Question 1

In addition to the interest rate on his business loan, Paul should also give attention to the

Accepted Answer

A)  maturity date. 
B)  reserve requirement. 
C)  tax liability of the loan. 
D)  LIBOR on the day the loan is approved. 
A)  maturity date. 
B)  reserve requirement. 
C)  tax liability of the loan. 
D)  LIBOR on the day the loan is approved.

Question 2

If a Eugenie finances her firm with equity rather than debt, her net profits could potentially be greater because

Accepted Answer

A)  equity financing almost always leads to better firm performance than debt financing. 
B)  the terms of equity financing are more stable than the terms of debt financing. 
C)  equity financing has a positive impact on asset selection. 
D)  there is no interest expense. 
A)  equity financing almost always leads to better firm performance than debt financing. 
B)  the terms of equity financing are more stable than the terms of debt financing. 
C)  equity financing has a positive impact on asset selection. 
D)  there is no interest expense.

Question 3

Galen runs a Greek restaurant and is currently considering leasing or purchasing some updated equipment. Which of the following statements is correct?

Accepted Answer

A)  If the equipment he is buying will become outdated in two years, leasing would be a better option than purchasing. 
B)  Because the restaurant is new and he wants to protect his cash flow, purchasing would be better since purchasing costs less than leasing. 
C)  If the equipment is leased, the restaurant's lines of credit will be increased. 
D)  Leasing is always more expensive than purchasing over the term of the lease. 
A)  If the equipment he is buying will become outdated in two years, leasing would be a better option than purchasing. 
B)  Because the restaurant is new and he wants to protect his cash flow, purchasing would be better since purchasing costs less than leasing. 
C)  If the equipment is leased, the restaurant's lines of credit will be increased. 
D)  Leasing is always more expensive than purchasing over the term of the lease.

Question 4

Elyse wants to calculate her return on equity but has forgotten the formula. You tell her that return on equity equals

Accepted Answer

A)  net profits divided by total owner's equity. 
B)  total owner's equity divided by net profits. 
C)  total assets divided by total owner's equity. 
D)  total owner's equity divided by total assets. 
A)  net profits divided by total owner's equity. 
B)  total owner's equity divided by net profits. 
C)  total assets divided by total owner's equity. 
D)  total owner's equity divided by total assets.

Question 5

Joann is buying an existing convenience store. Her best choice for a bank would be

Accepted Answer

A)  a national bank that processes credit card payments. 
B)  the credit union where she is already a member. 
C)  a bank close to her store. 
D)  the largest bank in her town, which is located on the other side of town from her store. 
A)  a national bank that processes credit card payments. 
B)  the credit union where she is already a member. 
C)  a bank close to her store. 
D)  the largest bank in her town, which is located on the other side of town from her store.

Question 6

Irwin has applied for a loan from an asset-based lending company. As security, he will offer

Accepted Answer

A)  land and buildings. 
B)  accounts receivable and inventory. 
C)  equipment and buildings. 
D)  inventory and equipment. 
A)  land and buildings. 
B)  accounts receivable and inventory. 
C)  equipment and buildings. 
D)  inventory and equipment.

Question 7

Both wholesalers and equipment manufacturers/suppliers can be used as sources of funds.

Accepted Answer

A) True 
 B)False

Question 8

Marla runs a not-for-profit daycare center in her home located in a rural area. She is in need of $10,000 to purchase inventory, supplies, and equipment. What Small Business Administration program would be the best fit for Marla's situation and why?

Accepted Answer

The 7(m) Microloan Program would be the

Question 9

A balloon payment

Accepted Answer

A)  is an upfront payment to obtain a loan. 
B)  may be required by the bank at about halfway through the loan term. 
C)  may be due at any time during the term of a loan. 
D)  is used to lift (remove) a loan covenant. 
A)  is an upfront payment to obtain a loan. 
B)  may be required by the bank at about halfway through the loan term. 
C)  may be due at any time during the term of a loan. 
D)  is used to lift (remove) a loan covenant.

Question 10

If Joan is applying for a loan for a shelving system to improve her retail sales where the system will serve as collateral, which of the following types of loan would be the most appropriate?

Accepted Answer

A)  Chattel mortgage 
B)  Line of credit 
C)  Real estate mortgage 
D)  Term loan 
A)  Chattel mortgage 
B)  Line of credit 
C)  Real estate mortgage 
D)  Term loan

Question 11

Florence wants to obtain a loan for a large color laser printer for her copy shop. Because the printer will last approximately eight years, the ideal loan would be a(n) _____ loan.

Accepted Answer

A)  mortgage 
B)  trade credit 
C)  asset-based 
D)  term 
A)  mortgage 
B)  trade credit 
C)  asset-based 
D)  term

Question 12

Anna's new business looks like it can grow quickly and become profitable in its first year. Anna will likely find _____ possible sources of financing than those with less potential for growth and profits.

Accepted Answer

A)  fewer 
B)  about the same number of 
C)  more 
D)  many more 
A)  fewer 
B)  about the same number of 
C)  more 
D)  many more

Question 13

Match the term with its definition.
-A loan for which items of inventory or other movable property serve as collateral

Accepted Answer

A) balloon payment 
B) business angels 
C) chattel mortgage 
D) crowdfunding 
E) factoring
F)initial public offering (IPO)
G)private placement
H)real estate mortgage 
A) balloon payment 
B) business angels 
C) chattel mortgage 
D) crowdfunding 
E) factoring
F)initial public offering (IPO)
G)private placement
H)real estate mortgage

Question 14

In his presentation to the banker when he applies for a business loan to purchase additional equipment, Alan should emphasize

Accepted Answer

A)  how much profit the new equipment will generate. 
B)  how he will be able to repay the principal of the loan. 
C)  how energy-efficient the new equipment is. 
D)  how much income he will generate for the bank. 
A)  how much profit the new equipment will generate. 
B)  how he will be able to repay the principal of the loan. 
C)  how energy-efficient the new equipment is. 
D)  how much income he will generate for the bank.

Question 15

Use of debt financing increases potential returns when a company is performing well, but it also increases the possibility of lower-even negative-returns if the company does not attain its goals in a given year.

Accepted Answer

A) True 
 B)False

Question 16

Match the term with its definition.
-A very large payment required about halfway through the term over which payments were calculated, repaying the loan balance in full

Accepted Answer

A) balloon payment 
B) business angels 
C) chattel mortgage 
D) crowdfunding 
E) factoring
F)initial public offering (IPO)
G)private placement
H)real estate mortgage 
A) balloon payment 
B) business angels 
C) chattel mortgage 
D) crowdfunding 
E) factoring
F)initial public offering (IPO)
G)private placement
H)real estate mortgage

Question 17

Debt financing as opposed to equity financing allows owners to retain voting control of the company.

Accepted Answer

A) True 
 B)False

Question 18

Crowdfunding works strictly with individual donations made over the Internet.

Accepted Answer

A) True 
 B)False

Question 19

Nancy has decided to raise working capital for her upscale boutique business which currently has four locations and is considering franchising the concept in the next few years. Because of the company's current organization and anticipated future plans, the most likely form of financing would be

Accepted Answer

A)  large corporations. 
B)  private placement. 
C)  public sale. 
D)  underwriting. 
A)  large corporations. 
B)  private placement. 
C)  public sale. 
D)  underwriting.

Question 20

Maguire was considering selling stock as a source of funds but was concerned about

Accepted Answer

A)  damaging his corporate image. 
B)  the loss of voting control of the company. 
C)  the effect that might have on future financing. 
D)  estate planning. 
A)  damaging his corporate image. 
B)  the loss of voting control of the company. 
C)  the effect that might have on future financing. 
D)  estate planning.

Exam 12: A Firms Sources of Financing

In addition to the interest rate on his business loan, Paul should also give attention to the

If a Eugenie finances her firm with equity rather than debt, her net profits could potentially be greater because

Galen runs a Greek restaurant and is currently considering leasing or purchasing some updated equipment. Which of the following statements is correct?

Elyse wants to calculate her return on equity but has forgotten the formula. You tell her that return on equity equals

Joann is buying an existing convenience store. Her best choice for a bank would be

Irwin has applied for a loan from an asset-based lending company. As security, he will offer

Both wholesalers and equipment manufacturers/suppliers can be used as sources of funds.

Marla runs a not-for-profit daycare center in her home located in a rural area. She is in need of $10,000 to purchase inventory, supplies, and equipment. What Small Business Administration program would be the best fit for Marla's situation and why?

A balloon payment

If Joan is applying for a loan for a shelving system to improve her retail sales where the system will serve as collateral, which of the following types of loan would be the most appropriate?

Florence wants to obtain a loan for a large color laser printer for her copy shop. Because the printer will last approximately eight years, the ideal loan would be a(n) _____ loan.

Anna's new business looks like it can grow quickly and become profitable in its first year. Anna will likely find _____ possible sources of financing than those with less potential for growth and profits.

Match the term with its definition. -A loan for which items of inventory or other movable property serve as collateral

In his presentation to the banker when he applies for a business loan to purchase additional equipment, Alan should emphasize

Use of debt financing increases potential returns when a company is performing well, but it also increases the possibility of lower-even negative-returns if the company does not attain its goals in a given year.

Match the term with its definition. -A very large payment required about halfway through the term over which payments were calculated, repaying the loan balance in full

Debt financing as opposed to equity financing allows owners to retain voting control of the company.

Crowdfunding works strictly with individual donations made over the Internet.

Nancy has decided to raise working capital for her upscale boutique business which currently has four locations and is considering franchising the concept in the next few years. Because of the company's current organization and anticipated future plans, the most likely form of financing would be

Maguire was considering selling stock as a source of funds but was concerned about

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