Deck 16: Financing a Business

Question 1

A partner's personal contribution in a business is equity capital.

Answer 1

True

Question 2

Money that owners borrow for their business using their own homes as security for the loan is owner capital.

Answer 2

True

Question 3

Retained earnings are a type of equity capital.

Answer 3

True

Question 4

Businesses in financial difficulty often have trouble getting debt capital.

Question 5

Common stock is a type of security, but bonds are not.

Question 6

Preferred stockholders usually have voting privileges at the stockholders' meetings.

Question 7

When a corporation ceases operations, preferred and common stockholders usually get all their investment back from the sale of the assets.

Question 8

The book value of a share of stock is found by dividing the corporation's net worth by the total number of shares outstanding.

Question 9

If the par value of a share of stock is $100, the market value cannot be below $100.

Question 10

When starting a business, it is usually desirable to issue only common stock.

Question 11

Even if a business is not making a profit, it should plan to replace assets that depreciate.

Question 12

Retained earnings are kept in the business in the form of cash only.

Question 13

A supplier who allows a business 90 days to pay for merchandise is actually providing short-term capital.

Question 14

If a business has a $50,000 open line of credit, it can borrow a minimum of $50,000 at a time.

Question 15

Factors loan money to businesses based on their accounts receivable.

Question 16

Equipment maintenance and insurance are usually included in a leasing agreement.

Question 17

Bondholders must be paid before stockholders share in the earnings.

Question 18

Sole proprietors must rely on their personal assets for capital if they want to retain ownership in the company.

Question 19

The original cost of obtaining long-term capital is usually higher than that of short-term capital.

Question 20

Investment bankers help corporations raise capital by selling stocks and bonds.

Question 21

The investment made in a business by its owners is called

A) working capital
B) equity capital
C) creditor capital
D) cash flow

Question 22

Retained earnings refer to

A) money from the sale of bonds
B) money from the sale of stock
C) profits that owners do not save for use in the business
D) profits that owners do not take out of the business

Question 23

Banks and other types of lending institutions usually will not loan money to a business unless

A) debt capital exceeds owner capital
B) owner capital exceeds debt capital
C) debt capital and owner capital are nearly equal
D) borrowed capital exceeds owner capital

Question 24

If a sole proprietorship fails, which of the owner's assets may be lost?

A) Personal assets invested in the business
B) Personal assets not invested in the business
C) Mortgaged personal property
D) All of the responses

Question 25

Which statement is true about forming a corporation?

A) Owners are personal liable for all losses if the corporation fails.
B) The original owner cannot hold any position in the corporation.
C) Stockholders manage the day-to-day activities of the corporation.
D) Additional funds can be obtained through the sale of stock.

Question 26

Which statement is true of common stockholders?

A) They have the right to vote at annual meetings, at one vote per share of stock owned.
B) If the corporation makes a profit, they are paid before creditors.
C) They are guaranteed dividends every year.
D) They must purchase stock at its par value.

Question 27

Which statement is true about preferred stockholders?

A) Holders are guaranteed dividends.
B) Holders receive profits of the business before creditors.
C) Holders typically do not have voting privileges in a business.
D) Holders receive profits after common stockholders.

Question 28

Kent owns 150 shares of 7 percent preferred stock that has a face value of $100 a share.Last year he received no dividends.If profits are large enough this year, he should receive as dividends

A) $105
B) $700
C) $1,050
D) 7 percent of profits

Question 29

If the ABC Corporation's net worth is $48,000,000 and there are 3,000,000 shares of stock outstanding, the book value of each share is

A) $144
B) $16
C) $8
D) $12

Question 30

Earnings reinvested in the business to replace equipment, add new facilities, or serve as financial protection are called

A) profits
B) debt capital
C) retained earnings
D) dividends

Question 31

Short-term debt must be repaid to the lender with interest within

A) 30 days
B) 60 days
C) 90 days
D) one year

Question 32

Long-term debt capital is obtained by

A) purchasing merchandise on credit
B) getting a commercial loan from a bank
C) issuing bonds
D) lending money to businesses

Question 33

Which statement is true about trade credit?

A) It is a form of short-term financing.
B) It requires immediate payment.
C) It is a common type of bank credit.
D) It is a form of long-term financing.

Question 34

A common method used to purchase expensive equipment is with

A) debentures
B) term loans
C) bonds
D) factors

Question 35

Bonds that are based upon the faith and credit of the corporation that issues them are

A) mortgage bonds
B) debentures
C) coupon bonds
D) registered bonds

Question 36

The credit terms offered by a business indicate that a bill must be paid in full within 30 days and offers a two percent discount for paying a bill within 10 days.This can be stated on the invoice as

A) 2% on 10
B) 2/10, net 30
C) 2-10-30
D) 30 days or 2/10

Question 37

Which statement is true about venture capitalists?

A) They are protected against losses.
B) They pass all risks to the company in return for their investment.
C) They take over management of any company they invest in.
D) They may get a percentage of ownership in the company in return for their investment.

Question 38

An organization that assists a business to raise capital through the sale of stocks and bonds is a(n)

A) factor
B) venture capitalist
C) underwriter
D) sales finance company

Question 39

When deciding how to get the capital they need, companies consider all of the following except

A) the influence of capital contributors
B) the cost of capital
C) interest rates
D) the foreign exchange rate

Question 40

Match each item with the correct statement below.

-A bond secured by specific long-term asset of the issuer.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 41

Match each item with the correct statement below.

-A bond that allows a bondholder to exchange bonds for a prescribed number of shares of common stock.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 42

Match each item with the correct statement below.

-A firm that specializes in lending money to businesses based on the business's accounts receivable.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 43

Match each item with the correct statement below.

-A plan that allows employees to become owners of the company they work for through the purchase of stock.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 44

Match each item with the correct statement below.

-A strategy for funding a business idea with small amounts of money from many people.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 45

Match each item with the correct statement below.

-An organization that helps businesses raise capital through the sale of stocks and bonds.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 46

Match each item with the correct statement below.

-A bond that is not secured by assets but based upon the faith and credit of the corporation that issues it.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 47

Match each item with the correct statement below.

-Firm that provides capital to a business based on installment sales contracts.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 48

Match each item with the correct statement below.

-Something of value pledged as assurance of the fulfillment of an obligation.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security

Question 49

Match each item with the correct statement below.

-The authorization to borrow up to a maximum amount for a specified period of time.

A)bond
B)capital
C)convertible bond
D)crowdfunding
E)debenture
F)ESOP
G)factor
H)investment bank
I)line of credit
J)mortgage bond
K)par value
L)promissory note
M)sales finance company
N)Security