Exam 14: Sources of Financing

Corrina is requesting a loan from her company's bank.She has informed the bank she needs $250,000 to develop an overseas market and feels she will be able to pay the loan back within five years.What else will the bank want to know?

A line of credit is a long-term loan offered to the bank's most valuable customers.

Pete is arranging an equipment loan for a baking oven that costs $5,000.The lender will require a down payment of $750.

Changing the mix of financing between the amount of debt versus the amount of equity will affect the company's return on assets.

A venture capitalist will place greater merit on the strength of the management team than on the prospects of the opportunity.

What sources of funds are available to businesses?

Where do prospective entrepreneurs usually acquire their initial financing?

What are the tradeoffs between profitability,risk,and control that should be considered when choosing between debt and equity?

Tracee receives a large order from a customer.Her company does not have the cash to purchase the products from her supplier so she enters into a purchase-order financing agreement with a lender.The sale is for $75,000.The cost of the products is $40,000.What fee will the lender charge?

Leonard needs cash right away to take advantage of a discount his supplier is offering.He sells his accounts receivable to another company to get the cash he needs.What is the sale of his accounts receivable for cash called?

John's medical device company has just surpassed $7 million in annual sales.He needs a large amount of capital to expand his company into Europe and Asia.He plans to raise the necessary capital by selling a large percentage of his shares to the general public.What is this sale of stock called?

The major source of equity financing for entrepreneurs is personal savings.

Diana needs capital to open an art gallery to promote local artists.She creates a website to raise the required capital and will give any contributors a percentage of ownership of the gallery.What approach to crowdfunding did Diana use?

Which loan repayment schedule will result in less being paid over the life of the term?

Every business owner wants to be profitable but what is it about profit that the business owner really wants to know?

Increasing the level of debt financing will decrease the voting control of the company's owners.

Marcus wishes to finance the launch of a new product by borrowing money from the bank.The bank requires collateral for the loan.What will Marcus use for collateral?

What are the "five Cs of credit"?

Explain how an equipment loan works.

Carrie must provide monthly financial statements to the bank as part of her loan agreement.This is an example of a loan covenant.