Exam 12: A Firms Sources of Financing

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

Match the term with its definition. a.Balloon payment b.Business angels c.Chattel mortgage d.Crowdfunding e.Factoring f.Initial public offering g.Loan covenants h.Private placement i.Real estate mortgage j.Venture capitalist -What are the trade-offs between profitability, risk and control that should be considered when choosing between debt and equity?

David is trying to decide whether to add capital through investing more of his own money or through borrowing money from the bank.To help him decide, you remind him that as long as his business's rate of return on its assets is greater than the cost of the debt, his rate of return on equity will _____ as the business uses more debt.

If the business's rate of return on its assets is _____ than the cost of borrowing, then the owners' rate of return on equity will _____ as the business uses _____ debt.

Debt financing as opposed to equity financing allows owners to retain voting control of the company.

Equity can be sold to underwriters, but they do not guarantee the sale of securities.

Anna's new business looks like it can grow quickly and become profitable in its first year.Anna will likely find _____ possible sources of financing than those with less potential for growth and profits.

Sandra is a business angel who is looking for a start-up company in which to invest.Which company would she most likely invest in based on current research?

Match the term with its definition. a.Asset-based loan b.Basis point c.Chattel mortgage d.Equipment loan e.JIBAR (Johannesburg Inter-Bank Agreed Rate) f.Line of credit g.Prime rate h.Purchase-order financing i.Term loan -A line of credit secured by working capital assets.

Use of debt financing increases potential returns when a company is performing well, but it also increases the possibility of lower - even negative - returns if the company does not attain its goals in a given year.

Discuss business traits that business angels look for in prospective investments.What are typical motivations?

The basic factors that determine how a business is financed are restricted to the business's past economic performance, the nature of its assets, and the personal preferences of owner(s) with respect to the marketing mix.

Andrew is a venture capitalist who would like to find a good new business in which to invest.He's done this before so he has learned to limit his investing to businesses with potentially high returns in a _____ period.

Asset-based lending is a type of financing secured by assets such as equipment and inventory.

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

Joann is buying an existing convenience store.When she considers which bank to use, her best choice would be:

When a share sale is restricted to private placement, an entrepreneur can avoid many of the demanding requirements of the securities laws.

Fans set up a crowdfunding account to produce new, not-for-profit episodes of Egoli.This type of crowdfunding uses the ___________ approach.

When Sibusiso left the corporate rat race to start his own pottery business, he used some of his retirement savings to finance the business.This practice is known as:

Floyd's income statement showed for the current year his company had an operating income of R45 000 and his balance sheet showed total assets of R300 000.His return on assets is _________ per cent.