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MGT 241 Midterm Ch. 8

Use of debt to finance a new venture involves a payback of funds plus an interest fee for the use of the money.
True
The most common sources of debt financing are commercial banks.
True
Sources of debt financing include trade credit, accounts receivables, factoring, and finance companies.
True
Equity financing is money invested in the venture with legal obligations to repay the principal amount of interest or interest rate on it.
False
Public offering is a term used to refer to corporations taking public donations to raise capital.
False
Because the advantages of going public outweigh the disadvantages, it is in a corporation’s best interest to go public.
False
History and nature of the company, capital structure, and description of any material contracts are just a few examples of the specific detailed information that must be presented about a firm that is going public.
True
Private placement is a method of raising capital through the private placement of securities.
True
Regulation D augments the regulations for reports and statements required for selling stock to private parties, friends, employees, customers, relatives, local professionals.
False
Sophisticated investors are wealthy individuals who invest more or less regularly in new and/or early- and late-stage ventures.
True
Venture capitalists are a valuable source of equity funding for new ventures.
True
The venture capital pool is rapidly declining due to overfunding.
False
Venture capitalists are quick to invest.
False
Venture capitalists, surprisingly, require little information before they make an investment.
False
The business plan is a critical element in a new-venture proposal.
True
There is no way for the venture capitalist adequately to evaluate a new venture.
False
The average size of a social loan is around $7,000.
True
Social lending sites are different from so-called microlending sites.
True
A potential danger of social lending is the implication that social loans may be viewed as gifts and taxed accordingly.
True
Venture capital firms want to own control of the firms in which they invest.
False
Venture capitalists are usually satisfied with a reasonable return on investments.
False
Venture capitalists are slow to invest.
True
Venture capitalists need only basic summary information before they make funding decisions.
False
One of the most frequently used criterion in evaluating new ventures, is the ability of the entrepreneur to sustain intense effort.
True
There is only a small number of informal risk capitalists in the market today.
False
Informal risk capitalists are those who have already made their money and now seek to help new ventures.
True
Informal risk capitalists are often referred to as “business angels.”
True
Entrepreneurs are rarely able to set up a business without investment funds or bank loans.
False
Frugality is deemed a bootstrapping technique.
True
Most venture capital funds later stages of venture development, not the start-up (or seed) stage.
False
At start-up time, forms of financing includes all but which of the following?
equitable payback
Which of the following is (are) sources of capital for entrepreneurs?
equity
Many new ventures find that debt financing is
necessary.
Approximately how many commercial banks are there in this country?
about 7,000
Which of the following is not a question commonly asked by banks of entrepreneurs?
What interest rate did you have in mind?
When starting a business, which of the following sources of financing are least likely to be used?
insurance companies
When starting a business, which of the following sources of financing are most likely to be used?
trade credit
Which of the following would be most commonly used for short-term financing?
trade credit
Which of the following would be most commonly used for medium-term financing?
finance companies
Which of the following would be most commonly used for long-term financing?
insurance companies
When accounts receivable are bought from a company for capital funding it is called
factoring.
Which of the following is not a type of debt financing?
private placement
A disadvantage of debt financing is
regular interest payments.
Short-term debt is
paid back in one year.
Which of the following is a type of equity financing?
common stock
The most common source of debt financing is
commercial banks.
Advantages of debt financing include all of the following except:
regular interest payments.
Long-term debt is used for
both a and b.
When securing a bank loan an entrepreneur should be prepared to answer which of the following questions except?
What is the price of your product?
SEC stands for the
Securities and Exchange Commission.
When going public with public offerings an advantage might be
size of the company’s capital amount.
SBIC stands for the
small-business investment companies
Equity capital is
not a loan but a form of stock.
Evaluation of new-venture proposals includes all the following processes except
a product prototype
One of the advantages of public offerings is
liquidity.
__________ is(are) one of the disadvantages of going public.
Shareholder pressure
The Regulation D exemptions include all of the following except:
placements in excess of $l0 million.
The main objective of Regulation D is to
make it easier and less expensive for small ventures to sell stock.
Which of the following is not one of the most common questions typically required to be answered by entrepreneurs seeking funding?
What exact date will you repay the money?
Equity capital is often raised through:
public stock offerings.
When going public specific detailed information that must be presented includes
the capital structure of the company.
Regulation D defines separate exemptions that are based on the amount of money being raised. Which is not a rule that accompanies these exemptions?
rule 503
Of the following, which is not typically identified as a bootstrapping technique?
hiring seasoned veterans
Venture capitalists are experienced professionals who provide a full range of service for new ventures including
management consulting.
Major trends in the venture capital field today include all of the following except
less specialized and more homogenous funds
Which of the following terms is not synonymous with social lending?
commercially viable lending
Of the following, which is more likely than the others to be deemed a potential danger of social lending?
business plan disclosure
Which of the following statements is not true of venture capitalists?
They are interested in trying to manage firms themselves.
Criteria that venture capitalists use in evaluating new venture proposals include:
the characteristics of the product or service.
Venture proposals are often rejected due to significant deficiencies in
both a and b.
Which is not a stage of the evaluation process?
evaluation of the business plan
Which is an important question for the entrepreneur to ask when evaluating the venture capitalist?
Is the person someone with whom the entrepreneur can work?
The entrepreneur should ask the venture capitalist questions.
an unlimited number of
Which is one of the most important questions for entrepreneurs to ask regarding venture capitalists?
What is it like to work with their firm?
Which of the following is a true statement about raising capital?
It often takes a great deal of time to raise capital.
How many people in America have net worth in excess of $1 million?
about 500,000
How do informal investors find projects to invest in?
networks of friends
An informal risk capitalist is referred to as:
a business angel.
Informal investors find projects through
a network of friends.
Which of the following does not represent a category of angel investors?
amateur angels

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