GEB Study Guide (Part 1)

_____ refers to the value of a business that exceeds the sum of the value of all individual assets but that cannot be sold separately from the business. A. Goodwill B. Collateral C. Inventory D. Debt

A. Goodwill

Which of the following is true of financing small businesses? A. There are several resources available for financing start-ups. B. Funding is only important when a business is just starting. C. A business has fixed financial goals in all stages of its development. D. The most popular source of financing for start-ups is from commercial banks.

A. There are several resources available for financing start-ups.

Which of the following describes angel investors? A. They are wealthy individuals who invest in companies in relatively early stages of development. B. They are individuals who act as brokers to help connect owners to organizations that provide funding. C. They are state-run organizations that buy stakes in companies in the early stages of development. D. They are government organizations that help small-scale companies grow.

A. They are wealthy individuals who invest in companies in relatively early stages of development.

An organization authorized by the SBA to make insured loans to small businesses that are expected to increase economic activity within a specific geographic area is referred to as a(n) _____. A. community development organization B. accelerator C. economic cooperation organization D. limited partnership

A. community development organization

In general, all forms of business organization can be categorized based on the owners' responsibilities for the organization's liabilities, and _____. A. how the business is taxed B. how the business is financed C. the business's target market D. whether it is a manufacturing or service organization

A. how the business is taxed

There are two general sources of gift financing: A. institutional and personal. B. friends and family. C. consumer and commercial banks. D. angel and venture investors.

A. institutional and personal.

A charge for the use of money, usually figured as a percentage of the principal is called _____. A. interest B. dividend C. tax D. chargeback

A. interest

The amount that revenues exceed expenses is referred to as _____. A. profit B. cash flow C. operating margin D. debt

A. profit

Ownership of corporations is established by _____. A. stock certificates B. share agreements C. member share certificates D. partnership share agreements

A. stock certificates

The number one source of financing for small businesses is from _____. A. the owners themselves B. angel investors C. government programs D. banks

A. the owners themselves

Which of the following is true of limited partnerships? A. All the owners have full responsibility of repaying debts. B. All the owners face the potential of having to pay business debts from their own wealth. C. None of the owners, except the general partner, is fully liable. D. None of the owners are at a risk of losing what they invested in the business.

B. All the owners face the potential of having to pay business debts from their own wealth.

Which of the following is true of an LLC? A. LLCs are the same as partnerships. B. LLCs have a choice of being taxed as either corporations or partnerships. C. LLCs are a legal form of business that have no flexibility regarding taxes. D. LLCs are the same as S-corporations.

B. LLCs have a choice of being taxed as either corporations or partnerships.

Orion Inc. was started as a small organization with five employees. After the first year's profits were made, the owners decided to invest the profits in expanding the business. This is an example of financing the business using _____. A. benchmarking B. bootstrapping C. piggybacking D. outside equity

B. bootstrapping

A business that collects, collates, and reports information concerning an entity's use of debt is referred to as a(n) _____. A. accelerator B. credit reporting agency C. debt reporting organization D. community development organization

B. credit reporting agency

Money contributed to businesses in return for part ownership of the business is called a(n) _____. A. debt B. equity capital C. gift D. loan

B. equity capital

The percentage amount that the payout of an investment differs from original cost is known as: A. dividend on capital. B. gain on investment. C. risk on investment. D. interest on the principle.

B. gain on investment.

The most common form of institutional gift financing is in the form of _____. A. state loans B. reduced taxes C. state grants D. donated capital

B. reduced taxes

In the Small Business Administration guaranteed loan payment programs, the owners must be _____ before they qualify. A. backed by personal equity for half the loan sum B. turned down by a bank C. partnered with a successful entrepreneur D. the heads of an already successful business

B. turned down by a bank

_____ is provided by state and local governments, primarily to encourage specific activities that are expected to improve the blighted areas or provide additional employment. A. Debt capital B. Venture investment C. Tax abatement D. Equity capital

C. Tax abatement

Something of value given or pledged as security for payment of a loan is called _____. A. chargeback B. capital equity C. collateral D. personal equity

C. collateral

A legal "artificial" entity that is formed by filing specific documents with a state government is called a _____. A. sole proprietorship B. partnership C. corporation D. general partnership

C. corporation

A(n) _____ is a legal obligation to pay money in the future. A. equity capital B. stake C. debt D. gift

C. debt

Any valuable asset that is donated to a business without any obligation to repay or to give any ownership interest is called a(n) _____. A. debt B. equity capital C. gift D. investment

C. gift

The level of probability that an investment will not produce expected gain is called _____. A. interest B. dividend C. risk D. diversification

C. risk

Private businesses that are authorized to make SBA insured loans to start-ups and small businesses are called _____. A. community development organizations B. accelerators C. small business investment companies D. LLCs

C. small business investment companies

Direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria are referred to as _____. A. tax abatements B. grants C. tax credits D. debts

C. tax credits

Which of the following statements is true regarding the Fair Credit Reporting Act? A. It requires that consumers investigate and directly report any inaccuracies to the source of the inaccurate information. B. It provides CRAs with a period of one year to investigate cases of inaccurate information. C. It requires that CRAs independently confirm information. D. It requires that the CRA forward copies of all relevant information to the source of the inaccurate information.

D. It requires that the CRA forward copies of all relevant information to the source of the inaccurate information.

_____ is money from selling part of a business to people who are not and will not be involved in the management of the business. A. Dividend B. Bond C. Equity capital D. Outside equity

D. Outside equity

Investing in multiple investments of differing risk profiles for the purpose of reducing overall investment risk is called _____. A. digression B. deviation C. specialization D. diversification

D. diversification

Gifts of money made to a business for a specific purpose are referred to as _____. A. equities B. debts C. tax credits D. grants

D. grants

An organization, usually associated with universities, that supports start-up technology businesses by providing inexpensive office space, a variety of support services, and resources is called a(n) _____. A. LLC B. community development organization C. small business investment company D. incubator

D. incubator

A business formed by an individual who is responsible for all debts and claims against the business is called a: A. limited liability company. B. conglomerate. C. partnership. D. sole proprietorship.

D. sole proprietorship.

A company's goodwill is its best collateral. (T or F)

False

A legal obligation to pay money in the future is called equity capital. (T or F)

False

Community development organizations are private businesses that are authorized to make SBA insured loans to start-ups and small businesses.

False

Giving a gift has tax implications. (T or F)

False

Knowing one's personal worth is not important when starting a business. (T or F)

False

Limited liability companies' primary advantage is that owners may easily choose whether to be taxed as an entity or have tax items pass through. (T or F)

False

People who buy ownership rights but are not part of the management of the business are known as outside equity investors. (T or F)

False

When a business enters a phase of rapid growth, one of the challenges it faces is that very few sources of money are available to support its growth. (T or F)

False

A measure of the amount of debt relative to total investment is called cost of capital. (T or F)

True

Borrowing money for capital investment enhances the potential for higher rates of return for the owners. (T or F)

True

During the start-up phase of a small business the emphasis is on conserving what little cash the new business has. (T or F)

True

Equifax is one of the four primary CRAs in the United States. (T or F)

True

In the U.S., government programs are the number one source for financing small businesses. (T or F)

True

Investing in multiple businesses increases the chances of offsetting possible losses incurred from one business. (T or F)

True

Majority of small business start-ups are funded by bootstrapping. (T or F)

True

Money borrowed for the purpose of investment in a business is called debt capital. (T or F)

True

Payments of profits to the owners of corporations are called dividends. (T or F)

True

Reduced taxes are the most common form of institutional gift financing. (T or F)

True

The SBIR and the STTR programs require that every U.S. agency that makes research grants provide a minimum of 2 percent of its grant budget to small businesses, as defined by the SBA. (T or F)

True

The more debt that is included in the capital mix, the higher is the weighted average cost. (T or F)

True