Deck 10: Financing Strategy and Tactics

Question 1

The amount of risk or threat of loss that an entrepreneur is willing to sustain is ________.

A) risk acceptance
B) risk tolerance
C) risk aversion
D) risk allowance

Answer 1

B

Question 2

Raising money for a business is an aspect of ________, which is the use of money for a purpose.

A) comparative advantage
B) equity analysis
C) surety sequencing
D) financing

Answer 2

D

Question 3

You could borrow money from friends and family who would like to invest in your business, or you could offer them ________.

A) equity
B) a bonus
C) debt
D) a job

Answer 3

A

Question 4

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) it can be very stressful for the owners, thus causing them to make mistakes

Question 5

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) $100.00
B) $20.00
C) $200.00
D) $2000.00

Question 6

Financing a corporation with debt means borrowing or ________.

A) taking a loan on a credit card
B) borrowing from the entrepreneur's personal accounts
C) lending money to customers
D) selling bonds

Question 7

An investor who invests money into your business in exchange for equity receives ________.

A) a monthly dividend out of the business profits
B) liability for any debt the business incurs
C) a share of ownership of the business
D) annual dividends

Question 8

________ accounts are credit accounts that have a single borrowing limit and may be used and repaid on a repeated cycle.

A) Charge
B) Loan
C) Checking
D) Savings

Question 9

The three common ways for a business to raise the capital it needs to grow are with earnings, equity, and debt.

Question 10

________ are forms of gifts or grants to businesses.

A) Tax abatements
B) Tax credits
C) Unpaid labor by friends and family
D) All of the above.

Question 11

What do you have to do before you can sell stock in your business?

A) hold an initial public offering
B) register
C) incorporate
D) seek an attorney's help

Question 12

A ________ is a document agreeing to repay a certain sum of money (with interest) by a specified date.

A) stock
B) mutual fund
C) promissory note
D) bond

Question 13

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) None of the above.

Question 14

How is financing with equity different from financing with debt?

Question 15

The amount you will have to pay over a given period of time until the loan is repaid is called ________.

A) payback
B) principal
C) present value
D) debt service

Question 16

The lender has no say in the management or direction of the business, as long as the loan payments are made and contracts are not violated.

Question 17

Which of the following is not one of the "Five C's of Borrowing?"

A) certainty
B) collateral
C) character
D) conditions

Question 18

Statistics indicate that 45 percent of all small businesses ________.

A) survive ten plus years
B) fail after three years
C) survive five or more years
D) fail after the first year

Question 19

Business failure is defined by Dun and Bradstreet as "business termination ________."

A) with no notice
B) because of owner illness
C) with losses to creditors
D) with loss of sales in three continuous quarters

Question 20

Financing with earnings is an option under what circumstances?

A) A company has no debt and is growing.
B) A company is profitable and has positive cash flow from operations.
C) A company is profitable and has negative cash flow from operations.
D) A company has substantial cash savings and marketable securities.

Question 21

Venture capitalists can make their money by ________.

A) selling their percentage share of the business to another investor
B) waiting until the company "goes public" and converting their shares into stock, which can then be traded on the stock market
C) Either of the above.
D) Neither of the above.

Question 22

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 longer it will take to show a return

Question 23

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 the above.

Question 24

If an investment is not risky, the reward or the potential return will probably be ________.

A) around 20%
B) high
C) low
D) around 15%

Question 25

Some federal agencies provide grants, loans, and/or loan guarantees for businesses that meet specific criteria. One of these is the United States ________.

A) Interstate Commerce Commission (ICC)
B) Small Business Administration (SBA)
C) Federal Land Bank (FLB)
D) Agricultural Extension Agency (AEA)

Question 26

Bonds are a form of ________.

A) debt financing
B) equity financing
C) Both of the above
D) None of the above.

Question 27

Lender financing occurs when a business establishes trade credit with the lender.

Question 28

Corporations sell equity in the form of ________.

A) debt
B) ownership
C) stock
D) perks

Question 29

A discount, when speaking of bonds, is the difference between a bond's trading price and its par value when the trading price is below par.

Question 30

Who are venture capitalists? How do they get their returns?

Question 31

Why might a bank be more willing to loan money to a large successful company than to a start-up business?

Question 32

Which of the following is not a type of community development loan fund?

A) community development banks
B) public employee credit union
C) community development credit unions
D) venture capital

Question 33

A share of stock represents ________ in a company.

A) interest
B) a right to discounts on products
C) a concept like insurance
D) ownership

Question 34

What are the Five "C's" of borrowing?

Question 35

High risk = high reward and conversely, low risk = low reward.

Question 36

________ is property or other assets pledged against the loan that the lender can take and sell if the loan is not repaid.

A) Equity
B) Collateral
C) Asset
D) Guarantee

Question 37

The equity investor's risk is ________ that of the debt lender.

A) much lower than
B) lower than
C) the same as
D) higher than

Question 38

If you are a small business owner looking for a loan, a bank will expect you to ________.

A) find equity investors to spread the bank's risk
B) incorporate in order to maximize cash flow
C) personally guarantee that you will be responsible for the business loan
D) incorporate in order to avoid taxation

Question 39

No matter what way you approach raising money for your business, you will need a ________.

A) written business plan
B) family investment
C) winning lottery ticket
D) bank loan

Question 40

There are many sources of capital to start a business. What are they?