Deck 10: Financial Management

Question 1

The limited liability company is an organizational form that is seen to be in use in the banking and insurance industries.

Answer 1

False

Question 2

The acquisition of equity partners means more profit to the business owner.

Answer 2

False

Question 3

Under the SBA's Export Express Program, financing can be made only in the form of a term loan.

Answer 3

False

Question 4

From a financial standpoint, sole proprietorships offer a few advantages over partnerships.

Question 5

Trade credit allows someone to acquire inventory of materials and supplies without having the full price at the time of purchase.

Question 6

Patriot express loans can be used for starting a business, real estate purchases, working capital, expansions, and helping the business if the owner should be deployed.

Question 7

A limited liability company is an organizational form that can be limited to a single individual or several other owners or shareholders.

Question 8

Generation of internal funding means that a business plows its retained earnings back into the business.

Question 9

Neither the cost of issuing stock nor dividend payments is tax deductible, whereas interest payment on debt is deductible and therefore will lower a business's tax bill.

Question 10

It is much more likely that angel investors, as compared to venture capitalists, will play a much more active role in the decision-making process of the small business.

Question 11

Because a single proprietorship is not a legal entity, any income generated by the business goes directly on the owner's personal tax return.

Question 12

Like a general partnership, there is a requirement in limited liability companies for documents that define the distribution of responsibilities, profits, or losses.

Question 13

A general partnership is comparable to a sole proprietorship in that neither is a taxable entity; therefore, the partners' profits are taxed as personal income.

Question 14

The Community Adjustment and Investment Program is designed to assist businesses that might have been adversely impacted by NAFTA.

Question 15

Many students find funding to start up a business through business plan competitions, which are often hosted by colleges and universities or small business associations.

Question 16

The loans programs used by the SBA cannot be used to refinance existing debt, to pay delinquent taxes, or to change business ownership.

Question 17

The term financial leverage can be seen as being comparable to the base word-lever; a certain level of debt can amplify the "lifting" power of a business.

Question 18

In S-corporations, a failure to comply with the definition of "reasonable" salary means that the IRS can reclassify the profits as wages and tax the amount at the personal income rate.

Question 19

Some firms may choose to finance business operations by using either personal or corporate credit cards, which can be extraordinarily expensive given the interest rates charged on credit cards and the possibility that the credit card companies may change the credit limit associated with the credit card by a significant amount.

Question 20

In most cases, owners of preferred stock have what are known as voting rights.

Question 21

Which of the following is a feature of equity financing?

A) It represents a legal obligation to repay the original debt plus interest.
B) It involves pledging some assets-such as a home, real estate, machinery, and plant-as collateral.
C) It involves no explicit obligation or expectation, on the part of the investors, to be repaid their investment.
D) It specifies the amount of money to be repaid within a specific time frame for a specific interest rate.
E) It guarantees a portion of the loan to its partners that include private lenders, microlending institutions, and community development organizations.

Question 22

A general partnership is:

A) the most basic type of business organization in which there is only one owner.
B) a legal entity that must be chartered by the state in which it is headquartered, giving it the authority to enter into legal agreements with individuals and other corporations.
C) a special format designed to eliminate the problem of double taxation that one might find with a C-corporation format.
D) a business that may have several general partners and several more limited partners who do not have unlimited liability.
E) a business composed of two or more owners who contribute the initial capital of the business and share in the profits and any losses.

Question 23

Which of the following is an indirect factor that effects the selection of form adopted for a business?

A) Tax issues
B) Expected profits or losses
C) Vulnerability and threat from lawsuits
D) Relationship that the owner would have with partners or investors
E) Ability to extract profits from the business for the owner's use

Question 24

Which of the following is true about common stock?

A) Owners of common stock pledge some assets as collateral.
B) Owners of common stock have voting rights.
C) Owners of common stock remain under a legal obligation to repay the original debt plus interest.
D) Owners of common stock get a fixed amount of money within a given time frame while receiving interest payments on a regular basis.
E) Owners of common stock get a form of guaranteed dividend.

Question 25

Which of the following is a direct factor that effects the selection of form adopted for a business?

A) The extent to which a business owner wishes to attain control of the business
B) The expected profits or losses arising from the business
C) The perceived risk associated with the business
D) The relationship that the owner would have with partners or investors
E) The subgroups of the total population that will behave the same way in the marketplace

Question 26

Which of the following SBA loan programs aids companies negatively impacted by the North American Free Trade Agreement (NAFTA)?

A) Express and pilot program
B) Special-purpose loans program
C) Community express program
D) Export working capital program
E) Export express program

Question 27

Total variable costs are those costs that change across the volume of production.

Question 28

Business owners should be aware of their own business as well as their business's creditworthiness.

Question 29

The S-corporation is:

A) a business composed of two or more owners who contribute the initial capital of the business and share in the profits and any losses.
B) a business that may have several general partners and several more limited partners who do not have unlimited liability.
C) a legal entity that must be chartered by the state in which it is headquartered, giving it the authority to enter into legal agreements with individuals and other corporations.
D) a special format that sets its limit to a hundred shareholders, although it can be created with just one shareholder.
E) an organizational form that can be limited to a single individual or several other owners or shareholders.

Question 30

The point at which the valuation of a firm is maximized determines the optimal capital structure of the business.

Question 31

The financial equivalent of customer segmentation examines the profitability of different groups of customers.

Question 32

A C-corporation is:

A) a legal entity that must be chartered by the state in which it is headquartered, giving it the authority to enter into legal agreements with individuals and other corporations.
B) the most basic type of business organization in which there is only one owner.
C) a business composed of two or more owners who contribute the initial capital of the business and share in the profits and any losses.
D) a business that may have several general partners and several more limited partners who do not have unlimited liability.
E) an organizational form that can be limited to a single individual or several other owners or shareholders.

Question 33

Total costs are seen as being composed of two parts: fixed costs and total variable costs.

Question 34

A breakeven analysis is remarkably useful to someone considering starting up a business.

Question 35

Through activity-based accounting, a business may discover that some customer groups are actually a source of losses for the firm.

Question 36

A limited partnership is:

A) the most basic type of business organization in which there is only one owner.
B) a legal entity that must be chartered by the state in which it is headquartered, giving it the authority to enter into legal agreements with individuals and other corporations.
C) a business that may have several general partners and several more limited partners who do not have unlimited liability.
D) a special format designed to eliminate the problem of double taxation that one might find with a C-corporation format.
E) an organizational form that can be limited to a single individual or several other owners or shareholders.

Question 37

When a firm exceeds a particular value of financial leverage, the overall value of the firm begins to decline.

Question 38

If the NPV of a firm is negative, then it should undertake the investment; if it is positive, the firm should not undertake the investment.

Question 39

Which of the following is true of Small Business Administration (SBA)?

A) It involves no explicit obligation or expectation, on the part of the investors, to be repaid their investment.
B) It represents a legal obligation to repay the original debt plus interest.
C) It involves pledging some assets-such as a home, real estate, machinery, and plant-as collateral.
D) It specifies the amount of money to be repaid within a specific time frame for a specific interest rate.
E) It guarantees a portion of the loan to its partners that include private lenders, microlending institutions, and community development organizations.

Question 40

Fixed costs exist only when a firm produces a product.

Question 41

Which of the following SBA loan programs are designed to assist members of the US military who wish to create or expand a small business?

A) Express and pilot programs
B) Special-purpose loans programs
C) Community express programs
D) Patriot express loan programs
E) Export express programs

Question 42

Which of the following factors of the CAMPARI approach deals with the problem that even the most scrupulously developed sales and profit projections might not pan out to successfully repay the loan?

A) Place
B) Purpose
C) Character
D) Insurance
E) Alliance

Question 43

The 'P' in the banker's CAMPARI approach for reviewing a perspective loan applicant stands for:

A) price.
B) product.
C) purpose.
D) place.
E) promotion.

Question 44

Trade credit involves:

A) no explicit obligation or expectation, on the part of the investors, to be repaid their investment.
B) purchasing supplies or equipment through financing made available by vendors.
C) pledging some assets-such as a home, real estate, machinery, and plant-as collateral.
D) guaranteeing a portion of the loan to partners that include private lenders, microlending institutions, and community development organizations.
E) business plan competitions hosted by colleges and universities or small business associations.

Question 45

Cost of capital is the:

A) amount of sales volume a company needs to start making a profit.
B) weighted average of a firm's debt and equity, where equity directly relates to a firm's stock.
C) legal obligation to repay original debt plus interest.
D) money raised by selling a certain share of the ownership of the business.
E) supply purchased through financing made available by vendors.

Question 46

A breakeven analysis is used to:

A) determine the amount of sales volume a company needs to start making a profit.
B) utilize personal, family, or friends' money to start a business.
C) represent a legal obligation to repay original debt plus interest.
D) raise money by selling a certain share of the ownership of the business.
E) purchase supplies or equipment through financing made available by vendors.

Question 47

Which of the following factors of the CAMPARI approach refers to a business's ability to function in a way so that it can repay the loan?

A) Means
B) Purpose
C) Amount
D) Insurance
E) Alliance

Question 48

Which of the following is a feature of the breakeven analysis?

A) It assumes that a firm is selling more than one products at a particular price.
B) It assumes that the production cost per unit is a variable.
C) It examines a business's fixed costs only.
D) It requires that total revenues should be lower than total costs.
E) It translates into a situation in which the profit level of a firm is zero.

Question 49

Which of the following sources of fund acquisitions are promissory notes?

A) Equity financing
B) Stocks
C) Bonds
D) Internally generated funds
E) Trade credits

Question 50

Which of the following SBA loan programs are designed to assist borrowers whose businesses are located in economically depressed regions of the country?

A) Express and pilot programs
B) Special-purpose loans programs
C) Community express programs
D) Export working capital programs
E) Export express programs

Question 51

A request for loan with the argument that having more money is better for the business than having less money does not conform to which of the following factors of the CAMPARI approach?

A) Means
B) Purpose
C) Amount
D) Insurance
E) Alliance

Question 52

Which of the following is a reason for not increasing a business's financial leverage?

A) It can have a positive impact on the business's return on equity.
B) The business can be grown with someone else's money.
C) The interest on debt has a deductible nature.
D) It may lead to an inability to pay the interest on the debt.
E) It decreases a business's overall risk.

Question 53

When considering a loan decision, bankers consider several factors which can be termed as the:

A) net present value (NPV) approach.
B) cost of capital approach.
C) breakeven analysis.
D) CAMPARI approach.
E) cloud computing approach.

Question 54

Given that the total costs equal the fixed costs plus the total variable costs, this equation can now be extended as:

A) SP / Q = FC + TVC.
B) Q × (SP − VC) = FC + TVC.
C) SP × Q = FC + TVC.
D) SP / Q = TC.
E) SP × Q = TC - FC.

Question 55

Which of the following is a feature of the SBA and Ex-Im Bank Coguarantee Program?

A) It is an extension of the Export Working Capital Program and deals with expanding a business's export working capital lines up to $2 million.
B) It is designed to assist businesses that might have been adversely impacted by NAFTA.
C) It is designed to assist borrowers whose businesses are located in economically depressed regions of the country.
D) It is designed to assist members of the US military who wish to create or expand a small business.
E) It can provide for funds up to $500,000 worth of financing, which can be either a term loan or a line of credit.

Question 56

Which of the following is one of the reasons for attempting to increase a business's financial leverage?

A) It can have a positive impact on the business's return on equity.
B) The business has to be grown with one's own money.
C) The interest on debt has a non-deductible nature.
D) It may lead to an inability to pay the interest on the debt.
E) It increases a business's overall risk.

Question 57

Which of the following SBA loan programs has a rapid turnaround time to support export-based activities and can provide for funds up to $500,000 worth of financing?

A) Export Working Capital Program
B) Special-purpose loans program
C) Community express program
D) Patriot express loan program
E) Export express program

Question 58

Which of the following SBA loan programs can respond to a loan application within thirty-six hours while also providing lower interest rates?

A) Express and pilot programs
B) Special-purpose loans programs
C) Community express programs
D) Export working capital programs
E) Export express programs

Question 59

Which of the following factors of the CAMPARI approach deals with the capacity to repay the principal and the interest of a loan in a timely fashion?

A) Alliance
B) Purpose
C) Amount
D) Insurance
E) Ability

Question 60

Which of the following factors of the CAMPARI approach refers to demonstrating a firm's ability to repay both the interest and the principal?

A) Place
B) Purpose
C) Character
D) Alliance
E) Repayment

Question 61

A(n) _____ is the most basic type of business organization in which there is only one owner.

Question 62

The _____ examines a business's potential costs-both fixed and variable-and then determines the sales volume necessary to produce a profit for given selling price.

Question 63

By increasing a business's proportion of debt, its financial leverage can be _____.

Question 64

The term e-procurement:

A) refers to having software programs and databases located on an outsourced site.
B) involves purchasing of supplies through the Internet and timing of invoices to customers and from suppliers to improve the cash flow of a firm.
C) refers to a private network within a business that is used for information sharing, processing, and communication.
D) involves a Web page that can be viewed and modified by anybody with a web browser and access to the Internet unless it is password protected.
E) refers to the part of an intranet that is made available to business partners, vendors, or others outside a company.

Question 65

An accounting system where costs are assigned due to the cause-and-effect relationship between costs and the activity that drives the cost is known as:

A) activity-based costing system.
B) net present value (NPV) system.
C) breakeven analysis system.
D) CAMPARI activity system.
E) cloud computing system.

Question 66

The _____ has a large number of programs designed to help small businesses which include the business loan programs, investment programs, and bonding programs.

Question 67

Which of the following factors of cloud computing means having multiple members of an organization successfully working together?

A) Scalability
B) Updates
C) Integration
D) Security
E) Customization

Question 68

A(n) _____ is an accounting system where costs are assigned due to the cause-and-effect relationship between costs and the activity that drives the cost.

Question 69

A critical component of financial planning for any business is _____ which is the extent to which a firm will be financed by debt and by equity.

Question 70

_____ is often expressed in terms of three important numbers-a discount rate, the number of days for one to pay to qualify for the discount, and the number of days on which the bill must be paid.

Question 71

The exact proportion of ownership of a general partnership firm is generally found in a written document known as the _____.

Question 72

As part of the simplifying assumptions of the breakeven analysis, it is assumed that there is a(n) _____ unit cost of production.

Question 73

Which of the following is a term that refers to having software programs and databases located on an outsourced site?

A) Net present value (NPV)
B) Cost of capital
C) Breakeven analysis
D) CAMPARI approach
E) Cloud computing

Question 74

As production increases, the total variable cost will _____.

Question 75

The term _____ refers to the situation in which vendor software does not reside on the computer system of a small business.

Question 76

To correctly analyze a firm's investment opportunity, the owners should employ several financial tools and methods, such as:

A) net present value (NPV).
B) cost of capital.
C) breakeven analysis.
D) CAMPARI approach.
E) cloud computing.

Question 77

The term _____ refers to using personal, family, or friends' money to start a business.

Question 78

Corporations are owned by their _____ who are liable only for their original investment in the business; they cannot be sued for more than that amount.

Question 79

In C-corporations, _____ paid to shareholders, unlike interest expenses, are not deductible.

Question 80

_____ involves the purchasing of supplies through the Internet and the timing of invoices to customers and from suppliers to improve the cash flow of the firm.