Question 1

Debt financing is when a firm raises money by selling all of the following,except:

Accepted Answer

Debt financing involves borrowing money and selling securities such as bonds, bills, and notes. However, shares are used in equity financing, which involves raising funds by selling a portion of ownership in the company. Therefore, the correct answer is D, shares.

Question 2

Equity investors expect to receive:

Accepted Answer

Equity investors are not loaning money to the company, but rather investing in ownership of the business. As owners, they can receive returns in the form of dividends (if the company chooses to issue them) and through the increased future value of the business. They do not receive monthly interest payments or a guaranteed return of their principal amount on maturity. There is also no government guarantee for equity investments.

Question 3

An operating loan is useful for all of the following,except:

Accepted Answer

An operating loan is intended for short-term cash flow needs, so it is not the best choice for long-term, costly capital expenditures. A term loan or equipment loan would be more appropriate for those types of expenses.

Question 4

In which of the following exit strategies might the investor's shares be repurchased by the company (sometimes in the form of a put option or a retraction clause)?

Accepted Answer

In a buyback agreement, the company agrees to repurchase the investor's shares, sometimes in the form of a put option or a retraction clause. The other exit strategies listed involve the sale of the investor's interest to a third party (B), acquisition by a third party (C), or a management or employee buyout (D). None of these strategies involve the company repurchasing the investor's shares directly.

Question 5

Which of the following sources of financing is used the least by entrepreneurs?

Accepted Answer

Government loans and grants are often difficult to obtain and have strict eligibility requirements, making them a less commonly used source of financing for entrepreneurs. Commercial credit cards, leasing, and trade credit are all more commonly used financing options.

Question 6

The "price" you have to pay to borrow money is referred to as:

Accepted Answer

The interest rate is the cost that a borrower must pay to borrow money, usually expressed as a percentage of the loan amount. The other options are not accurate descriptions of the cost of borrowing money.

Question 7

______ is the cash and other liquid assets you personally have or are prepared to invest in the business.

Accepted Answer

Capital refers to the money you have available to invest in a business, including cash and other liquid assets. It is one of the "5 Cs of Credit" that lenders evaluate when considering a loan application.

Question 8

Debt financing involves the sale of _____,while equity financing involves the sale of _______.

Accepted Answer

Debt financing involves borrowing money by issuing bonds, while equity financing involves selling ownership shares in a company in the form of stock. Therefore, the correct option is C - bonds for debt financing and stock for equity financing.

Question 9

Under the Canada Small Business Financing Act,new and existing businesses with gross revenues _______ may be eligible to obtain term loans from chartered banks and have the loan partially guaranteed by the federal government.

Accepted Answer

According to the Canada Small Business Financing Act, businesses with gross revenues of less than $5 million may be eligible for term loans partially guaranteed by the federal government. Therefore, the best choice is B.

Question 10

Which industries are increasingly using crowdfunding to raise funds?

Accepted Answer

Technology and media industries are increasingly using crowdfunding to raise funds for their projects and ideas. These industries have a large and engaged online community that can easily share and promote crowdfunding campaigns. Additionally, many tech and media startups have innovative and creative ideas that appeal to crowdfunding backers.

Question 11

The ______ of the loan is the total amount of money you have been loaned.

Accepted Answer

Principal is the amount of money that is being loaned and needs to be repaid, typically with interest. It is not obligations, summation, or capital cost.

Question 12

In which of the following exit strategies is there an outright sale of the company in which the investor's shares would be sold as part of the sale of the company to a third-party?

Accepted Answer

Acquisition by a third party involves the sale of the entire company to a third-party buyer, including the investor's shares. This is a commonly used exit strategy for investors.

Question 13

The rate of interest that banks charge their "best customers" is called:

Accepted Answer

The prime rate is the rate that banks charge their best customers, typically large corporations with strong credit ratings. The bank rate refers to the interest rate at which the central bank lends to commercial banks. The discount rate refers to the interest rate charged by the central bank when it lends money to commercial banks. The coupon rate refers to the interest rate paid on a bond.

Question 14

?????______ is when a business raises money by selling stock to investors.

Accepted Answer

Equity financing is when a business raises money by selling stock to investors, giving them ownership in the company. This is different from debt financing, which involves borrowing money that must be repaid with interest, and share financing or stock financing, which are not commonly used terms in finance.

Question 15

Debt financing:

Accepted Answer

Debt financing requires periodic interest payments to be made to investors who have lent money to the business. It is a form of borrowing and must be repaid with interest, unlike choice A which is incorrect. While investors may have some influence over the business, they do not necessarily control its direction, making choice B incorrect. Government institutions may offer debt financing options, but it is not exclusively provided by them, making choice D incorrect.

Question 16

The average minimum investment of a typical "venture capitalist" is:

Accepted Answer

The answer of The average minimum investment of a typical...

Question 17

Which of the following sources of financing is used most frequently by entrepreneurs?

Accepted Answer

Personal savings is often the most frequent source of financing used by entrepreneurs as they may not have a track record or collateral to secure other forms of financing. It also allows them to maintain full ownership and control of their business without taking on debt or diluting equity.

Question 18

______ is a secondary source for repayment of the loan if your cash flow from the business is insufficient to fulfill the obligation.

Accepted Answer

Collateral is an asset that is pledged as security for repayment of the loan. If the borrower fails to make the loan repayments, the lender can seize the collateral and sell it to recover the amount owed. This reduces the lender's risk and provides a secondary source of repayment. Character refers to the borrower's creditworthiness, reputation, and history of fulfilling financial obligations. Capital refers to the borrower's assets and equity. Capacity refers to the borrower's ability to generate sufficient cash flow to repay the loan. While all these factors are important in evaluating a borrower's creditworthiness, collateral serves as a tangible security for the lender in case of default.

Question 19

A line of credit typically has to be repaid within:

Accepted Answer

A line of credit is a type of financing that allows borrowers to draw funds as needed up to a certain limit, much like a credit card. The repayment period for a line of credit can vary depending on the terms of the agreement, but a typical repayment period is around one year. This gives borrowers the flexibility to use the funds they need and then repay the balance over a reasonable amount of time.

Question 20

All of the following are advantages of debt financing,except:

Accepted Answer

The ability of a lender to call a "demand" loan at any time is not an advantage to the borrower, but rather a potential risk, as it can lead to financial instability if the loan must be repaid unexpectedly.

Quiz 7: Market Feasibility Study