Chapter 8

SBIC stands for the (A) small business in capital. (B) securities, bonds, investment, capital. (C) small-business investment companies (D) sources of business investment companies

small-business investment companies

Financing includes all of the following except

Equitable Payback -Owner's money -Angels -Seed Capital

Which of the following is a source of capital for entrepreneurs?

Equity

According to Forbes, the net worth of the richest ______ Americans was $2.29 trillion ($5.73 billion per person). (A) 400 (B) 1,000 (C) 5,000 (D) 100

400

Short-term debt is (A) paid back in six months. (B) paid back in one year. (C) paid back after sales. (D) paid back over an indefinite period of time.

Paid back in one year

Which of the following terms is synonymous with social lending? (A) accounts receivable lending (B) peer-to-peer (P2P) lending (C) tax lending (D) government backed lending

Peer-to-Peer (P2P) lending

Advantages of debt financing include all of the following except (A) low interest rates that justify the opportunity cost. (B) regular interest payments. (C) potential greater return on equity. (D) no relinquishment of ownership.

Regular interest payments

The Regulation D exemptions include all of the following except (A) Rule 504-placements of up to $1 million. (B) Rule 503-placements of less than $500,000. (C) Rule 505-placements of up to $5 million. (D) Rule 506-placements in excess of $5 million.

Rule 503- placements of less than $500,000

Which of the following is a true statement about raising capital? (A) All capital is raised through formal sources. (B) All capital is raised through debt sources. (C) Capital is easy to get. (D) It often takes a great deal of time to raise capital.

it often takes a great deal of time to raise capital.

One of the advantages of public offerings is (A) liquidity. (B) disclosure. (C) requirements. (D) cost.

liquidity

The main objective of Regulation D is to (A) increase investment in private placement. (B) regulate new small-business investment. (C) make it easier and less expensive for small ventures to sell stock. (D) reduce debt financing by small enterprises.

make it easier and less expensive for small ventures to sell stock.

Venture capitalists are experienced professionals who provide a full range of service for new ventures including (A) supplying labor for start-up. (B) market research and strategy for pricing. (C) management consulting. (D) R & D knowledge.

management consulting

Which of the following is not one of the eight critical factors that VCs use in the evaluation of new ventures? (A) lead time (B) timing of entry (C) scope (D) managerial structure

managerial structure

According to the text, which of the following could be considered a "deal killer" by a venture capitalist? (A) the entrepreneur's education (B) the entrepreneur's travel expenses (C) the excessive founder salaries (D) the humility of the management team

the excessive founder salaries

__________ is(are) one of the disadvantages of going public. (A) Proxy statements (B) Form 8-K (C) Shareholder pressure (D) Liquidity

Shareholder Pressure

Which of the following would be most commonly used for short-term financing? (A) insurance companies (B) trade credit (C) finance companies (D) leasing companies

Trade Credit

A good idea is important, but a good management team is even more important.

True

Which of the following is not one of the most common questions typically required to be answered by entrepreneurs seeking funding? (A) What do you plan to do with the money? (B) How much money do you need? (C) When do you need the money? (D) What exact date will you repay the money?

What exact date will you repay the money?

Which of the following is not a question commonly asked by banks of entrepreneurs? (A) What do you plan to do with the money? (B) How much do you need? (C) What interest rate did you have in mind? (D) How will you repay the loan?

What interest rate did you have in mind?

Which is not a stage of the evaluation process? (A) initial screening (B) evaluation of the business plan (C) group discussion (D) final evaluation

group discussion

Which of the following statements is not true of venture capitalists? (A) They want the entrepreneur and the management to run the company. (B) They expect high return on investments. (C) They are interested in trying to manage firms themselves. (D) They take a long time to raise venture capital.

they are interested in trying to manage firms themselves.

Which is one of the most important questions for entrepreneurs to ask regarding venture capitalists? (A) What is it like to work with their firm? (B) Are they good communicators? (C) Are they wealthy? (D) Are they good at financial computation?

what is it like to work with their firm?

The most common source of debt financing is (A) trade credit. (B) factoring. (C) commercial banks. (D) finance companies.

Commercial Banks

Which of the following is a type of equity financing? (A) convertible debentures (B) common stock (C) loan with warrants (D) loan without warrants

Common Stock

Traditional industries such as textiles, furniture manufacturing, and clothing manufacturing best fit into what debt financing source? (A) trade credit (B) investing (C) leasing (D) factoring

Factoring

Because the advantages of going public outweigh the disadvantages, it is in a corporation's best interest to go public.

False

Peer-to-peer lenders are friends of the entrepreneur who want to invest in the new venture.

False

Of the following, which is not typically identified as a bootstrapping technique? (A) sharing office space (B) hiring seasoned veterans (C) encouraging customers to pay early (D) trading equity for services

Hiring seasoned veterans

The business plan is a critical element in a new-venture proposal.

True

The most common sources of debt financing are commercial banks.

True

Trade credit is given by suppliers who sell goods on account

True

When using P2P lending, one potential danger may be an uncertain regulatory environment.

True

When securing a bank loan, an entrepreneur should be prepared to answer all of the following questions except (A) When do you need it? (B) How do you need it? (C) What do you need it for? (D) What is the price of your product?

What is the price of your product?

An informal risk capitalist is referred to as: (A) your neighbor. (B) a business angel. (C) a retiree. (D) someone with extra money to invest but who is not interested becoming an entrepreneur.

a business angel

Long-term debt is used for (A) recurring purchases. (B) purchase of property or equipment. (C) payment of payroll. (D) a rainy day fund.

a rainy day fund

Of the following, which is more likely than the others to be deemed a potential danger of social lending? (A) high funding success rate (B) business plan disclosure (C) potential tax advantage (D) regulatory certainty

business plan disclosure

Which major trend is not one that has occurred in venture capital over the last few years? (A) more innovation (B) more specialized funding (C) more syndicated deals decreasing (D) more small start-up investments are weakening

more syndicated deals decreasing

Equity capital is (A) paid back within one year. (B) paid back after five years. (C) not a loan but a form of stock. (D) loans from family.

not a loan but a form of stock

Common stock is the least basic form of ownership.

False

Frugality is deemed a bootstrapping technique.

True

In 2014, there were over 450 crowdfunding platforms.

True

The average size of social loans is around $17,000.

True

Venture capitalists are a valuable source of equity funding for new ventures.

True

Approximately how many commercial banks are there in this country? (A) about 40,000 (B) about 5,600 (C) about l7,000 (D) about 20,000

About 5,600

Sources of debt financing include trade credit, accounts receivables, factoring, and finance companies.

True

Informal investors find projects through (A) newspapers. (B) a network of friends. (C) commercials. (D) banks.

a network of friends

Informal risk capitalists are often referred to as "business angels."

True

Social lending sites are different from so-called microlending sites.

True

Financial equity instruments, which give investors a share of the ownership, may include (A) preferred stock. (B) option sales. (C) donations. (D) loans without warrants.

preferred stock

When starting a business, which of the following sources of financing are least likely to be used? (A) trade credit (B) factors (C) leasing companies (D) insurance companies

Insurance Companies

The venture capital pool is rapidly declining due to overfunding.

False

When going public with public offerings an advantage might be (A) size of the company's capital amount. (B) the company's size. (C) the company's market share. (D) the product price.

size of the company's capital amount

Sophisticated investors are wealthy individuals who invest more or less regularly in new and/or early- and late-stage ventures.

True

Evaluation of new-venture proposals includes all the following processes except (A) oral presentation. (B) initial screening. (C) evaluation of the business plan. (D) a product prototype.

a product prototype

A disadvantage of debt financing is (A) regular interest payments. (B) possible cash flow enhancement. (C) inhibition of growth and development due to equity investments. (D) relinquishment of ownership.

Regular Interest Payments

Regulation D defines separate exemptions that are based on the amount of money being raised. Which is not a rule that accompanies these exemptions? (A) rule 503 (B) rule 504 (C) rule 505 (D) rule 506

Rule 503

When going public, specific detailed information that must be presented includes (A) a 20-year plan. (B) the capital structure of the company. (C) any financial conflicts of interest. (D) any previous business failures.

the capital structure of the company

Venture capitalists are quick to invest.

False

Venture capitalists, surprisingly, require little information before they make an investment.

False

Which of the following would be most commonly used for intermediate-term financing? (A) insurance companies (B) trade credit (C) finance companies (D) leasing companies

Finance Companies

Entrepreneurs are rarely able to set up a business without investment funds or bank loans.

False

Equity financing is money invested in the venture with legal obligations to repay the principal amount of interest or interest rate on it.

False

Large ventures often use private placements as a method of raising capital.

False

Public offering is a term used to refer to corporations taking public donations to raise capital.

False

Regulation D augments the regulations for reports and statements required for selling stock to private parties, friends, employees, customers, relatives, local professionals.

False

Many new ventures find that debt financing is (A) necessary. (B) a waste of time. (C) not an important consideration. (D) their major source of funds.

Necessary

How do informal investors find projects to invest in? (A) networks of friends (B) business classifieds (C) Forbes (D) university think tanks

Networks of friends

SEC stands for the (A) Stock Exchange Corporation. (B) Securities and Exchange Commission. (C) Standard Equity Commission. (D) Source of Equity Company.

Securities and Exchange Commission

Which of the following is not a type of debt financing? (A) private placement (B) trade credits (C) finance companies (D) accounts receivables

Private Placement

_______ bank loans are made on a discounted value of the receivables pledged. (A) Accounts receivable financing (B) Peer-to-peer (C) Trade lending (D) Convertible stock

Accounts receivable financing

Which of the following would be most commonly used for long-term financing? (A) insurance companies (B) trade credit (C) finance companies (D) leasing companies

Insurance Companies

Which of the following does not represent a category of angel investors? (A) micromanagement angels (B) entrepreneurial angels (C) amateur angels (D) corporate angels

amateur angels

There is only a small number of informal risk capitalists in the market today.

False

Major trends in the venture capital field today include all of the following except (A) less specialized and more homogenous funds. (B) emerging feeder funds. (C) decrease in start-up investment amounts. (D) global reach.

Less specialized and more homogenous funds

Informal risk capitalists are those who have already made their money and now seek to help new ventures.

True

Innovation has become more global and is no longer the exclusive domain of Silicon Valley and Route 128 in Boston.

True

P2P lenders charge fees for brokering and servicing loans and collect penalties for late payments.

True

Private placement is a method of raising capital through the private placement of securities.

True

Use of debt to finance a new venture involves a payback of the funds plus an interest fee (interest) for the use of the money.

True

Which is an important question for the entrepreneur to ask when evaluating the venture capitalist? (A) How many deals has the firm actually made in this field? (B) Is the person a close relative? (C) Is the person wealthy? (D) Is the person a college graduate?

how many deals has the firm actually made in this field?