Question 1

Define debt and equity financing and discuss how they differ from each other.

Accepted Answer

Debt is a financial obligation to return the capital provided plus a scheduled amount of interest. Equity is a portion of ownership received in an organization in return for money provided.
There are two reasons why new ventures tend to be financed by equity. First,until ventures have generated positive cash flow,they have no way to make scheduled interest payments. Second,debt financing at a fixed rate of interest encourages people to take risky actions when investors can't observe entrepreneurs' decisions. As a result,entrepreneurs need to raise money in a way that doesn't require them to make fixed payments,so they tend to lean towards equity financing. With equity investments,the entrepreneur would have to share any greater benefit that accrues from success at risky actions and so won't be as inclined to take them. Occasionally new ventures do obtain debt financing. It is usually debt guaranteed by the entrepreneur's personal assets,asset-based financing which is secured by the equipment that it is used to buy,or supplier credit.

Question 2

People who work for organizations that raise money from large institutional investors and invest those funds in new firms are called

Accepted Answer

A)  limited partners. 
B)  general partners. 
C)  venture capitalists. 
D)  business angels. 
E)  equity lenders. 
A)  limited partners. 
B)  general partners. 
C)  venture capitalists. 
D)  business angels. 
E)  equity lenders. C

Question 3

Which of the following is a fixed asset?

Accepted Answer

A)  Inventory. 
B)  Cash. 
C)  Marketable securities. 
D)  Long-term liabilities. 
E)  Buildings. 
A)  Inventory. 
B)  Cash. 
C)  Marketable securities. 
D)  Long-term liabilities. 
E)  Buildings. E

Question 4

The financial statement that shows assets,liabilities,and owners' equity is known as

Accepted Answer

A)  income statement. 
B)  balance sheet. 
C)  cash flow statement. 
D)  profit margin statement. 
E)  profit and loss statement. 
A)  income statement. 
B)  balance sheet. 
C)  cash flow statement. 
D)  profit margin statement. 
E)  profit and loss statement.

Question 5

Why do investors require entrepreneurs to put in a lot of their own capital?

Accepted Answer

A)  Entrepreneurs know more about the venture opportunity than the investor. 
B)  Their capital serves as an incentive to be careful with the investor's capital. 
C)  It is useful for reducing venture finance problems. 
D)  All of the above. 
E)  None of the above. 
A)  Entrepreneurs know more about the venture opportunity than the investor. 
B)  Their capital serves as an incentive to be careful with the investor's capital. 
C)  It is useful for reducing venture finance problems. 
D)  All of the above. 
E)  None of the above.

Question 6

An investor who wants to invest in only one start-up business is trying to decide between two new businesses. The entrepreneurs in both businesses seem quite similar to the investor. However,they are not similar. One has much better skills than the other,who is misrepresenting his skills. The investor is facing the situation known as

Accepted Answer

A)  equity apprehension. 
B)  breakeven syndrome. 
C)  adverse selection. 
D)  covenants. 
E)  cash flow condition. 
A)  equity apprehension. 
B)  breakeven syndrome. 
C)  adverse selection. 
D)  covenants. 
E)  cash flow condition.

Question 7

When starting a new business,entrepreneurs often know more about the opportunities and problems related to the business than do potential investors. This is known as

Accepted Answer

A)  Information asymmetry. 
B)  Uncertainty. 
C)  Information symmetry.. 
D)  A and B only. 
E)  None of the above. 
A)  Information asymmetry. 
B)  Uncertainty. 
C)  Information symmetry.. 
D)  A and B only. 
E)  None of the above.

Question 8

An investor will provide money for a new business only if she can get the money back when she wants it. This is known as

Accepted Answer

A)  equity right. 
B)  proforma right. 
C)  geographical investing right. 
D)  voting right. 
E)  mandatory redemption right. 
A)  equity right. 
B)  proforma right. 
C)  geographical investing right. 
D)  voting right. 
E)  mandatory redemption right.

Question 9

Venture capitalists

Accepted Answer

A)  provide assistance in operating new businesses. 
B)  help to identify key employees. 
C)  assist with operations and strategy formulation and implementation. 
D)  develop strong relationships with investment bankers who underwrite initial public offerings. 
E)  do all of the above. 
A)  provide assistance in operating new businesses. 
B)  help to identify key employees. 
C)  assist with operations and strategy formulation and implementation. 
D)  develop strong relationships with investment bankers who underwrite initial public offerings. 
E)  do all of the above.

Question 10

Cash is a short-term liability.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following can be used by an entrepreneur to help determine how much money will be needed to start a new business?

Accepted Answer

A)  Adverse selection reports. 
B)  Convertible securities. 
C)  forfeiture provisions.. 
D)  Breakeven analysis. 
E)  Asset-based financing reports.. 
A)  Adverse selection reports. 
B)  Convertible securities. 
C)  forfeiture provisions.. 
D)  Breakeven analysis. 
E)  Asset-based financing reports..

Question 12

Investors probably will expect an entrepreneur to show a reasonable way to manage financial resources before they will invest in the new firm.

Accepted Answer

A) True 
 B)False

Question 13

Investors in new ventures demand high rates of return for several reasons.Which of the following is NOT a reason?

Accepted Answer

A)  New ventures are extremely risky. 
B)  Investors in new ventures are able to diversify their risks fairly well. 
C)  Entrepreneurs have information about new ventures that they don't share with investors, allowing them an unfair advantage. 
D)  Entrepreneurs are often overoptimistic when they project the future prospects of their new ventures. 
E)  Unlike investors in the stock market who are largely passive, investors in new ventures provide several types of assistance to new ventures and they want compensation for this assistance. 
A)  New ventures are extremely risky. 
B)  Investors in new ventures are able to diversify their risks fairly well. 
C)  Entrepreneurs have information about new ventures that they don't share with investors, allowing them an unfair advantage. 
D)  Entrepreneurs are often overoptimistic when they project the future prospects of their new ventures. 
E)  Unlike investors in the stock market who are largely passive, investors in new ventures provide several types of assistance to new ventures and they want compensation for this assistance.

Question 14

Explain how you making a loan and then buying a car with the proceeds from the loan is the same thing as asset-based financing used by a business.

Accepted Answer

Asset-based financing means that a busin

Question 15

Total assets divided by total debt is called

Accepted Answer

A)  the income statement ratio. 
B)  debt ratio. 
C)  operating expenses. 
D)  cost of sales. 
E)  profit margin. 
A)  the income statement ratio. 
B)  debt ratio. 
C)  operating expenses. 
D)  cost of sales. 
E)  profit margin.

Question 16

A system for guaranteeing loans to new and small businesses to finance inventory or accounts receivable is offered by

Accepted Answer

A)  Small Business Administration Program. 
B)  CAPLine Program. 
C)  Large Business Administration Program. 
D)  SADF Program. 
E)  None of the above. 
A)  Small Business Administration Program. 
B)  CAPLine Program. 
C)  Large Business Administration Program. 
D)  SADF Program. 
E)  None of the above.

Question 17

In general,the introduction of the entrepreneur to the investor does not take place until the middle of the financing process.

Accepted Answer

A) True 
 B)False

Question 18

Why might venture investors limit their investments to local entrepreneurs?

Accepted Answer

A)  Localized investing makes it easier for investors to get heavily involved in new companies. 
B)  Investors want entrepreneurs to give them regular updates about their ventures. 
C)  Investors may have to step in to the day-to-day operations of new firms if something starts to go wrong. 
D)  Local investing makes it easier to pick the right companies to back. 
E)  All of the above. 
A)  Localized investing makes it easier for investors to get heavily involved in new companies. 
B)  Investors want entrepreneurs to give them regular updates about their ventures. 
C)  Investors may have to step in to the day-to-day operations of new firms if something starts to go wrong. 
D)  Local investing makes it easier to pick the right companies to back. 
E)  All of the above.

Question 19

Which of the following would be a step towards increasing cash flow and attempting to keep a business from becoming insolvent?

Accepted Answer

A)  Try to maximize the accounts receivable. 
B)  Increase the amount of credit that you extend to customers. 
C)  Sell your receivables to companies that purchase accounts receivable at a discount in return for immediate cash. 
D)  Increase the raw material and finished products inventory that you hold. 
E)  All of the above. 
A)  Try to maximize the accounts receivable. 
B)  Increase the amount of credit that you extend to customers. 
C)  Sell your receivables to companies that purchase accounts receivable at a discount in return for immediate cash. 
D)  Increase the raw material and finished products inventory that you hold. 
E)  All of the above.

Question 20

When new ventures are very young,they rarely obtain debt financing and tend to obtain equity financing instead.

Accepted Answer

A) True 
 B)False

Define debt and equity financing and discuss how they differ from each other.

People who work for organizations that raise money from large institutional investors and invest those funds in new firms are called

Which of the following is a fixed asset?

The financial statement that shows assets,liabilities,and owners' equity is known as

Why do investors require entrepreneurs to put in a lot of their own capital?

When starting a new business,entrepreneurs often know more about the opportunities and problems related to the business than do potential investors. This is known as

An investor will provide money for a new business only if she can get the money back when she wants it. This is known as

Venture capitalists

Cash is a short-term liability.

Which of the following can be used by an entrepreneur to help determine how much money will be needed to start a new business?

Investors probably will expect an entrepreneur to show a reasonable way to manage financial resources before they will invest in the new firm.

Investors in new ventures demand high rates of return for several reasons.Which of the following is NOT a reason?

Explain how you making a loan and then buying a car with the proceeds from the loan is the same thing as asset-based financing used by a business.

Total assets divided by total debt is called

A system for guaranteeing loans to new and small businesses to finance inventory or accounts receivable is offered by

In general,the introduction of the entrepreneur to the investor does not take place until the middle of the financing process.

Why might venture investors limit their investments to local entrepreneurs?

Which of the following would be a step towards increasing cash flow and attempting to keep a business from becoming insolvent?

When new ventures are very young,they rarely obtain debt financing and tend to obtain equity financing instead.

Entrepreneurship:: A Field, an Activity - and a Way of Life

Entrepreneurial Opportunities: Their Origins, Forms, and Suitability For New Ventures

Cognitive Foundations of Entrepreneurship: Creativity and Opportunity Recognition

What Entrepreneurs Need to Know Before They Start: Acquiring and Interpreting Information About Markets Competitors and Government

Assembling the Team: Acquiring and Utilizing Essential Human Capital

Writing An Effective Business Plan: Building A Road Map to Success

Legal Issues Relating To New Ventures: Protecting Your Reputation, Your Assets, And Your Ideas

Marketing in a New Venture

Strategy: Planning For Competitive Advantage

Preparing For And Attaining Growth: Strategies For Building Lasting Success

Managing New Ventures For Growth

Exit Strategies For Entrepreneurs: The Concluding Act

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Exam 6: Financial Resources For New Ventures: How To Get Them, How To Manage Them

Define debt and equity financing and discuss how they differ from each other.

People who work for organizations that raise money from large institutional investors and invest those funds in new firms are called

Which of the following is a fixed asset?

The financial statement that shows assets,liabilities,and owners' equity is known as

Why do investors require entrepreneurs to put in a lot of their own capital?

When starting a new business,entrepreneurs often know more about the opportunities and problems related to the business than do potential investors. This is known as

An investor will provide money for a new business only if she can get the money back when she wants it. This is known as

Venture capitalists

Cash is a short-term liability.

Which of the following can be used by an entrepreneur to help determine how much money will be needed to start a new business?

Investors probably will expect an entrepreneur to show a reasonable way to manage financial resources before they will invest in the new firm.

Investors in new ventures demand high rates of return for several reasons.Which of the following is NOT a reason?

Explain how you making a loan and then buying a car with the proceeds from the loan is the same thing as asset-based financing used by a business.

Total assets divided by total debt is called

A system for guaranteeing loans to new and small businesses to finance inventory or accounts receivable is offered by

In general,the introduction of the entrepreneur to the investor does not take place until the middle of the financing process.

Why might venture investors limit their investments to local entrepreneurs?

Which of the following would be a step towards increasing cash flow and attempting to keep a business from becoming insolvent?

When new ventures are very young,they rarely obtain debt financing and tend to obtain equity financing instead.

Entrepreneurship:: A Field, an Activity - and a Way of Life

Entrepreneurial Opportunities: Their Origins, Forms, and Suitability For New Ventures

Cognitive Foundations of Entrepreneurship: Creativity and Opportunity Recognition

What Entrepreneurs Need to Know Before They Start: Acquiring and Interpreting Information About Markets Competitors and Government

Assembling the Team: Acquiring and Utilizing Essential Human Capital

Writing An Effective Business Plan: Building A Road Map to Success

Legal Issues Relating To New Ventures: Protecting Your Reputation, Your Assets, And Your Ideas

Marketing in a New Venture

Strategy: Planning For Competitive Advantage

Preparing For And Attaining Growth: Strategies For Building Lasting Success

Managing New Ventures For Growth

Exit Strategies For Entrepreneurs: The Concluding Act

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