Business Management Chapter 16

Which form of business ownership provides the greatest protection of the owner's personal assets in case of business failure?

None of the ownership forms provides protection of an owner's personal assets.

cost of capital

what percent of company (equity) to obtain an amount of money

Another name for investment bank is a. underwriter b. commercial bank c. factor d. venture capitalist

a. underwriter

short term debt

debt that must be paid with interest within a year

Long term debt capital

long term loans, bonds

debt capital

money that others loan to a business

short term debt capital obtained from banks

- line of credit - promissory note

par value

arbitrary dollar value assigned to shares of stock when they are issued

A form of debt equity similar to an open line of credit is a. venture capital b. a business credit card c. trade credit d. a lease

b. a business credit card

An advantage an entrepreneur gains by forming a corporation to raise capital is a. it does not increase the number of owners b. the entrepreneur's personal assets have greater protection c. the entrepreneur still retains all profits earned d. none of the above

b. the entrepreneur's personal assets have greater protection

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

book

Which of the following statements about preferred stock owner- ship is true? a. Preferred stock owners are given one vote per share on corpo- rate matters. b. Preferred stock owners cannot lose the amount of their invest- ment if the business fails. c. Preferred stock owners receive a guaranteed dividend from the company's profits. d. All of the statements are true.

c. Preferred stock owners receive a guaranteed dividend from the company's profits.

The best policy regarding the use of profits for a corporation is to a. avoid making a profit so no dividends have to be distributed b. distribute all profits as dividends to increase stockholder satisfaction c. distribute some profits as dividends and keep some profits as retained earnings d. keep all profits as retained earnings to build the value of the company quickly

c. distribute some profits as dividends and keep some profits as retained earnings

plowing back

companies that are putting their earnings back into the business instead of distributing profits [dividends] to stockholders (ex. research, developments, growing business internally)

lease

contract that allows the use of an asset for a fee paid on a schedule, such as monthly

An example of equity capital is a. personal savings of a current owner invested in the business b. money contributed by a new partner c. retained earnings d. all of the above

d. all of the above

The number of shares of stock to be issued by a corporation is determined by a. common stockholders b. preferred stockholders c. company executives d. the board of directors

d. the board of directors

Business owners' personal contributions to the business are called

equity capital

book value

figure calculated by dividing corporation's net worth by the total number of shares outstanding

venture capital

financing obtained from an investor or investment group that lends large sums of money to promising new or expanding small companies

common stock

gives holder right to participate in managing the business by voting on basic issues at annual meetings and getting a share in profits

preferred stock

gives holders first claim on corporate dividends is company earns a profit

An organization that helps a business raise large amounts of capital through the issue of bonds or stocks is an

investment bank

term loan

medium-term or long-term financing used for operating funds or the purchase or improvement of fixed assets

investment bank

organization that helps a business raise large sums of capital through the sale of stocks and bonds

equity capital

owners personal contribution to a business

market value

price at which stock is actually bought and sold

retained earnings

profits not taken out of the business but saved for use by the business

stock options

rights granted by a corporation that allows current stockholders to buy additional shares when issued at a fixed price for a specific period of time

trade credit

short term form of financing obtained by buying goods and services that do not require immediate payment

preferred stock

stock that gives holders first claim on corporate dividends if a company earns a profit

A short-term form of finance obtained by buying goods and services that do not require immediate payment is

trade credit

short term debt capital obtained from other sources

trade credit