MGMT421 Chapter 7

26. In the context of small businesses, which of the following statements is true of a line of credit? A. It permits a business to borrow up to a set amount without red tape. B. It represents ownership in a corporation. C. It permits the use of someone else's property for a specified time period. D. It is an owner's share of the assets of a company.

A. It permits a business to borrow up to a set amount without red tape.

14. A(n) _____ is a long-term debt that is secured by real property. A. mortgage loan B. bond C. lease D. asset-based loan

A. mortgage loan

13. _____ is a form of debt security with a standard denomination, method of interest payment, and method of principal repayment. A. Lease B. Bond C. Chattel D. Mortgage

B. Bond

12. Which of the following statements is true of debt securities? A. Debt securities are usually in the form of preferred stocks. B. Debt securities are usually in the form of bonds or loans. C. Publicly issued debt (such as bonds or commercial paper) is more commonly used by small companies. D. Publicly issued debt (such as bonds or commercial paper) is rarely used by large companies.

B. Debt securities are usually in the form of bonds or loans.

1. _____ are those capital requirements that are of a relatively permanent nature and are necessary for the functioning of a business. A. Trade credits B. Fixed assets C. Current assets D. Accounts receivables

B. Fixed assets

16. In the context of small businesses, which of the following statements is true of asset-based financing? A. All asset-based loans are financed against inventory. B. It accepts the assets of a firm as collateral in exchange for a loan. C. Of all assets, inventory is considered the most liquid of a service company's assets. D. It is a form of debt security with a standard denomination and method of interest payment.

B. It accepts the assets of a firm as collateral in exchange for a loan.

9. In the context of small businesses, which of the following statements is true of common stock? A. People holding common stocks have an enforceable claim to dividends. B. It represents an owner's interest and consists of many identical shares. C. People holding common stocks are paid before preferred stockholders. D. It denies its holder all the voting rights of the company.

B. It represents an owner's interest and consists of many identical shares.

29. Which of the following statements is true of small business investment companies (SBICs)? A. They are limited to the sale of debentures. B. The Small Business Administration matches each dollar an SBIC puts into a loan. C. The Small Business Administration does not make ventured capital through SBICs. D. They do not make qualified Small Business Administration loans.

B. The Small Business Administration matches each dollar an SBIC puts into a loan.

21. In the context of small businesses, which of the following statements is true of business incubators? A. They reap tax advantages from selling shares to workers. B. They nurture young firms and help them grow. C. They are run by the federal Small Business Administration. D. They require a substantial return as either equity or profit.

B. They nurture young firms and help them grow.

6. In the context of small businesses, _____ comes from lenders who will be repaid at a specified interest rate within a specified time span. A. equity financing B. debt financing C. profit capital D. working capital

B. debt financing

11. Which of the following statements is true of small company offering registration (SCOR)? A. It is a form of debt security with a standard denomination. B. It is a contract that permits use of someone else's property. C. It is the sale of common stock to the public through a regulated board. D. It is a long-term debt that is secured by real property.

C. It is the sale of common stock to the public through a regulated board

17. In the context of small businesses, which of the following statements is true of debt securities? A. Commercial banks prefer to make long-term loans. B. Publicly issued debt is commonly used by small firms. C. Small companies rely on loans from commercial banks. D. Insurance companies prefer to make short-term loans.

C. Small companies rely on loans from commercial banks.

19. Which of the following statements is true of venture capital firms? A. They rely more heavily on business plans than on executive summaries in making investment decisions. B. They are a source of debt financing for all large companies. C. They prefer to back small firms with opportunities for fast growth. D. They are engaged in assisting disadvantaged businesses that may or may not be successful in the future.

C. They prefer to back small firms with opportunities for fast growth.

30. John, who needs funding for his small business, approaches a few lenders for funds. Which of the following will be true in this situation? A. Lender(s) involved in helping him with his business should have a voice in managing it. B. John's ability to attract money does not depend on a lender's perception of his character. C. John's credit history will not be checked when he requests funding because his business is small. D. Lender(s) will typically look at the track record of his business because the money being borrowed is for an existing business.

D. Lender(s) will typically look at the track record of his business because the money being borrowed is for an existing business.

27. What is the purpose of specialized small business investment companies? A. They extend credit by vendors on purchases of inventory, equipment, and supplies. B. They allow small businesses to reap tax advantages by selling stock shares to workers. C. They sell common stock to the public through a regulated board such as Nasdaq without the hassle of an initial public offering. D. They assist socially and economically disadvantaged businesses with venture capital.

D. They assist socially and economically disadvantaged businesses with venture capital.

24. _____ refers to purchases of inventory, equipment, and/or supplies on an open account in accordance with customary terms for retail. A. Venture capital B. Asset-based financing C. Mortgage loan D. Trade credit

D. Trade credit

7. In the context of small businesses, what is financial leverage? A. Making a financial claim to the profit left after all other claims against a business have been met B. Employing a form of debt security with a standard denomination C. Financing the extension of credit available to customers D. Using fixed-charge financing, usually debt, to fund a business's operation

D. Using fixed-charge financing, usually debt, to fund a business's operation

2. _____ of a company is its current assets, less current liabilities, that a firm uses to produce goods and services and to finance the extension of credit to customers. A. Debt capital B. Equity C. Flexcomp D. Working capital

D. Working capital

15. A debt backed by some physical asset other than land, such as machinery, equipment, or inventory, is termed _____. A. intermediate-term security B. trade credit C. preferred equity D. chattel mortgage loan

D. chattel mortgage loan

22. _____ is a source of financing that reaps tax advantages from selling shares to workers. A. Employee stock ownership plan B. Professional service corporation C. Specialized small business investment D. Small company offering registration

A. Employee stock ownership plan

4. _____ is an owner's share of the assets of a company. A. Equity B. Profit C. Capital D. Credit

A. Equity

10. In the context of small businesses, which of the following statements is true of preferred stock? A. It usually conveys no voting rights to its holder. B. Its dividends must be paid after common stock dividends. C. It represents an owner's interest. D. It usually consists of many identical shares.

A. It usually conveys no voting rights to its holder.

23. _____ consists of two or more companies exchanging items of roughly equal value. A. Venture capital B. Barter C. Equity D. Trade credit

B. Barter

5. Equity financing in a corporation is evidenced by shares of either common or preferred _____. A. credit B. stock C. partnership D. budget

B. stock

28. Which of the following statements is true of the Small Business Administration? A. It offers environmentally friendly products for commercial sale. B. It generally requires a substantial return as either equity or profit. C. It helps small firms find financing at reasonable rates. D. It allows small businesses to reap tax advantages by selling stock shares to workers.

C. It helps small firms find financing at reasonable rates.

8. A _____ is a contract that permits the use of someone else's property for a specified time period. A. trade credit B. bond C. lease D. living trust

C. lease

20. _____ are wealthy individuals who invest part of their assets in high-risk, high-return ventures. A. Business incubators B. Debt creditors C. Trade creditors D. Angel capitalists

D. Angel capitalists

18. Small business investment companies are: A. a group of wealthy local businesspeople and other investors who may be external sources of equity funding. B. the dominant suppliers of external financing to small firms. C. firms funded by the Small Business Administration that make investments based on projected future income and generally require a substantial return as either equity or profit. D. private firms licensed and regulated by the Small Business Administration to make "venture" investments in small firms.

D. private firms licensed and regulated by the Small Business Administration to make "venture" investments in small firms.

3. Working capital needs of a company are projected by estimating what out-of-pocket expenses will be incurred and when the revenues from sales are to be collected, which is done by _____. A. cash budgets B. dividend statements C. capital account statements D. expense accounts

A. cash budgets

25. In the context of small businesses, which of the following statements is true of consignment selling? A. It allows payments to be made to suppliers only when products are sold. B. It consists of two or more companies exchanging items of roughly equal value. C. It allows small businesses to reap tax advantages by selling stock shares to workers. D. It is regulated by the federal Small Business Administration.

A. It allows payments to be made to suppliers only when products are sold.