Deck 8: Small Business Financing

Question 1

The seed stage of a company is when the business is just an idea, but there is no formal venture yet

Answer 1

True

Question 2

The ultimate objective of corporate finance is to increase shareholder value

Answer 2

True

Question 3

Corporate finance theories are largely based on an assumption that investors are most of the time emotional

Answer 3

False

Question 4

The capital structure is the particular combination of debt and equity used to make up the financing of a company

Question 5

Leverage is defined as the ratio of a business equity to the debt

Question 6

If the payment is not made on time to creditors, the business risks becoming financially solvent

Question 7

Under debt financing, lenders typically receive a portion of ownership

Question 8

Equity funding places a cost on the future earnings of the business in the form of interest payments

Question 9

Equity investors have claims on the firm's profits

Question 10

According to The Pecking Order Theory (POT), equity funding is the cheapest because of the low information asymmetry

Question 11

Equity financing is always cheaper than the debt financing

Question 12

Small business owners who want to start a successful business must always reach out to venture capitalists for funding

Question 13

The number one source of funds for most new firms is the owners themselves or their family and friends

Question 14

Venture capitalists are those people who provide money in exchange for equity and loans

Question 15

An entrepreneur's own investment in business reflects his or her commitment to the business

Question 16

Venture capitalists are the most common source of external capital for established small businesses

Question 17

The interest that a business pays to the creditor is usually lower than the stated rate of interest

Question 18

Generally, the longer the maturity period of the loan, the lower the rate of interest

Question 19

Unsecured term loans are made to failed businesses that struggle to get loans from anywhere else

Question 20

The profitability of the business has no impact on the dividend amount given to equity investors

Question 21

Engaged investors contribute knowledge and skills to the firms in which they invest

Question 22

Analytical angel investors are willing to commit themselves to substantial investment activity in the informal capital market

Question 23

The Securities and Exchange commission regulates the public stock offerings

Question 24

For public stock offerings, it is mandatory that companies make financial disclosures to the public

Question 25

One advantage of crowdfunding is that ALL projects that apply to crowdfunding platforms are able to get huge funding from the ordinary crowd

Question 26

Personal finance involves having funding for:

A) Employees' salaries
B) Assets acquisition
C) Pay money to suppliers
D) All of the above

Question 27

Which of the following is a disadvantage of a debt financing?

A) No influence of lenders on management
B) Lenders have no claim in the business profit
C) Debt payments reduce the cash available to the firm
D) Managers can make financial plans well in advance

Question 28

Which of the following is an advantage of debt financing?

A) Depending on the contract, a lender may claim on the owner's personal possessions
B) If loan payments are not paid in time, a business can be forced to go bankrupt
C) Debt payments reduce the cash available to the firm
D) Managers can make financial plans well in advance

Question 29

Which of the following is NOT included in equity financing?

A) Venture capitalist
B) Angel investors
C) Bank loans
D) Crowdfunding

Question 30

Which of the following is a drawback of equity financing?

A) Investors get paid only when the business makes a profit
B) Equity investors have claim on the firm's profit
C) No principal or interest is to be made to investors
D) Equity investors may offer helpful advice and mentoring

Question 31

Which of the following is an advantage of equity financing?

A) Requires giving up a portion of ownership
B) Equity investors have claim on the firm's profit
C) Investors expect high rate of returns
D) Equity investors may offer helpful advice and mentoring

Question 32

The Pecking Order Theory (POT) is based on an assumption that:

A) Business owners always act in the best interest of the firm
B) Business owners always act in the self interest
C) Outside investors are better informed about the issues faced by firms than are business owners
D) Outside investors serve in the best interest of the firm

Question 33

Which factor must be considered in deciding which funding to be used for financing one's venture?

A) Owner's willingness to take financial risk
B) The voting control the owner wishes to retain
C) Potential profitability of the business
D) All of the above

Question 34

Which of the following is a form of internal financing for small firms?

A) Bank loans
B) Equity financing
C) Retain earning and owner's personal savings
D) Government grants

Question 35

Which of the following is a form of external financing for small firms?

A) Bank loans and Equity financing
B) Retain earning
C) Owner's personal savings
D) None of the above

Question 36

George has a business idea and he is expecting to get support from his family and friends to get funding for his business. His grandmother loves him very much and George is hoping that his grandmother would help him finance his dream. However, when he approaches his grandmother, she refuses to help him. Which of the following statement STRENGTHENS the argument that his grandmother took a right decision?

A) George and his grandmother mutually accepted the payback strategy
B) George offers his grandmother a written formal agreement to which she agreed
C) George has asked for the minimum amount that his grandmother could easily give
D) George is unwilling to invest his own savings

Question 37

According to the text, The Panel Study of Income Dynamics found about one-third of the small businesses reported receiving ________ from family members

A) Unpaid labor
B) Paid labor
C) Equity
D) None of the above

Question 38

According to the results of research conducted by the Kauffman Foundation on the funding sources of the fastest growing firms in the U.S, about two-thirds of Inc. magazine's fastest growing firms took ________to finance their business

A) Government grants
B) Venture capitalist
C) Business acquaintances
D) Personal savings

Question 39

________ is an asset that a bank can claim if the loan is not repaid as per schedule

A) Income statement
B) Credit history
C) Collateral
D) None of the above

Question 40

Interest rates for small business loans are:

A) Set by the Small business Administration
B) Not affected by the prime rates
C) Prime rate plus some additional percentage points
D) Lower than the standard rates

Question 41

Which of the following is NOT a source of debt capital?

A) Commercial banks
B) Commercial Finance companies
C) Insurance companies
D) Angel investors

Question 42

Which of the following is NOT a form of debt capital?

A) Installment loans
B) Equity
C) Balloon notes
D) Demand note

Question 43

___________ are for businesses to purchase fixed assets such as real estate and equipment

A) Demand notes
B) Balloon loans
C) Installment loans
D) Leasing

Question 44

Venture capitalists are willing to provide capital to companies:

A) With high growth potential
B) With low growth
C) In return of prime rate of interest
D) All of the above

Question 45

________are venture capitalist firms licensed by SBA to invest in small firms

A) Angel investors
B) Balloon firms
C) Small Business Investment Companies
D) Demand notes

Question 46

Which of the following characteristic is that of lotto angel investors?

A) A high investment activity level and low competence
B) A low investment activity level and high competence
C) A high investment activity level and high competence
D) A low investment activity level and low competence

Question 47

______________ have a low investment activity level and fairly high competence

A) Lotto angel investors
B) Engaged angel investors
C) Analytical investors
D) Traders

Question 48

When the company selling the stock is located and does business in only one state, and the stock is also sold within the same state, it is considered an _______

A) Intrastate stock sale
B) Interstate stock sale
C) Public offerings
D) None of the above

Question 49

The first time a firm sells its stock to the general public, it is called the ______

A) Private placements
B) Initial public offering
C) Stock sale
D) Cross-border stock sale

Question 50

Which of the following is a drawback of crowdfunding?

A) A fast way to raise money with no upfront fees
B) A good way to test the public's reaction to the product
C) Others may copy the idea
D) Helps in marketing a product