Chapter 16

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

False

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

Personal assets invested in the business Personal assets not invested in the business Mortgaged personal property

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

crowdfunding

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

debenture

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

debentures

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

investment bank

Long-term debt capital is obtained by

issuing bonds

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

line of credit

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

retained earnings

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

sales finance company

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

security

Retained earnings are a type of equity capital.

True

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

owner capital exceeds debt capital

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

$1,050

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

$16

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

False

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

2/10, net 30

Which statement is true about forming a corporation?

Additional funds can be obtained through the sale of stock.

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

False

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

ESOP

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

False

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

False

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

False

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

False

Which statement is true about preferred stockholders?

Holders typically do not have voting privileges in a business.

Which statement is true about trade credit?

It is a form of short-term financing.

Which statement is true of common stockholders?

They have the right to vote at annual meetings, at one vote per share of stock owned.

Which statement is true about venture capitalists?

They may get a percentage of ownership in the company in return for their investment.

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

True

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

True

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

True

Bondholders must be paid before stockholders share in the earnings.

True

Businesses in financial difficulty often have trouble getting debt capital.

True

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

True

Factors loan money to businesses based on their accounts receivable.

True

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

True

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

True

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

True

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

True

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

True

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

convertible bond

The investment made in a business by its owners is called

equity capital

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

factor

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

mortgage bond

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

one year

The dollar value printed on the stock certificate is known as the

par value

Retained earnings refer to

profits that owners do not take out of the business

A common method used to purchase expensive equipment is with

term loans

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

the foreign exchange rate

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

underwriter