Question 1

Private investors, or angels, seek 60 to 75 percent annual return on investment, which is much higher than those of professional venture capitalists, and tend to take a 51 percent + share of the business.

Accepted Answer

A) True 
 B)False

Question 2

Regulation D Rule 504 (SCOR) offerings has a $1 million ceiling on the amount raised in any 12-month period.

Accepted Answer

A) True 
 B)False

Question 3

If an entrepreneur needs a relatively small amount of money to launch a company, angels are a primary source of funds.

Accepted Answer

A) True 
 B)False

Question 4

Approximately ________ percent of all venture capital invested comes from corporations.

Accepted Answer

A)  2 
B)  8 
C)  14 
D)  24

Question 5

A company that is experiencing rapid expansion has similar capital requirements as those of a fledgling business.

Accepted Answer

A) True 
 B)False

Question 6

On a margin loan, if the value of the borrower's investment portfolio drops, the broker can make a margin call, requiring the borrower to provide more cash or securities as collateral, within a matter of days or even hours.

Accepted Answer

A) True 
 B)False

Question 7

When a bank proves the quality of its loan decisions to the SBA and becomes a ________ lender, the bank makes the final lending decision itself, subject to SBA review.

Accepted Answer

A)  preferred 
B)  qualified 
C)  certified 
D)  LDC

Question 8

To qualify for a Rule 147 (intrastate) public stock offering, a company must ________ in the state in which it makes this offering.

Accepted Answer

A)  be incorporated and maintain its executive offices 
B)  derive 80 percent of its revenue 
C)  use 80 percent of the offering proceeds for business 
D)  All of the above

Question 9

Unable to find financing elsewhere, many entrepreneurs launch their companies using the fastest and most convenient source of debt capital available: credit cards.

Accepted Answer

A) True 
 B)False

Question 10

The biggest benefit of a public stock offering is:

Accepted Answer

A)  the capital infusion the company receives. 
B)  the ability to use its stock to acquire other companies. 
C)  a listing on a stock exchange. 
D)  the ability to use its stock to attract and retain key managers and employees.

Question 11

For small businesses, ________ are the very heart of the financial market, providing the greatest number and variety of loans to small companies.

Accepted Answer

A)  commercial banks 
B)  factors 
C)  commercial finance companies 
D)  credit unions

Question 12

Before making a loan to a business startup, banks prefer to see:

Accepted Answer

A)  sufficient cash flow generated by the business. 
B)  ample collateral for the loan amount. 
C)  an SBA guarantee to insure the loan. 
D)  All of the above

Question 13

Since their stock offerings are small, most entrepreneurs are able to take their companies public without the assistance of accountants, attorneys, and underwriters.

Accepted Answer

A) True 
 B)False

Question 14

A line of credit is a form of financing employed by sellers of big-ticket items such as cars, boats, and furniture, which the retailers pledge as collateral against the loan.

Accepted Answer

A) True 
 B)False

Question 15

A method of raising capital that taps the power of social networking and allows entrepreneurs to post their elevator pitches and proposed investment terms on specialized Web sites and raise money from ordinary people who invest as little as $100 is called:

Accepted Answer

A)  crowd funding. 
B)  angel financing. 
C)  venture capital. 
D)  bootstrapping.

Question 16

Investment bankers who underwrite public stock offerings typically look for all but which of the following characteristics in a small company?

Accepted Answer

A)  A strong record of earnings 
B)  A solid position in a stable market 
C)  Consistently high growth rates 
D)  A sound management team with experience and a strong board of directors

Question 17

The Boat and Ski Shop, a small retail boat shop, would most likely rely on which of the following methods to finance its inventory?

Accepted Answer

A)  Discounted installment contracts 
B)  Floor planning 
C)  Installment loans 
D)  Trade credit

Question 18

For small businesses going global, the SBA offers this program with a one-page loan application and a response time normally within 10 days.

Accepted Answer

A)  Export Working Capital (EW
C)  Program 
B)  International Capital Expansion (IC
E)  Program 
C)  International Trade Program 
D)  CAPLine Program

Question 19

A ________ is a hybrid between a conventional loan and a bond; at its heart it is a bond, but its terms are tailored to the borrower's individual needs, as a loan would be.

Accepted Answer

A)  private placement 
B)  industrial revenue bond 
C)  504 loan 
D)  zero coupon bond

Question 20

Mini-Case 13-2: Bowden Brake Service
Jim Bowden has been operating his business for some time now and thinks it is time to grow and expand. To compute the cost of expanding his existing business, Jim Bowden makes the following estimates:
Adjacent lot $40,000
Metal prefab building 25,000
Hydraulic lifts 15,000
Tools and equipment 9,000
Parts and inventory 5,000
Additional operating expenses 55,000
TOTAL $149,000
-Explain to Jim the possible (and realistic) sources of capital for expansion. Where would you recommend that he go for the funds he needs? Why?

Accepted Answer

The answer of Mini-Case 13-2: Bowden Brake Service
Jim Bowden has...

Exam 13: Sources of Financing: Debt and Equity

Private investors, or angels, seek 60 to 75 percent annual return on investment, which is much higher than those of professional venture capitalists, and tend to take a 51 percent + share of the business.

Regulation D Rule 504 (SCOR) offerings has a $1 million ceiling on the amount raised in any 12-month period.

If an entrepreneur needs a relatively small amount of money to launch a company, angels are a primary source of funds.

Approximately ________ percent of all venture capital invested comes from corporations.

A company that is experiencing rapid expansion has similar capital requirements as those of a fledgling business.

On a margin loan, if the value of the borrower's investment portfolio drops, the broker can make a margin call, requiring the borrower to provide more cash or securities as collateral, within a matter of days or even hours.

When a bank proves the quality of its loan decisions to the SBA and becomes a ________ lender, the bank makes the final lending decision itself, subject to SBA review.

To qualify for a Rule 147 (intrastate) public stock offering, a company must ________ in the state in which it makes this offering.

Unable to find financing elsewhere, many entrepreneurs launch their companies using the fastest and most convenient source of debt capital available: credit cards.

The biggest benefit of a public stock offering is:

For small businesses, ________ are the very heart of the financial market, providing the greatest number and variety of loans to small companies.

Before making a loan to a business startup, banks prefer to see:

Since their stock offerings are small, most entrepreneurs are able to take their companies public without the assistance of accountants, attorneys, and underwriters.

A line of credit is a form of financing employed by sellers of big-ticket items such as cars, boats, and furniture, which the retailers pledge as collateral against the loan.

A method of raising capital that taps the power of social networking and allows entrepreneurs to post their elevator pitches and proposed investment terms on specialized Web sites and raise money from ordinary people who invest as little as $100 is called:

Investment bankers who underwrite public stock offerings typically look for all but which of the following characteristics in a small company?

The Boat and Ski Shop, a small retail boat shop, would most likely rely on which of the following methods to finance its inventory?

For small businesses going global, the SBA offers this program with a one-page loan application and a response time normally within 10 days.

A ________ is a hybrid between a conventional loan and a bond; at its heart it is a bond, but its terms are tailored to the borrower's individual needs, as a loan would be.