Deck 15: Small Business Finance: Using Equity,debt,and Gifts

Question 1

A legal obligation to pay money in the future is called equity capital.

Answer 1

False

Question 2

Giving a gift has tax implications.

Answer 2

True

Question 3

More forms of financing are available to existing firms than to start-ups.

Answer 3

True

Question 4

A measure of the amount of debt relative to total investment is called cost of capital.

Question 5

Reduced taxes is the most common form of institutional gift financing.

Question 6

A charge for the use of money,usually figured as a percentage of principal is called a dividend.

Question 7

In the U.S. ,government programs are the number one source of small business financing.

Question 8

Economic Development Agency (EDA)grants are much more common than are those from general governments.

Question 9

Borrowing money for capital investment enhances the potential for higher rates of return for the owners.

Question 10

There are four primary CRAs: Equifax,Experian,Trans Union,and E-Trade.

Question 11

Goodwill can be used as collateral.

Question 12

From the point of view of an existing owner,financing with equity is expensive and guaranteed to create problems of control and decision making.

Question 13

The more debt that is included in the capital mix,the higher the weighted average cost will be.

Question 14

The most common source of capital for established ongoing small businesses is borrowed funds.

Question 15

People who buy ownership rights in a business are considered outside equity investors.

Question 16

The four Cs of borrowing are character,capacity,collateral,and community.

Question 17

Accredited investors are a popular source of funding for cash-intensive firms at the seed and start-up.

Question 18

Angel investors generally provide financing during the operations phase of business.

Question 19

Limited liability companies' primary advantage is that owners may easily choose whether to be taxed as an entity or have tax items pass through.

Question 20

During the start-up phase of a small business the primary financial management need is to obtain sufficient funds to pay for all the costs of starting and running a business.

Question 21

Angel investors provide _____ financing in the _____ phase of business.

A)equity;financing for start-up
B)debt;financing for growth
C)gift;financing for exit
D)equity;financing for operations

Question 22

Which of these financing sources is very rarely used by small businesses?

A)Family and friends
B)Angel investors
C)Credit cards
D)Banks

Question 23

Any valuable asset that is donated to your business without any obligation to repay or to give any ownership interest is called

A)debt.
B)equity capital.
C)a gift.
D)a tax credit.

Question 24

In business and in law,responsibility is called

A)assets.
B)liability.
C)equity.
D)value system.

Question 25

A business formed by a single individual who is responsible for all debts and claims against the business is called a

A)limited liability company.
B)corporation.
C)partnership.
D)sole proprietorship.

Question 26

Cash flow "smoothing" is a financial management need in which phase of business?

A)Financing for growth
B)Financing for exit
C)Financing for start-up
D)Financing for operations

Question 27

The percentage amount that the payout of an investment differs from original cost is called as

A)dividend.
B)gain on investment.
C)risk.
D)interest.

Question 28

Which of these sources of equity financing is available during all four phases of business?

A)Angel investors
B)Friends and family
C)Venture capital
D)Self generated funds

Question 29

A legal "artificial" entity that is formed by filing specific documents with a state government is called a

A)sole proprietorship.
B)partnership.
C)corporation.
D)general partnership.

Question 30

People who buy ownership rights in your business are considered

A)outside equity investors.
B)family.
C)debt holders.
D)creditors.

Question 31

Which of these represent the number one source for small business financing?

A)Owners
B)Angel investors
C)Government programs
D)Banks

Question 32

Personal credit cards provide _____ financing in the _____ phase of business.

A)equity;financing for start-up
B)debt;financing for growth
C)gift;financing for exit
D)equity;financing for operations

Question 33

Which of these provide debt financing during the start-up phase of business?

A)Angel investors
B)Factor receivables
C)Public stock offerings
D)Incubators

Question 34

A)how the business is taxed.
B)how the business is financed.
C)who the target market is.
D)whether it is a manufacturing or service organization.

Question 35

"Profits are secondary to cash flow" is a financial management need in which phase of business?

A)Financing for growth
B)Financing for exit
C)Financing for start-up
D)Financing for operations

Question 36

A legal obligation to pay money in the future is called

A)debt.
B)equity capital.
C)gift.
D)tax credit.

Question 37

When you sell part of your business,the money you receive is

A)debt.
B)equity capital.
C)gift.
D)tax credit.

Question 38

Ownership of corporations is established by _____ while ownership of limited liability companies is shown by _____.

A)stock certificates;LLC agreements
B)share agreements;stock certificates
C)stock certificates;member share certificates
D)member share certificates;share agreements

Question 39

LLCs have a choice,under federal tax law,of being taxed as either a corporation or as a

A)sole proprietorship.
B)limited liability company.
C)independent,single person business.
D)partnership.

Question 40

_____ is money from selling part of your business to people who are not and will not be involved in the management of the business.

A)Debt
B)Outside equity
C)Gift
D)Tax abatement

Question 41

A charge for the use of money,usually figured as a percentage of the principal is called

A)interest.
B)dividend.
C)tax.
D)risk.

Question 42

Accelerators are also called as

A)LLCs.
B)corporations.
C)partnerships.
D)incubators.

Question 43

Which of these refers to something of value given or pledged as security for payment of a loan?

A)Character
B)Capacity
C)Condition
D)Collateral

Question 44

The amount that revenues exceed expenses is known as

A)profit.
B)cash flow.
C)operating margin.
D)goodwill.

Question 45

The primary concern for equity investors is

A)growth potential.
B)protecting the principal.
C)interest.
D)repayment.

Question 46

The information collected and reported by the CRA does NOT include which of these areas?

A)Personal health history information
B)Identifying information
C)Credit information
D)Public record information

Question 47

What do you call a business that collects,collates and reports information concerning an entity's use of debt?

A)Community development organization
B)Credit reporting agency
C)Accelerator
D)Small business investment companies

Question 48

The most common form of institutional gift financing is in the form of

A)incubators.
B)reduced taxes.
C)state grants.
D)donated capital.

Question 49

Using outside equity in your business

A)will increase your own exposure to financial loss.
B)will protect it from increased costs in the form of interest.
C)is inexpensive.
D)solves problems of control and decision-making.

Question 50

_____ is the value of a business that exceeds the sum of the value of all individual assets but that cannot be sold separately from the business.

A)Goodwill
B)Collateral
C)Inventory
D)Debt

Question 51

An organization that supports start-up technology businesses by providing inexpensive office space,a variety of support services and resources is called as a(n)

A)accelerator.
B)community development organization.
C)small business investment company.
D)credit reporting agency.

Question 52

To invest in multiple investments of differing risk profiles for the purpose of reducing overall investment risk is called

A)growth potential.
B)dividend.
C)specialization.
D)diversification.

Question 53

In the Small Business Administration guaranteed loan payment programs,you must be _____ before you qualify.

A)approved by a bank
B)turned down by a bank
C)partner with a bank as a co-signer
D)a successful business

Question 54

Private businesses that are authorized to make SBA insured loans to start-ups and small businesses are called as

A)community development organizations.
B)accelerators.
C)small business investment companies.
D)limited partnerships.

Question 55

_____ is judged largely by the owner's personal credit rating and by that of the business.

A)Capacity
B)Collateral
C)Character
D)Condition

Question 56

The level of probability that an investment will not produce expected gain is called

A)interest.
B)dividend.
C)risk.
D)diversification.

Question 57

The _____ of the business is the most important single factor for being able to borrow significant amounts of money.

A)character
B)capacity
C)condition
D)collateral

Question 58

Which of the following statements is true regarding the Fair Credit Reporting Act?

A)It requires that consumers investigate and report any inaccuracies to all nationwide CRAs.
B)It provides CRAs with 60 days to investigate cases of inaccurate information.
C)It requires that CRAs independently confirm information.
D)It requires that all information reported by CRAs be accurate.

Question 59

There are two general sources of gift financing

A)institutional and personal.
B)debt and equity.
C)consumer and commercial banks.
D)angel and venture capital.

Question 60

Identify the organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area.

A)Community development organization
B)Accelerator
C)Small business investment companies
D)Limited partnerships

Question 61

Which of these is NOT a form of a personal gift?

A)Tax credits
B)Free use
C)Forgiveness
D)Piggybacking

Question 62

The ratio of debt to equity that provides the maximum level of profits is called the

A)cost of capital.
B)declining financial leverage position.
C)optimum capital structure.
D)WAC.

Question 63

Direct reductions in the amount of taxes that must be paid,dependent upon meeting some legal criteria are called as

A)tax abatements.
B)grants.
C)tax credits.
D)debts.

Question 64

This is the measure of the amount of debt relative to total investment.

A)Cost of capital
B)Financial leverage
C)Optimum capital structure
D)Financial risk

Question 65

Borrowing increases potential profits by

A)increasing the weighted average cost of capital.
B)minimizing capital funds.
C)lowering the weighted average cost of capital.
D)enhancing the equity position in the business.

Question 66

The two largest governmental grant programs that are specifically intended for small business are

A)SBIR and STTR.
B)SBA and SBDC.
C)EDA and DBED.
D)tax credits and tax abatement.

Question 67

When you are given the funds for your business from an account your family set up for your future education or first home,then it is called as

A)piggybacking.
B)accelerated cash-outs.
C)free use.
D)overpayment.

Question 68

_____ refers to the percentage cost of obtaining future funds.

A)Risk
B)Cost of capital
C)Financial leverage
D)Optimum capital structure

Question 69

Restrictions imposed by loan contracts on the operations of a business,such as requiring that a specific minimum net worth be maintained,a specific debt-to-equity ratio not be exceeded,no dividends be paid to stockholders and so on,are known as

A)financial contracts.
B)legal bonds.
C)loan covenants.
D)credit assurance.

Question 70

_____ is provided by state and local governments,primarily to encourage specific activities that are expected to improve the blighted areas or provide additional employment.

A)Debt capital
B)Venture investment
C)Tax abatement
D)Equity capital

Question 71

The ratio of profits to owner investment in a business is called

A)return on equity.
B)return on assets.
C)return on sales.
D)return on inventory.

Question 72

When debt increases as a percentage of total investment,the value of the firm

A)increases at a decreasing rate.
B)decreases significantly.
C)increases at an accelerated rate.
D)enhances equity position.

Question 73

Where family or friends let you add your purchases with theirs in order to get lower prices it is called as

A)piggybacking.
B)accelerated cash-outs.
C)free use.
D)overpayment.

Question 74

It is required that every U.S.agency that makes research grants provide a minimum of _____ percent of its grant budget to small businesses,as defined by the SBA.

A)10
B)2
C)18
D)25

Question 75

Which of these refers to an institution to which private wealth is contributed and from which private wealth is distributed for public purposes?

A)SBA
B)Limited Liability Company
C)EDA
D)Foundation

Question 76

Which of the following is the term used for the expected average future cost of funds?

A)Optimum capital structure
B)Financial leverage
C)WAC
D)Financial risk

Question 77

Gifts of money made to a business for a specific purpose are called

A)equities.
B)debts.
C)tax credits.
D)grants.

Question 78

Identify the type of ratio that measures how productive a particular asset is in producing sales activity.

A)Current ratios
B)Profitability ratios
C)Activity ratios
D)Leverage ratios

Question 79

Which of these is a government organization that works to increase economic activity in the form of job opportunities within a specific geographic area?

A)Small Business Administration
B)Center for regional progress
C)Economic development agency
D)Rural economic enterprise agency

Question 80

Komter and Vollebergh showed that gifts given to extended kin are usually made because of

A)feelings of affection.
B)tax avoidance.
C)feelings of obligation.
D)hidden agenda.