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MGT 3111 Ch.15

Financing with earnings is an option under what circumstances?
A) A company is profitable and has positive cash flow from operations.
B) A company is profitable and has negative cash flow from operations.
C) A company has no debt and is growing.
D) A company needs debt to survive.
E) None of the above
A
Raising money for a business is an aspect of ________, which is the use and manipulation of money.
A) Financing
B) Surety sequencing
C) Equity analysis
D) Comparative advantage
E) Acquisition
A
Business failure is defined by Dun and Bradstreet as “business termination ________.”
A) With losses to creditors
B) With no notice
C) Because of owner illness
D) Due to retirement
E) Exit strategy
A
________ is when the borrower fails to meet the repayment agreement.
A) Default
B) Bankruptcy
C) Liquidation
D) Stock swap
E) Debt swap
A
Corporations sell equity in the form of ________.
A) Stock
B) Ownership
C) Debt
D) Bonds
E) Notes
A
________ are forms of gifts or grants to businesses.
A) Tax credits
B) Tax abatements
C) Unpaid labor by friends and family
D) All of the above
E) None of the above
D
The equity investor’s risk is ________ that of the debt lender.
A) Higher than
B) Much lower than
C) The same as
D) Lower than
E) None of the above
A
Statistics indicate that more than half of all small businesses ________.
A) Survive eight or more years
B) Survive ten-plus years
C) Fail after three years
D) Never start up
E) Go bankrupt
A
The amount of risk or threat of loss that an entrepreneur is willing to sustain is ________.
A) Risk tolerance
B) Risk aversion
C) Risk acceptance
D) Risk reception
E) Risk recognition
A
________ is the act of providing or raising funds for a purpose.
A) Financing
B) Capitalizing
C) Fundraising
D) Initializing
E) Equity raising
A
Which of the following is not a type of community development loan fund?
A) Venture capital
B) Small business
C) Microenterprise
D) All of the above
E) None of the above
A
If you are a small business owner looking for a loan, a bank will expect you to ________.
A) Personally guarantee that you will be responsible for the business loan
B) Incorporate in order to maximize cash flow
C) Find equity investors to spread the bank’s risk
D) Incorporate in order to avoid taxation
E) All of the above
A
What do you have to do before you can sell stock in your business?
A) Incorporate
B) Hold an initial public offering
C) Register
D) Get a partner
E) Ask permission
A
A ________ is a loan made against an insurance policy with cash value
A) Policy loan
B) Microloan
C) Venture capital fund
D) All of the above
E) None of the above
A
Venture capitalists can make their money by ________.
A) Waiting until the company “goes public” and converting their shares into stock, which can then be traded on the stock market
B) Selling their percentage share of the business to another investor
C) Either of the above
D) Neither of the above
C
If $5,000 is borrowed at 9 percent to be paid back over one year, the interest on the loan is ________.
A) $450
B) $590
C) $500
D) $490
E) None of the above
A
Relying primarily on debt financing is very dangerous for a company because ________.
A) Creditors can force a company into bankruptcy or take over company property
B) Creditors can sabotage the business by refusing to lend it money
C) Creditors can gain a majority share of the company and take it over
D) All of the above
E) None of the above
A
Bonds are a form of ________.
A) Debt financing
B) Equity financing
C) Ownership financing
D) Partnership
E) None of the above
A
Land or buildings that are bought and sold represent a class of investment called ________.
A) Real estate
B) Mutual funds
C) Stock
D) Bonds
E) Money market accounts
A
Some federal agencies provide grants, loans, and/or loan guarantees for businesses that meet specific criteria. One of these is the United States ________.
A) Small Business Administration (SBA)
B) Department of Agriculture (USDA)
C) Both of the above
D) Neither of the above
C
No matter what way you approach raising money for your business, you will need a ________.
A) Written business plan
B) Family investment
C) Bank loan
D) Winning lottery ticket
E) Bit of luck
A
The greater the potential reward, ________.
A) The riskier the investment is likely to be
B) The more the investment is likely to cost
C) The less risky the investment is likely to be
D) The more it will cost
E) The more established the investment is likely to be
A
Methods of bootstrap financing include ________.
A) Getting suppliers to extend you credit terms
B) Using temporary help rather than permanent employees
C) Working from home or borrowing office space
D) All of above
E) None of the above
D
If you take out a loan for $2,000 at an annual interest rate of 10%, how much interest will you pay each year?
A) $200.00
B) $20.00
C) $100.00
D) $10.00
E) None of the above
A
Legal reduction in taxes is called ________.
A) Tax abatement
B) Tax evasion
C) Tax avoidance
D) Tax cheating
E) Tax planning
A
Which of the following is not one of the “Five C’s of Borrowing”?
A) Constitution
B) Character
C) Collateral
D) Capacity
E) Capital
A
________ is the term for the time between a payment transaction and when the cash is actually in the seller’s account.
A) Float
B) Bloat
C) Buffer
D) Balance
E) None of the above
A
If an investment is not risky, the reward, the potential return, will probably be ________.
A) Low
B) Around 15%
C) High
D) Around 20%
E) Around 75%
A
An investor who invests money into your business in exchange for equity receives ________.
A) A share of ownership of the business
B) Liability for any debt the business incurs
C) A monthly dividend out of the business profits
D) Bonds
E) Headaches
A
You could borrow money from friends and family who would like to invest in your business or you could offer them ________.
A) Equity
B) Debt
C) Stock
D) Bonds
E) Notes
A

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