Question 1

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.

Accepted Answer

A) True 
 B)False

Question 2

A firm with potential for large profits has many more possible sources of financing than does a firm that offer only unattractive returns, but high growth potential does not seem to have a similar effect on financing options.

Accepted Answer

A) True 
 B)False

Question 3

The public sale of a firm's common stock is regulated by the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Question 4

The tradeoffs that must be understood between debt or equity financing include the following except

Accepted Answer

A)  potential profitability. 
B)  financial risk. 
C)  voting control. 
D)  return on assets.

Question 5

What are the "five C's of credit"?

Accepted Answer

The answer of What are the "five C's of credit"?...

Question 6

Small Business Administration loans include guaranty loans and loans directly from the SBA.

Accepted Answer

A) True 
 B)False

Question 7

Though not as common as using personal savings, one of the more often used sources of financing is

Accepted Answer

A)  asset-based lenders. 
B)  personal charge card accounts. 
C)  wealthy individuals. 
D)  venture capitalists.

Question 8

Approximately one-half of the financing for startups comes from personal savings.

Accepted Answer

A) True 
 B)False

Question 9

The five Cs of credit are character, capacity, capital, conditions, and collateral.

Accepted Answer

A) True 
 B)False

Question 10

What are the tradeoffs between profitability, risk, and control that should be considered when choosing between debt and equity?

Accepted Answer

The answer of What are the tradeoffs between profitability, risk,...

Question 11

When it comes to financing a company, a banker looks at two kinds of assets:

Accepted Answer

A)  direct and indirect. 
B)  tangible and intangible. 
C)  those founded upon past performance and those depending on future performance. 
D)  industry-specific and firm-specific.

Question 12

Typical venture capitalists invest approximately _____ of their investment in later-stage businesses.

Accepted Answer

A)  one-fourth 
B)  one-half 
C)  three-fourths 
D)  nearly all

Question 13

Assets such as the quality of a firm's employees are considered tangible in nature and thus have substantial value as collateral.

Accepted Answer

A) True 
 B)False

Question 14

Term loans are generally used to finance equipment with a useful life _____ the loan's term.

Accepted Answer

A)  equal to 
B)  longer than 
C)  less than one-half 
D)  greater than one-half

Question 15

A line of credit is the _____ amount of credit a bank will provide a borrower at any one time.

Accepted Answer

A)  average 
B)  annual 
C)  maximum 
D)  minimum

Question 16

Lines of credit are legal obligations to provide capital.

Accepted Answer

A) True 
 B)False

Question 17

Private placement

Accepted Answer

A)  is the sale of capital stock to selected individuals. 
B)  is the sale of capital stock to investment bankers. 
C)  requires compliance with all securities laws. 
D)  maintains the ownership control of the original owners.

Question 18

The following are key terms included in all bank loan agreements except

Accepted Answer

A)  interest rate 
B)  maturity date 
C)  repayment schedules 
D)  insurance coverage

Question 19

Prospective entrepreneurs will usually acquire their initial financing from

Accepted Answer

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

Question 20

The return on the owner's investment (equity) is a better measure of performance than

Accepted Answer

A)  the return on assets ratio. 
B)  the current ratio. 
C)  the quick ratio. 
D)  the absolute dollar amount of income.

Exam 12: A Firms Sources of Financing

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.

A firm with potential for large profits has many more possible sources of financing than does a firm that offer only unattractive returns, but high growth potential does not seem to have a similar effect on financing options.

The public sale of a firm's common stock is regulated by the Securities and Exchange Commission.

The tradeoffs that must be understood between debt or equity financing include the following except

What are the "five C's of credit"?

Small Business Administration loans include guaranty loans and loans directly from the SBA.

Though not as common as using personal savings, one of the more often used sources of financing is

Approximately one-half of the financing for startups comes from personal savings.

The five Cs of credit are character, capacity, capital, conditions, and collateral.

What are the tradeoffs between profitability, risk, and control that should be considered when choosing between debt and equity?

When it comes to financing a company, a banker looks at two kinds of assets:

Typical venture capitalists invest approximately _____ of their investment in later-stage businesses.

Assets such as the quality of a firm's employees are considered tangible in nature and thus have substantial value as collateral.

Term loans are generally used to finance equipment with a useful life _____ the loan's term.

A line of credit is the _____ amount of credit a bank will provide a borrower at any one time.

Lines of credit are legal obligations to provide capital.

Private placement

The following are key terms included in all bank loan agreements except

Prospective entrepreneurs will usually acquire their initial financing from

The return on the owner's investment (equity) is a better measure of performance than