Deck 14: Sources of Financing

Question 1

Crowdfunding is the process of raising very small investments from a large number of investors via the Internet.

Answer 1

True

Question 2

An IPO is the sale of stock to the general public.

Answer 2

True

Question 3

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

Answer 3

False

Question 4

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

Question 5

Trade credit is offered by banks for a very short-term.

Question 6

More debt than equity financing results in higher potential return on investment for owners.

Question 7

Leasing is a way to provide a hedge against equipment obsolescence.

Question 8

Business angels form investment groups that invest in new ventures.

Question 9

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

Question 10

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

Question 11

A borrower will pay less with an equal monthly repayment schedule.

Question 12

A company that has more equity than debt financing his higher financial risk.

Question 13

IRAP specializes in matching people in need of work with small service companies.

Question 14

A real estate mortgage requires capital such as machinery for collateral.

Question 15

An entrepreneur at start-up when cash flow is very tight will prefer an equal monthly repayment schedule for a bank loan.

Question 16

One of the 5 Cs of credit a banker considers when making a loan decision is "capability".

Question 17

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

Question 18

The owner of a printing company has arranged an asset-based loan to purchase a new cutting machine.The bank will use the cutting machine as collateral for the loan.

Question 19

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

Question 20

PEMD is a program that helps companies develop international business.

Question 21

A business owner wishes to arrange an asset-based loan with his bank.What accounting information will the bank required for this type of loan?

A) land and buildings
B) accounts receivable and inventory
C) equipment and buildings
D) inventory and equipment

Question 22

In the rewards approach to crowdfunding,supporters receive a percentage of ownership of the new venture.

Question 23

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?

A) a patent the company has for its unique product
B) goodwill from past good performances and customer satisfaction
C) property the company owns and will build on in the future
D) the trademark of the company's very well-known logo

Question 24

An entrepreneur prefers debt over equity financing.Where would the entrepreneur have the best chance of securing a business loan?

A) credit card companies
B) venture capitalists
C) local bank
D) credit union

Question 25

The owners of an amusement park want to finance the purchase of a new roller coaster using the roller coaster as collateral for the financing.What type of arrangement should the owners make with their bank?

A) line of credit
B) chattel mortgage
C) term loan
D) real estate mortgage

Question 26

Barclay financed the purchase of inventory from suppliers by borrowing money from his company's bank.A condition of the loan was the requirement for Barclay to provide monthly financial statements to the bank's manager.What is the condition called?

A) company liability
B) loan negotiation
C) promissory note
D) loan covenant

Question 27

What does the amount of trade credit available to a new company depend on?

A) size of the company
B) industry the company is in
C) confidence the supplier has in the company
D) personal collateral the owner of the company pledges

Question 28

A banker will offer the prime rate to a borrower that has a questionable credit history.

Question 29

Through which entity does the federal government provide funds to small business?

A) venture capital companies
B) the CSBFP
C) business angels
D) trust companies

Question 30

A firm's economic potential will directly impact how it is financed.

Question 31

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

Question 32

The BDC is a provincial government organization providing a number of services for entrepreneurs such as financing and consulting services.

Question 33

Love money is a type of private placement.

Question 34

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?

A) private placement
B) IPO
C) debt financing
D) bootstrapping

Question 35

The choice of financing will affect the company's return on equity.

Question 36

What entity would find trade credit useful?

A) employees
B) retailers
C) investors
D) consumers

Question 37

Tristan has developed a phone app and is hesitant about making an agreement with a venture capitalist willing to finance the start-up.What would make Tristan hesitant?

A) having an exit strategy like a buyout that the venture capitalist would not be in favour of
B) the venture capitalist wanting the company to grow too slowly
C) the high interest to be paid on the venture capitalist's financing
D) the control over the company the venture capitalist will exert

Question 38

An entrepreneur needs cash in a hurry and sells her accounts receivable to a firm for fee.This is an example of factoring.

Question 39

The CSBFP is a federal government program that provides financing to small businesses through private lenders.

Question 40

Younger and smaller companies have more access to bank credit than larger older firms since they require less funding and therefore carry less risk.

Question 41

What is the most frequent source of financing?

A) asset-based lenders
B) personal savings
C) wealthy individuals
D) venture capitalists

Question 42

Because of the high risk and relatively small amount of cash required to start his business,Graham is turned down by traditional creditors.However,a wealthy individual believing in Graham and the business agrees to finance the start-up.What is this wealthy individual called?

A) venture capitalist
B) business angel
C) private bank
D) credit specialist

Question 43

Camilla calls a meeting with the other major stock holders of the company who make up the board of directors.Camilla wants to finance a marketing strategy by securing a long-term note with the company's bank as opposed to selling more shares.What will this do to the financial risk of the company?

A) The financial risk will be lower.
B) The financial risk will be higher.
C) The financial risk won't change.
D) Only the minority shareholders will bear the risk.

Question 44

Sybil is always promoting her company.She can clearly and succinctly describe her company,the products,the target market,and the potential all within 30 seconds.What is this an example of?

A) elevator pitch
B) executive summary
C) sales deck
D) market call

Question 45

Maurizio's wants to import authentic olive oil from Italy for his world food venture.He creates a website to raise the required capital through crowdfunding.If the money raised is sufficient each contributor would receive a bottle of the authentic olive oil.What approach to crowdfunding did Maurizio use?

A) donation
B) rewards
C) pre-purchases
D) equity investing

Question 46

The owners of a company change their decision to finance by issuing more shares.Instead,they take out a long-term note with their bank.What will be the repercussions of this change in decision?

A) return on assets will increase
B) return on assets will be unaffected
C) financial risk will be lower
D) financial risk will be unaffected

Question 47

The owner of a newsprint business would like to approach her bank to finance the purchase of a high speed cutting machine.What type of arrangement should make with her bank?

A) line of credit
B) mortgage
C) term loan
D) credit card increase

Question 48

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

A) how the profits will be distributed
B) the number of years before making a profit
C) the currency of the profit
D) rate of return on the investment

Question 49

Jasper needs $1,000 quickly to pay for booth space at a very prestigious trade show.Her friends and family have already loaned her money and she has no business assets.How should Jasper pay for the trade show?

A) line of credit
B) mortgage
C) term loan
D) credit card

Question 50

At start-up Karen had to find unique ways to finance her business.She used her credit cards,talked to friends,sold personal assets,and used initial company profits to be re-invested in the business.What is this kind of financing called?

A) bootstrapping
B) equity financing
C) debt financing
D) love money

Question 51

Camilla purchases a drying machine for her floral designs and arranges an equipment loan with the supplier.The drying machine is priced at $4,000.How much down payment will be required from Camilla?

A) $700-$800
B) $800-$920
C) $920-$1,000
D) $1,000-$1,400

Question 52

The owner of a new wholesale company knows he will need to use as much cash as possible to market his company and build a sales team.Which loan payment schedule would he prefer?

A) equal monthly payments
B) decreasing monthly payments
C) straight-line payments
D) amortized payments

Question 53

Bill and his wife decided to raise capital for their pet sitting service through crowdfunding.Everyone that contributed received a pet photo frame.What approach to crowdfunding did Bill and his wife use?

A) donation
B) rewards
C) pre-purchases
D) equity investing

Question 54

Which margin formula do banks generally apply to loans on the basis of a line of credit?

A) 10 percent of the value of accounts receivable plus 60 percent of inventory
B) 50 to 80 percent of the value of accounts receivable plus 50 percent of inventory
C) 20 percent of the value of accountants receivable plus 20 percent of inventory
D) 30 percent of the value of accounts receivable plus 15 percent of inventory

Question 55

What is required of a firm to be eligible for IRAP funding?

A) It assists them in marketing their products within Canada.
B) It assists them in financing commercial start-ups in less-developed areas of Canada.
C) It assists them in marketing their products abroad through financial assistance to visit foreign markets or attend international trade shows.
D) It assists them by providing insurance for Canadian exporters.

Question 56

What is the traditional way to locate business angels?

A) through business associates,accountants,and lawyers
B) through formal angel networks or clubs
C) through advertisements in magazines
D) through friends and relatives

Question 57

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?

A) $1,200-$3,200
B) $3,200-$4,000
C) $4,000-$6,000
D) $6500-$10,000

Question 58

Jaspreet is requesting a loan from his company's bank.The bank manager is very happy when Jaspreet needs financing.Her bank has been helping her grow her business for the past 11 years and Jaspreet has never missed a loan payment.What interest rate will the manager offer Jaspreet?

A) commercial rate
B) term rate
C) prime rate
D) secondary rate

Question 59

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?

A) kiting
B) declining
C) liquidating
D) factoring

Question 60

Why do some lenders require a firm to "clean up" their line of credit one month each year?

A) because such a loan can only be outstanding for a maximum of 11 months
B) because each year a new rate of interest is applied to the outstanding balance
C) to help the firm develop a good credit history so it can borrow larger amounts in the future
D) to ensure the loan is being used for business purposes only

Question 61

What does CSBFP stand for?

A) Credit and Support for Business by Financing Programs
B) Canada Strategic Business Financing Program
C) Credit for Small Business Financing Program
D) Canada Small Business Financing Program

Question 62

Partners that own a ski resort are requesting a loan from their bank for $175,000 to upgrade the resort's main chair lift.What information will the bank want to know?

A) company's forecasted sales
B) value of the company's accounts receivable
C) value of the company's inventory
D) credit history of each of the company's partners

Question 63

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 5 years.What else with the bank want to know?

A) when the money will be needed
B) the names of all the owners in the company
C) the size of the company's receivables
D) forecasts for the new market

Question 64

What does a banker evaluate to determine a company's capacity to repay a bank loan?

A) the firm's credit history
B) the firm's ability to generate cash flows
C) the collateral used to secure the loan
D) the character of the owners of the business

Question 65

An entrepreneur with a patent on a cyber-security software system was able to get financing from a venture capitalist for his start-up.What did the venture capitalist likely evaluate about the start-up that led to the financing?

A) start-up is in the technology industry
B) entrepreneur has a patent
C) projected growth rate exceeds 40%
D) entrepreneur agreed to a loan

Question 66

What are the 5 Cs of credit that bankers refer to when making a loan decision?

A) character,capacity,capital,collateral,and costs
B) character,capacity,capital,collateral,and credit
C) character,capacity,capital,collateral,and conditions
D) character,capacity,capital,collateral,and collections

Question 67

After being turned down from the banks to provide her with start-up capital for a new venture,Juanita borrows money from a close friend a lower interest rate.What should Juanita do regarding this loan?

A) Put the terms of the loan in writing.
B) Slowly pay the loan since the interest rate lower.
C) Offer her friend shares in the company.
D) Allow her friend to help make operating decisions.

Question 68

Where do prospective entrepreneurs usually acquire their initial financing?

A) venture capitalists
B) personal savings
C) wealthy individuals
D) the securities market

Question 69

Nigel decides to issue more shares to raise capital so that he can purchase a high-speed printer for his media business.What will be the repercussions of this decision?

A) voting control will decrease
B) voting control will be unaffected
C) financial risk will be higher
D) financial risk will be unaffected

Question 70

Why might a company choose to increase its debt rather than issue stock?

A) to limit the potential rate of return to owners
B) to require owners to give up some voting control
C) to reduce financial risk
D) to retain full ownership and control

Question 71

At a meeting of major stock holders a decision is made to finance expansion to overseas markets by issuing more shares and not taking a long-term note with the company's bank.One of the stock holders opposed this decision but was out-voted.Why would this stock holder oppose this decision?

A) Issuing shares will increase the likelihood of decreasing the owners return on investment.
B) The financial risk would be lower if the note was taken out with the bank.
C) More shares will increase their control but increase their personal taxes.
D) Each of the shareholders would have to increase their own investment.

Question 72

Giovani is selling common stock to raise funds for his company's growth.He is only selling stock to several family members and business acquaintances.What is this sale of stock called?

A) private placement
B) IPO
C) debt financing
D) bootstrapping

Question 73

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

A) equal monthly payments
B) decreasing monthly payments
C) straight-line payments
D) amortized payments

Question 74

How does the Program for Export Market Development (PEMD)assist Canadian businesses?

A) It assists them in marketing their products within Canada.
B) It assists them in financing commercial start-ups in less-developed areas of Canada.
C) It assists them in marketing their products abroad through financial assistance to visit foreign markets or attend international trade shows.
D) It assists them by providing insurance for Canadian exporters.

Question 75

Which statement best describes trade credit (accounts payable)?

A) It is extended by suppliers.
B) It is financed on trade debit account cards.
C) It has higher interest charges than credit cards.
D) It is a product on consignment that is paid for when used.

Question 76

Having been turned down by her bank for a business loan,Pauline creates a website to invite the general public to invest in her organic lunch service for school children.What kind of financing is this called?

A) private placement
B) initial public offering
C) crowdfunding
D) bootstrapping

Question 77

Jennifer has a patent for her software and feels the potential for profits is very high given the current market.Even though she is a one-person business at start-up she is confident she will be able to secure financing.What else does Jennifer need to know to determine how her business will financed?

A) sales of her closest competition
B) preference for debt or equity
C) demographics of her target market
D) projected salaries of the company's executives

Question 78

Where do over half of the funds venture capital firms raise to invest come from?

A) overseas investors
B) American investors
C) Canadian investors
D) large investment firms

Question 79

Caitlin is studying entrepreneurship and interviews a business owner.She asks the owner how she financed the preparation of the business plan.What would the business owner's response most likely be?

A) personal savings
B) commercial banks
C) business suppliers
D) asset-based lenders

Question 80

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) when the money will be needed
B) the names of all the owners in the company
C) the size of the company's receivables
D) forecasts for the new market