Chapter 14 Quiz

Which of the following is true of financing small businesses?

All of the above

A measure of the amount of debt relative to total investment is called cost of capital.

False

In the U.S., government programs are the number one source for financing small businesses.

False

People who buy ownership rights but are not part of the management of the business are known as inside equity investors.

False

The more debt that is included in the capital mix, the higher is the weighted average cost.

False

When financing with debt, small businesses should first apply for a Small Business Administration guaranteed loan before approaching their own bank as the SBA loans have lower interest rates.

False

Any valuable asset that is donated to a business without any obligation to repay or to give any ownership interest is called a(n) _____.

Gift

Which of the following is an example of debt financing?

Incubators

Which of the following statements concerning financial management is correct?

Obtaining money for your start-up is only the beginning of financing a small business

Which of the following describes angel investors?

They are wealthy individuals who invest in companies in relatively early stages of development.

Borrowing money for capital investment enhances the potential for higher rates of return for the owners.

True

During the start-up phase of a small business the emphasis is on conserving what little cash the new business has.

True

Equifax is one of the four primary CRAs in the United States.

True

Giving a gift has tax implications.

True

Investing in multiple businesses increases the chances of offsetting possible losses incurred from one business.

True

Money borrowed for the purpose of investment in a business is called debt capital

True

The majority of small business start-ups are funded by bootstrapping.

True

Hugh starts his own animation company by borrowing funds from his parents. His parents tell him that he can repay them when the business is generating profits. This is an example of _____.

deferral

Money contributed to businesses in return for part ownership of the business is called a(n) _____.

equity capital

Knowing one's personal worth is not important when starting a business.

false

Gifts of money made to a business for a specific purpose are referred to as _____.

grants

There are two general sources of gift financing:

institutional and personal.

Obtaining outside equity financing can only be done if your business is organized as: a partnership, a corporation, or a limited liability company.

true

Reduced taxes are the most common form of institutional gift financing.

true