GEB Study Guide (Part 2)

Uncertainty of returns in a business is referred to as _____. A. financial risk B. accelerated cash-out C. overpayment D. collateral

A. financial risk

For an owner, the main financial management emphasis while transferring a business to family members must be to: A. increase the cash-to-cash cycle to the highest time possible. B. increase asset value. C. optimize capital structure for profits. D. maximize debt.

B. increase asset value.

If the owner plans to _____ a business, he or she should be removing all surplus cash and tightening the cash-to-cash cycle to the shortest time possible. A. transfer B. sell C. terminate D. start

B. sell

_____ measures the extent to which a business can meet its obligations for the long haul. A. Profitability ratio B. Current ratio C. Return on investment D. Debt-to-equity ratio

D. Debt-to-equity ratio

What type of financing is also called asset-based financing? a. Debt b. Equity c. Cash d. Internal

a. Debt

Debt financing does not require collateral and offers the investor some form of ownership position in the venture. a. FALSE b. TRUE

a. FALSE

You can expect a crowdfunding campaign to fully cover the costs of bringing a product to market a. FALSE b. TRUE

a. FALSE

IndieGoGo gives the option of collecting funds from a failed campaign for a higher commission a. TRUE b. FALSE

a. TRUE

The weighted average cost (WAC) refers to: A. a legal reduction in taxes by the government. B. the average equity capital costs incurred by a firm per year. C. the percentage cost of obtaining future funds. D. the expected average future cost of funds.

D. the expected average future cost of funds.

_______________ is defined as the company's value, using whatever method the entrepreneur chooses, before the investment. a. Pre-money b. Revenue c. Post money d. Crowdfunding

a. Pre-money

The higher amount of leverage (debt/total assets), the greater the risk in the venture. a. TRUE b. FALSE

a. TRUE

Which of the following is NOT a small business administration loan program? a. 7(a) Loan Guaranty program b. Government c. SBA Express Loan program d. Micro Loan program

b. Government

Free Cash Flow Evaluation equals a. PV for the FCF planning period - PV residual value = FCF value b. PV for the FCF planning period + PV residual value = FCF value c. FV for the FCF planning period + PV residual value = FCF value d. FV for the FCF planning period + FV residual value = FCF value

b. PV for the FCF planning period + PV residual value = FCF value

Which of the following is not a con of debt financing? a. Personal guarantees are required. b. There is a 3-5-, or 7-year payback period. c. The lender can force the business into bankruptcy. d. Amounts may be limited to the value of the company's assets.

b. There is a 3-5-, or 7-year payback period.

What does the Dragon Innovation stamp on Kickstarter provide? a. Best value for a project backer b. Dragon Innovation does not exist c. Proof of feasibility analysis & financial capability of a project d. A guarantee that the project will be funded

c. Proof of feasibility analysis & financial capability of a project

A solid valuation contextual factor analysis should include which of the following factors: a. The availability of capital b. Tangible and intangible assets c. Projected performance d. All of these

d. All of these

Donation based includes: a. social causes b. individual needs c. charities d. All of these

d. All of these

Which is a financing method involving an interest-bearing instrument, usually a loan, the payment of which is only indirectly related to the sales and profits of the venture? a. External b. Internal c. Equity d. Debt

d. Debt

Which crowdfunding website cancels any transactions if the project can't reach its funding goal? a. Indiegogo b. Go Fund Me c. Causes d. Kickstarter

d. Kickstarter

After being in business for 24 months, Paul's auto spare parts company Chromson Inc. grows to a relatively stable size. Which of the following would be Paul's primary financial management need at this stage? A. Building owner's wealth B. Clearing all debts C. Implementing bootstrapping techniques D. Establishing internal control over assets

A. Building owner's wealth

_____ is a measure of how much money can be made available to pay obligations within the fiscal year. A. Current ratio B. Return on investment C. Return on equity D. Profitability ratio

A. Current ratio

_____ ratios measure the business's ability to pay debts and expenses that are due in the current accounting period. A. Liquidity B. Profitability C. Activity D. Leverage

A. Liquidity

Jacob has started a graphic design company called Interon Graphics. As Interon Graphics moves into the growth phase, which of following would be Jacob's dominant financial management need? A. Obtaining increasing amounts of cash inflows B. Establishing internal control over assets C. Conserving the money that the business has D. Clearing all debts

A. Obtaining increasing amounts of cash inflows

_____ refers to family or friends letting you add your purchases with theirs in order to get lower prices. A. Piggybacking B. Accelerated cash-outs C. Free use D. Overpayment

A. Piggybacking

The two largest governmental grant programs that are specifically intended for small business are: A. SBIR and STTR. B. SBA and SBDC. C. EDA and DBED. D. EDA and SBA.

A. SBIR and STTR.

Which of the following is true of government agencies that issue grants? A. They publish RFPs that specify the conditions of a grant. B. They require each business to create a proposal using formats that best fits the business. C. They only provide funding after a long evaluation of applications which generally takes over a year to process. D. They are unstructured and prefer informal approaches from companies.

A. They publish RFPs that specify the conditions of a grant.

When debt increases as a percentage of total investment, the value of the firm: A. increases at a decreasing rate. B. decreases at an accelerated rate. C. increases at an accelerated rate. D. decreases at a decreasing rate.

A. increases at a decreasing rate.

At the _____ stage of a business, the emphasis of financial management is to build owner wealth, to conserve assets, to match cash inflows to outflows, and to maximize the return on capital assets by making optimal investing decisions. A. operations B. exit C. growth D. start-up

A. operations

Borrowing money is a better alternative to investing additional personal funds because obtaining equity investment from others: A. reduces the potential loss for any single investor. B. allows lesser debt to be included in the capital mix. C. increases the cost of capital for the business. D. increases the weighted average cost (WAC) of the business.

A. reduces the potential loss for any single investor.

The ratio of profits to owner investment in a business is referred to as _____. A. return on equity B. return on assets C. return on sales D. return on inventory

A. return on equity

Tammy has just opened a donut shop called The Rabbit Hole. Given that The Rabbit Hole is in its start-up phase, which of these would be Tammy's immediate financial management need? A. Building owner's wealth B. Conserving what little money the business has C. Obtaining increasing amounts of cash inflows D. Minimizing debt and increasing asset value

B. Conserving what little money the business has

_____ refers to the percentage expense of obtaining future funds. A. Risk B. Cost of capital C. Rate on investment D. Return on investment

B. Cost of capital

_____ is a measure of the amount of debt relative to total investment. A. Cost of capital B. Financial leverage C. Optimum capital structure D. Financial risk

B. Financial leverage

Which of the following is a form of personal gift? A. Tax credits B. Free use C. Grants D. Tax abatements

B. Free use

Which of the following is true of financial management for a business exit? A. Its main emphasis is on conserving what little cash the business has. B. Its main emphasis is on maximizing the value of the business for successors. C. Its main emphasis is to obtain increasing amounts of cash inflows to pay for added inventory. D. Its main emphasis is on increasing amounts of cash inflows to pay for added inventory, productive assets, and employees.

B. Its main emphasis is on maximizing the value of the business for successors.

Which of the following is the formula for calculating owner's return on equity (ROE)? A. Net Income/Average Investment B. Net Income/Owner's Equity Investment C. Total Liabilities/Total Owner's Equity D. Total Liabilities/Total Assets

B. Net Income/Owner's Equity Investment

When an entrepreneur gets funding for his business from an account that his family had initially set up for his future education or a first home, it is referred to as _____. A. piggybacking B. accelerated cash-out C. free use D. overpayment

B. accelerated cash-out

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 _____. A. accelerated cash-out B. deferral C. free work D. free use

B. deferral

_____ ratios measure how productive a particular asset is in producing sales movement. A. Current B. Profitability C. Activity D. Leverage

C. Activity

Which of the following ways does borrowing help increase potential profits? A. By increasing the weighted average cost (WAC) of the business B. By allowing less debt to be included in the capital mix C. By providing capital funds for additional business opportunities D. By increasing the cost of capital of the business

C. By providing capital funds for additional business opportunities

_____ ratios measure the relative risk that a business setback could cause bankruptcy. A. Liquidity B. Gross margin C. Leverage D. Profitability

C. Leverage

After successfully operating for five years, Tina plans to sell her computer service center. Which of the following would be Tina's main financial management need as she exits the business through sale? A. Obtaining increasing amounts of cash inflows B. Building her wealth and conserving assets C. Optimizing capital structure for profits D. Conserving the money that the business has

C. Optimizing capital structure for profits

_____ refers to a type of formal gift where someone buys something on behalf of the entrepreneur's business and lets the entrepreneur benefit from it. A. Overpayment B. Accelerated cash-out C. Picking up the tab D. Piggybacking

C. Picking up the tab

_____ measure a management's effectiveness in using the invested capital of the business to provide profits. A. Profitability ratios B. Gross margin ratios C. Return on investments D. Return on equity

C. Return on investments

The emphasis of financial management during the _____ phase is to obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees. A. start-up B. exit C. growth D. operations

C. growth

Restrictions imposed by loan contracts on the operations of a business, such as requiring that a specific minimum net worth be maintained, a specific debt-to-equity ratio not be exceeded, no dividends be paid to stockholders and so on, are known as _____. A. loan amortizations B. loan yields C. loan covenants D. credit assurance

C. loan covenants

The ratio of debt to equity that provides the maximum level of profits is called _____. A. cost of capital B. declining financial leverage position C. optimum capital structure D. weighted average cost

C. optimum capital structure

_____ exist for the purpose of addressing some identified social need that cannot be adequately met by market forces. A. SBAs B. Limited Liability Companies C. EDAs D. Foundations

D. Foundations

Which of the following is true of the debt-to-equity ratio? A. It measures the relative risk that a business setback could cause bankruptcy. B. It is calculated using the formula: Total Liabilities/Total Assets. C. If the ratio is lower, it indicates lesser solvency. D. If the ratio is greater, it indicates increased business risk.

D. If the ratio is greater, it indicates increased business risk.

_____ ratios measure management effectiveness in creating wealth from sales and from invested funds. A. Liquidity B. Activity C. Leverage D. Profitability

D. Profitability

During the start-up phase of a business, the emphasis is on: A. finishing all outstanding projects, collecting all money due, disposing of all business assets, and finally paying off any outstanding debt. B. removing all surplus cash and tightening the cash-to-cash cycle to the shortest time possible. C. piggybacking with other successful firms. D. conserving what little cash the business has.

D. conserving what little cash the business has.

Crowdfunding refers to: A. approaching several foundations to acquire grants to fund a business. B. approaching several commercial banks to fund a business. C. funding a business through partnerships with several companies. D. funding a business online through gifts made to the business.

D. funding a business online through gifts made to the business.