BUSINESS PRINCIPLE (15)

Advantages of using a credit card in small business financing include that it ______. Multiple select question. (A) provides a line of credit (B) saves time and is convenient (C) provides higher interest rates than a bank loan (D) provides lower interest rates for the small business owner

A B

Items that may back a secured bond include ______. Multiple select questions. (A) real estate (B) machinery and equipment (C) personal promise to pay (D) long-term goodwill on balance sheet

A B

Which statements are true about factoring accounts? Multiple select question. (A) It is the accounts receivable of a firm sold for a discount. (B) The firm that buys the accounts receivable collects the amount due. (C) Small businesses often use it for financing in the short term. (D) Factoring is a new business process started in the 1990s.

A B C

______ is a promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments.

A term-loan agreement

Firms will leverage (raise needed funds through borrowing) because it will ______. Multiple choice question. (A) make them more attractive in possible mergers (B) increase a firm's rate of return on the owner's investment (C) allow the firm to be less dependent on banks and other lenders (D) allow the firm to receive special government funding

B

Why can loans obtained from families and friends be problematic? Multiple choice question. (A) because interest rates on family loans are often very high (B) because all parties may not understand cash flow (C) because family loans cannot offer trade credit terms (D) because family loans must be paid back within a yea

B

To issue stock, a public corporation must meet the requirements of ______. (Select all that apply) Multiple select questions. (A) the chairman of Dow Jones (B) the SEC (Securities and Exchange Commission) (C) the Secretary of the Treasury (D) various state agencies

B D

Profits the company keeps and reinvests in the firm are called ______. Multiple select question. (A) advanced capital (B) gross profits (C) retained earnings (D) net profits

C

The risk/return trade-off principle means that ______. Multiple choice question. (A) only safe returns should have high profits (B) a loan is allowed to be called in by the bank if profits are too low (C) the greater the risk for a lender making a loan, the higher the interest rate (D) banks are allowed to trade and sell loans to each other

C

What inventory management procedure helps a firm to control inventory costs? Multiple choice question. (A) keeping inventory levels constant regardless of demand (B) only buying new designs in large quantities (C) implementing a just-in-time inventory control method (D) keeping warehouses fully stocked with inventory

C

If a secured loan is not repaid, then Multiple choice question. (A) the loan is extended automatically (B) The collateral goes into an escrow (C) the borrower declares bankruptcy (D) the lender may take the collatera

D

The first public offering of a corporation's stock is called ______. Multiple choice question. (A) buying stock on margin (B) an over-the-counter (OTC) offering (C) primary market offering (D) an initial public offering (IPO)

D

______ financing involves borrowing money. ______ financing is selling part of the company or reinvesting retained earnings in the company.

Debt; Equity

Place the three steps in the financial planning process in order from beginning to end with the first step at the top.

Forecasting the firm's financial needs Developing budgets Establishing financial controls

Various state agencies and the ______ have regulations on the issuing of stock.

Securities and Exchange Commission

True or false: A budget is a tool for financial planning.

True

What is a stock?

a share of ownership in a company

A secured loan is

backed by collateral

During tough economic times, customers are happy when firms extend ___________ for purchases.

credit

Borrowing money the company has a legal obligation to repay is ______.

debt financing

There is usually no management influence for _____________ financing whereas common stockholders have voting rights for ____________ financing

debt/equity

A feature of ______ financing is that stockholders have voting rights

equity

A financial institution or commercial bank that purchases a business' accounts receivable at a discount and then keeps what they collect is a(n) ______.

factor

In any business, funds come into and go out of a business. What business function acquires funds for the firm and then manages those funds on a day-to-day basis?

finance

The function of acquiring and managing funds within a firm is referred to as

finance

In financial planning, what is the process in which a firm periodically compares its actual revenues, costs, and expenses, with its budget?

financial control

Managing a firm's resources in order to meet its goal and objectives is the role of ______.

financial management

Financial management primarily involves managing a firm's ______.

financial resources

Careful control of a firm's ___________ costs allows it to maintain correct levels of stock and product.

inventory

______________ means to raise funds through borrowing to increase a firm's rate of return

leverage

Debt financing refers to funds that ______.

must be repaid

Funding day-to-day operations, acquiring needed inventory, and making capital expenditures are all needs for __________ funds in an organization.

operating

Dimitri owns stock in a U.S. publicly traded company. As a stockholder, Dimitri is a(n) ______ of the corporation.

owner

Stockholders are the _________ of a public corporation.

owners

Which type of market handles the sale of new securities?

primary market

The profit a firm keeps and reinvests in the firm is referred to as

retained earnings

The __________ market handles the trading of securities between investors rather than the company that first issued the stock.

secondary

A firm that issues a bond backed by assets that may be claimed upon default has issued a(n) ________ bond

secured

A firm that puts something of value, like a piece of property, up for collateral is applying for a(n) _____________ loan

secured

A(n) __________ bond is one that is backed by assets which may be claimed if the bond's interest is not paid.

secured

An IPO is the first public offering of a corporation's

stock

In a public corporation, the ownership is held by

stockholders

Shares of ownership in a company are called ______.

stocks

The ______ value of money is the idea that money in your possession today is worth more than money that will be in your possession in the future.

time

A firm that buys goods and services on a given day, but pays for them later is using a(n) _____________ credit

trade

The practice of buying goods and services now and paying for them later is termed

trade credit

Investing in a new business with high profit potential is done by __________ capitalists

venture

Financial control is a process through which a firm periodically compares its budget to which of the following? (Select all that apply) Multiple select question. (A) stock price (B) revenues (C) expenses (D) market share (E) costs

B C E

A term-loan agreement is a promissory note that requires the borrower to ______. Multiple select question. (A) only use one bank (B) pay interest on a loan (C) get permission from the bank to make changes in the product (D) pay specified amount in installments

B D

Advantages of using a credit card in small business financing include that ______. Multiple select question. (A) they can be a risky way to finance (B) they save time (C) the cost of borrowing is expensive (D) cards are accepted in many places

B D

Major investments in either tangible long-term assets such as land, or intangible assets such as patents are considered to be ______ expenditures.

capital

A company that takes out a loan from a bank is using which type of financing?

debt financing

A firm that does not want to pay back a loan will use ______ financing. A firm that does not want to give up ownership will use ______ financing.

equity; debt

Which type of bond is not backed by any specific collateral, such as land or equipment?

debenture bonds

A firm raising funds through various forms of borrowing with the intent to pay it back is using ____________ financing.

debt

Unless special conditions have been agreed upon, there is usually no management influence in ______________ financing

debt

The three steps in the financial planning process are to forecast the firm's short- and long-term needs, develop budgets, and ______.

establish financial controls

When considering ___________ ___________ financing options a financial manager must consider the organization's financial goals and objectives.

long-term

Is it more common for a firm to fail due to lack of sales or poor financial management?

poor financial management

The _____________/return trade-off means that, the greater the risk a lender makes in making a loan, the higher the interest rate.

risk

Small business managers are more concerned with ______-term funds.

short

A(n) ______ forecast predicts revenues, costs, and expenses for a period of one year or less.

short-term

A bond that is backed only by the reputation of the issuer is known as a(n) ___________ bond

unsecured

Money invested in new or emerging companies that investors believe have great profit potential is:

venture capital

Short-term forecasts generally cover up to a ______.

year

Money is considered to have a time value because ______. Multiple choice question. (A) money has more value in your possession today than at a later point in the future (B) checks are only valid for a certain period of time (C) all currency has a date of manufacture printed on it (D) inflation makes money worth more in the future than it is today

A

Short-term financing is more important to a small business than long-term financing because ______. Multiple choice question. (A) small businesses are more concerned with funding day to day operations (B) inventory needs are long-term and critical for small business (C) long-term funds are impossible to obtain for small business (D) only corporations can obtain long-term funds

A

What are the three most common reasons firms fail financially? Multiple select question. (A) undercapitalization (B) poor control over cash flow (C) inaccurate sales forecasts (D) too many customers (E) inadequate expense control

A B E

In factoring, the discount given depends on ______. (Select all that apply) Multiple select questions. (A) the age of the accounts receivable (B) the method of collection (C) the nature of the business (D) the condition of the economy

A C D

Which are questions financial managers ask when considering long-term financing? (Select all that apply) Multiple select question. (A) What are the organization's long-term goals and objectives? (B) How much long-term funding will be needed to meet the monthly payroll? (C) What sources of long-term funding (capital) are available, and which will best fit our needs? (D) What funds do we need to achieve the firm's long-term goals and objectives?

A C D

It is better to go to banks instead of family and friends for business loans because ______. (Select all that apply) Multiple select questions. (A) banks can assist the business in analyzing problems (B) banks will participate in managing the business (C) banks will more often charge lower rates (D) loans from family can hurt family relationships

A D

Which of the following is true about venture capitalists? Multiple select question. (A) They invest in businesses with high potential (B) They are a new method of raising capital in the U.S. (C) They only operate in international markets (D) They have assisted many major companies during start-up

A D

Accepting credit cards can be useful to small businesses by Multiple select question. (A) providing a low interest rate. (B) providing the business with payment more quickly (C) providing ease of payment for customers (D) requiring repayment of loans immediately

B C

Determinants of how much money a firm should borrow include the ______. Multiple select question. (A) previous three year earning average (B) seasonal environment of the business (C) cash flow forecasts (D) speed with which they can turn the borrowed funds into cash

B C D

Needs for operating funds include ______. (Select all that apply) Multiple select questions. (A) increases in stock price (B) making capital expenditures (C) acquiring needed inventory (D) controlling credit operations

B C D

Select those items that are considered to be a capital expenditure. (Select all that apply) Multiple select question. (A) inventory and materials (B) land (C) buildings and equipment (D) patents and copyrights

B C D

When a company allocates the use of specific resources throughout the firm based on a financial plan indicating management's expectations, then the company is using a(n) ___________ as the basis for making decisions.

budget

A firm that makes a major investment in a long-term asset has made a(n) _______________ expenditure

capital

How much money a firm will borrow often depends on how long it takes to convert inventory into

cash

A loan backed by collateral, something valuable like property, is called a(n) ______.

secured loan