funds include

Approximately one-half of the financing for startups comes from personal savings.

Business angels provide

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

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

The age of a company has little impact on the types of financing available to it.

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

Lines of credit are legal obligations to provide capital.

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

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