GEB1011 Test 2

The entrepreneurial personally includes all of the following characteristics except

Intolerance for failure

What is BBB and above considered?

Investment grade

All of the following actions by firm's owners result in changes in equity capital except ____

Issuing bonds

What is a convertible security?

Issuing bonds or preferred stock that contains a conversion feature

What 2 factors determine the price of a bond?

Its risk and its interest rate

What is a corporation?

Legal organization with assets and liabilities separate from those of its owner(s)

What is a business incubator?

Local programs designed to provide low-cost shared business facilities to small start-up ventures

A ______ refers to the sale of new stock or bond issues to a small group of investors, such as pension funds or insurance companies, rather than to the general public.

Private placement

What is the financial system?

Process by which money flows from savers to users

When a government unit owns and operates an organization, the arrangement is known as ______

Public ownership

Which tool is so powerful it can cause a sudden and dramatic impact on the money supply so it is rarely used?

Reserve requirements

Which of the following is the best definition of financial risk?

Risk is the uncertainty regarding the gain or loss from an investment

Which category of entrepreneurs would be most likely to start one business, run it, and then start and run additional businesses in succession?

Serial entrepreneur

What is preferred stock?

Shares that give owners limited voting rights, and the right to receive dividends or assets before owners of common stock

What is common stock?

Shares that give owners voting rights but only residual claims to the firm's assets and income distributions

What is a money market instrument?

Short-term debt securities issued by governments, financial institutions, and corporations

______ would be the least likely to obtain a private placement

Small individual investors

The most widely used form of business ownership is:

Sole proprietorship

In a large corporation, which executive reports to the chief executive officer and is largely responsible for setting financial policy?

The chief financial officer

Which of the following actions would have the effect of increasing the supply of money and credit and lowering interest rates?

The fed buys government securities

What is a commercial bank?

The largest and probably the most important financial institution in the United States and in most other countries as well

What is the New York Stock Exchange?

The most famous and one of the oldest stock markets in the world

What is an entrepreneur?

A risk taker in the private enterprise system? A person who seeks profitable opportunity and takes necessary risks to set up and operate a business

What is a business plan?

A written document that provides an orderly statement of a company's goals, methods, and standards

What is a security?

Financial instruments that represent obligations on the part of the issuers to provide the purchasers with expected stated returns on the funds invested or loaned

What is a mutual fund?

Financial intermediaries that raise money from investors by selling shares

What is the primary market?

Financial market in which firms and governments issue securities and sell them initially to the general public

What are the 2 most important considerations in choosing an idea for a business?

Finding something you love to do and are good at doing; determine if your idea satisfies a need in the marketplace

What is a franchisor?

Firm whose products are sold to customers by the franchisee

Greg buys a McDonald's franchise. Greg is the _____ and _____ for McDonald's

Franchisee; does not work

What is equity financing?

Funds invested in new ventures in exchange for part ownership

All of the following are duties of the board of directors of a corporation except _______

Guaranteeing the payment of cash dividends every year

Many businesses fail during the early years because of ________

Inadequate financing

During a recession, firms that have a greater degree of leverage have

Increased risk

What is the principle of leverage?

Increasing the rate of return on funds invested by borrowing funds

What is a small business?

Independent business with fewer than 500 employees, not dominant in its market

What is franchisee?

Individual or business firm purchasing a franchise

What is a marketable security?

low-risk securities that either have short maturities or can be easily sold in secondary markets

What is a horizontal merger?

merger that joins firms in the same industry for the purpose of diversification, increasing customer bases, cutting costs, or expanding precut lines

What is a government bond?

Bonds sold by the U.S. department of the treasury

Debt capital refers to:

Borrowed funds

What is debt financing?

Borrows funds that entrepreneurs must repay

Securities are also called ______

Financial instruments

What is the limit for an FDIC insurance?

$250,000

What are the advantages of buying an existing business?

- Employees are already in place to serve established customers and deal with familiar suppliers - The good or service is known in the marketplace - The necessary permits and licensed have already been secured

Which business sectors are most likely to be a small firm?

- Home builders - Florists - Hair salons - Auto repair - Funeral homes

What suggestions are given for starting a new venture?

- List your interests and abilities - Make a list of the type of businesses that match your interests and abilities - Read to learn about demographic and economic trends - Evaluate existing goods and services - Decide on a business that matches you - Conduct marketing research - Learn as much as you can about the industry

What are the benefits of franchising?

- Opportunities for expansion that might not otherwise be available - Can move into new geographic locations including overseas Manage a much larger and more complex business

What are the advantages of an S corporation?

- Taxed only once - Do not pay corporate taxes on their profits

What are the 4 reasons given to choose entrepreneurship as a career path?

1. Being your own boss 2. Financial success 3. Job security 4. Quality of life

What are the 3 categories of entrepreneurs?

1. Classic 2. Serial 3. Social

What are the 4 factors supporting and expanding opportunities for entrepreneurship?

1. Globalization 2. Education 3. Demographic and economic trends 4. Information technology

What are 3 examples of a non-depository institution?

1. Insurance companies 2. Pension funds 3. Finance companies

What 3 reasons are given for "why businesses fail?"

1. Management inexperience 2. Inadequate financing 3. The challenge of meeting government regulations

What are the 5 levels of management in a corporation?

1. Stockholders 2. Board of directors 3. Top management 4. Middle management 5. Supervisory mangement

Describe the 8 characteristics of entrepreneurs?

1. Vision-overall idea for how to make their business idea a success 2. High energy level- long hours and time 3. Need to achieve- Strong competitive drive 4. Self confidence and optimism- Fearlessness and ability to succeed 5. Tolerance for failure- Ability to try and try again 6. Creativity- Conceive new ideas for goods and services 7. Tolerance for ambiguity- Know the uncertainties associated with launching venture 8. Internal locus of control- believe they can control their own destinies

What are the basic questions a financial plan answers?

1. What funds will the firm require during the planning period 2. When will it need additional funds 3. Where will it obtain the necessary funds

Which of the following is least likely to be a small business?

A nursing home

What is a small business administration (SBA)?

A principal government agency concerned with helping small U.S. firms

What is a municipal bond?

Bonds issued by state or local governments

Most manufacturing businesses are considered small if they employ fewer than _______ workers

500

What percentage of small businesses have gone out of business within 10 years?

82%

What is a revenue bond?

A bond issue whose proceeds will be used to pay for a project that will produce revenue, such as a toll road or bridge

What is a general obligation bond?

A bond whose proceeds are to be used to pay for a product that will not produce any revenue

A legal organization with assets and liabilities separate from those of the owner called

A corporation

What is a firm's capital structure?

A firm's debt and equity capital

What is a non-depository institution?

Accept funds from businesses and households, much of which they then invest

An entrepreneur:

Accepts the risk of starting and running a business

An effective business plan should include:

All of these answers are correct

S corporations:

All of these answers are correct

Small businesses often fail due to

All of these answers are correct

What is an acquisition?

An agreement in which 1 firm purchases another

What is a merger?

An agreement in which 2 or more firms combine to form one company

How do interest rates impact the price of a bond?

As interest rises, bond prices fall

What is a partnership?

Association of 2 or more persons who operate a business as co-owners by voluntary legal agreement

What is the rating given to speculative or "junk bonds"?

B, CCC, CC, C

What financial institutions are insured under FDIC?

Banks

What are venture capitalists?

Business organizations or groups of individuals that invest in early-stage, high-potential growth companies

What is a sole proprietorship?

Business ownership in which there is no legal distinction between the sole proprietor's status as an individual and his or her status as a business owner

_______ must verify in writing the accuracy of their corporation's financial statements

CEOs and CFOs

Which of the following is not a securities category:

Cash funds

Franz and Arlene had an idea for a different type of ice cream. They struggled to open their own small business, and later, to expand production and distribution. Their products are distributed nationwide and their sales continue to increase. France and Arlene are examples of _____

Classic entrepreneurs

What is a secondary market?

Collection of financial markets in which previously issued securities are traded among investors

What is a short-term asset?

Consist of cash and assets that can be or are expected to be converted into cash within a year

What is franchising?

Contractual business arrangement between a manufacturer or other supplier, and a dealer such as a restaurant operator or retailer

In the typical firm, the _____ is the chief accounting manager

Controller

What is the federal reserve system's most important function?

Controlling the supply of money and credit

The types of firms are commonly found among agricultural businesses:

Cooperatives

What is a limited liability company (LLC)?

Corporation that secures the corporate advantage of limited liability while avoiding the double taxation characteristic of a rational corporation

What is an S corporation?

Corporations that do not pay corporate taxes on profits; instead profits are distributed to shareholders who pay individual income taxes

Borrowing money ________

Creates leverage

Which of the following is not a function of the federal reserve system?

Creating fiscal stimulus packages

Which of the following financial institutions is organized as a not-for-profit cooperative?

Credit Union

Bondholders are _____ of a corporation

Creditors

Kaitlyn's company needs to obtain funds in order to keep the business going; however, she does not want stockholders influencing the direction of her company. What type of financing should Kaitlyn acquire?

Debt capital

Which form of financing needs to be repaid?

Debt financing

Which of the following interest rates does the federal reserve actually set?

Discount rate

What is a financial plan?

Document that specifies the funds needed by a firm for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds

The stock of old Germany brewery is totally owned by the Prechter family. When the family elected to move from a sole proprietorship to a corporation, the greatest concern was _______

Double taxation

A corporation in which employees share in whatever profit their company earns is known as:

Employee-owned corporations

Information technology can help entrepreneurs in all of the following ways except:

Ensure financial success

______ involves entrepreneurs exchanging a share of ownership in their business for money supplied by 1 or more investors

Equity financing

What is the role of a financial manager?

Executives who develop and implement their firm's financial plan and determine the most appropriate sources and uses to funds

______ franchising offers entrepreneurs greater independence and flexibility than other types of small businesses

False

______ sole proprietorships is newer business trend

False

What is FDIC?

Federal agency that insures deposits at commercial and saving banks

What is the maximum number of stockholders an S corporation can have?

Fewer than 100

What is a vertical merger?

Merger that combines firms operating at different levels in the production and marketing process

What is the key difference between NASDAQ and the New York Stock Exchange (NYSE)?

NASDAQ is completely electronic; the NYSE still has a trading floor

The difference between what you own and what you owe is called ______

Net worth

Securities are

Obligations on the part of the borrower to provide returns on funds invested or loaned

Which tool is used most often?

Open market operations

How does a financial plan differ from an operational plan?

Operational plans or usually short term as a financial plan is normally long term

Sam knows the economic conditions are out of his control. However, he still believes that his efforts can lead to success. He exhibits the entrepreneurial characteristic:

Optimism

What is vision?

Overall idea for how to make their business idea a success

What is a joint venture?

Partnership between companies formed for a specific undertaking

All of the following are contributions of small businesses except:

They provide more job security than large corporations

What is the overing responsibility of an entrepreneur?

To use the company resources to accomplish goals

Katherine is a successful entrepreneur. She stays close to her customers and is constantly looking for effective strategies. She is also willing to make adjustments when necessary. Katherine is demonstrating _____

Tolerance for ambiguity

Which of the following individuals has the direct responsibility for shareholder relations?

Treasurer

Social entrepreneurs recognized a societal problem and use business principles to develop innovative solutions

True

What is an account receivable?

Uncollected credit sales and can be a significant asset

What is a debenture bond?

Unsecured bonds

What is insider trading?

Use of material nonpublic information about a company to make investment profits

Enrique wants to start a new business, but his bank will not lend him the money he needs. Enrique saw an advertisement sponsored by a business organization that provides financing for promising small companies. The organization sponsoring the advertisement would be considered an _____

Venture capitalist

What are angel investors?

Wealthy individuals who invest money directly in new ventures in exchange for equity

What is an initial public offering (IPO)?

When a company offers stock for sale to the general public for the 1st time

What is a long-lived asset?

assets that are expected to produce economic benefits for more than 1 year