BUSN 1003: Test 2 Practice Quiz

_____ is a type of divestiture in which a firm converts a particular unit or division into a separate company and issues stock in the newly created corporation to outside investors.

A carve-out

Which of the following statements is true of the formation of general partnerships?

Expert legal assistance can be acquired when drawing up a partnership agreement.

Which of the following would most likely be a question asked by the stockholders of a firm?

Has the management generated a strong-enough return on their investment?

Which of the following is a drawback of buying a franchise?

If the national brand suffers, so does the business.

Which of the following statements is most likely true of a company that relies mainly on equity financing?

It forgoes the opportunity to use financial leverage.

Which of the following statements is true of a socially responsible firm?

It has an obligation to respect the needs of all stakeholders.

Which of the following statements is true of a business plan?

It is absolutely crucial for obtaining outside funding.

Which of the following is one of the reasons why many people prefer a sole proprietorship?

Pride of ownership

Which of the following is a disadvantage associated with sole proprietorships?

Raising money to finance growth can be tough for business owners.

Which of the following is a source of long-term funds for a firm?

Retained earnings

Which of the following statements is true of people with an external locus of control?

They feel buffeted by the actions of others.

In the context of small business opportunities, which of the following statements is true of market niches?

They tend to be quite attractive to small firms.

A sole proprietorship is a form of business ownership in which:

a single owner actively manages the company.

The three kinds of basic financial statements that are prepared in financial accounting are:

balance sheet, income statement, and statement of cash flows.

When a company takes out a bank loan, or issues and sells corporate bonds, it is relying on _____.

debt financing

The time value of money reflects the fact that:

it is best to have money today, so it can be put to work sooner to make even more money.

A(n) _____ is a form of business ownership that offers both restricted responsibility to its owners and flexible tax treatment.

limited liability company

In the context of financial statements of a company, cash flow statements commonly begin with _____.

net income

A(n) _____ cannot distribute dividends to its members.

not-for-profit corporation

One of the major sources of equity financing for corporations is _____.

retained earnings

Buying an established business is a better plan than starting your business from scratch because:

the organizational structure is in place.

One of the reasons why C corporations have an edge over sole proprietorships is:

the permanence of the business.

_____ is a deep-seated sense that forces other than the individual are responsible for what happens in his or her life.

An external locus of control

_____ measure how effectively an organization uses its resources to generate net income.

Asset management ratios

_____ is a management tool that explicitly shows how a firm will acquire and use the resources needed to achieve its goals over a specific time period.

Budgeting

_____ are safe and highly liquid assets that many firms list with their cash holdings on their balance sheet.

Cash equivalents

_____ are very safe and highly liquid assets that can be converted into cash quickly and easily.

Cash equivalents

Which of the following is a source of long-term funds for firms?

Corporate bonds

Which of the following is the most commonly used liquidity ratio?

Current ratio

_____ refers to funds provided by creditors.

Debt financing

Which of the following statements is true of trade credit?

It is granted by suppliers after evaluating the creditworthiness of a firm.

In the context of the capital structure of a firm, which of the following statements is true of equity financing?

It is less risky than debt financing.

Which of the following is a challenge faced by a franchisor?

Keeping all the franchisees satisfied

In the context of financial statements, which of the following statements is true of large corporations?

Large corporations with publicly traded stock must provide an annual report containing financial statements to all stockholders.

In the context of budget preparation, which of the following is an advantage of using bottom-up budgeting?

Middle managers are likely to be highly motivated to achieve budgetary goals.

Which of the following is an advantage of general partnerships?

Partners capitalize on complementary skills.

In the context of funding options for small businesses, which of the following offers a potential funding source for new business start-ups?

Peer-to-peer lending

_____ measures how long it takes for a firm to receive payment from customers who buy on credit.

The average collection period

Which of the following is a leverage ratio?

The debt ratio

Which of the following is an advantage of debt financing?

The interest payments a firm makes on debt are a tax-deductible expense.

Identify a true statement about limited liability companies (LLCs)

The owners of LLCs can elect to have the company treated as a partnership for tax purposes.

In the context of accounting, which of the following best defines cost?

The value of what is given up in exchange for something else

_____ is a spontaneous financing granted by sellers when they deliver goods and services to customers without requiring immediate payment.

Trade credit

In the context of opportunities and threats, overhead costs for small businesses:

are often lower than big companies.

In the context of financial accounting, the external stakeholders of a firm:

are seldom interested in analyzing detailed accounting information about the individual departments within the firm.

In the context of the various strategies that can help a small business owner succeed, a _____ provides an invaluable way to keep an entrepreneur and his or her team focused on success; it is also absolutely crucial for obtaining outside funding.

business plan

A firm's _____ refers to its holdings of currency plus demand deposits.

cash

Under a revolving credit agreement, the _____ is lower than the interest on the borrowed funds, but it can amount to a fairly hefty charge if the firm has a large unused balance.

commitment fee

Through the establishment of a set of generally accepted accounting principles (GAAP), the Financial Accounting Standards Board (FASB) aims to ensure that financial statements are:

comparable.

A(n) _____ is a combination of two firms that are in unrelated industries.

conglomerate merger

The basic rules governing how a corporation is organized and how it conducts its business are known as _____.

corporate bylaws

A firm's _____ include cash and other assets expected to be converted into cash in the following year.

current assets

In the context of liquidity ratios, a firm's _____ are the debts that must be repaid in the following year.

current liabilities

The _____ is a common measure of leverage that compares liabilities to assets.

current ratio

One drawback of offering liberal credit to customers is that it can:

delay the receipt of cash that the firm needs to meet its financial obligations.

A _____ is a type of franchising arrangement in which the franchisor makes a product and licenses the franchisee to sell it.

distributorship

According to small business experts, while raising start-up funds from friends and relatives, it is:

essential to keep the relationship as professional as possible

An advantage of factoring is that:

firms using factors get their money almost immediately.

A _____ is one that is not based on a single assumed level of sales and enables managers to make meaningful comparisons between actual costs and budgeted costs.

flexible budget

Financial capital refers to the:

funds a firm uses to acquire its assets and finance its operations.

In the context of an acquisition, when the acquiring firm buys the target firm despite the opposition of the target's board and top management, the result is called a _____.

hostile takeover

In the context of corporate restructuring, a common objective of a horizontal merger is to:

improve efficiency by eliminating duplication of facilities and personnel.

The _____ summarizes the financial results of a firm's operations over a given period of time.

income statement