Entrep Final Vocab

Ch.9
1. Facilities that rent shared space, services and management only to new businesses are called
a. industrial parks.
b. community development centers.
c. shopping centers.
d. business incubators.

D. business incubators

2. Weather would be a significant factor in determining a business location and demand for all of these products except for _________.
a. air conditioners
b. outdoor swimming pools
c. consumer yard irrigation systems
d. mattresses

D. mattresses

3. Which statement is true about location decisions?
a. Franchisers never assist entrepreneurs with location decisions.
b. Location decisions have an enduring effect on business operations.
c. Location decisions should be made independently of consumer needs.
d. The location decision is equally critical to all types of businesses.

b. Location decisions have an enduring effect on business operations.

4. A good reason for relocating a typical manufacturing business is to
a. stabilize income taxes.
b. increase customer traffic.
c. be closer to raw materials.
d. provide free-flow space.

C. be closer to raw materials

5. Site-related factors that should be taken into consideration when selecting a retail location include
a. future advertising costs.
b. the labor supply.
c. raw material availability.
d. customer accessibility.

D. customer accessibility

6.For small service or retail businesses, the top priority in location decisions is
a. personal preference.
b. resource availability.
c. customer accessibility.
d. environmental conditions.

C. customer accessibility

7. Basic considerations that enter into the selection of a location for a manufacturing business normally include
a. availability of raw materials.
b. customer accessibility.
c. neighborhood conditions.
d. federal income taxes.

A. availability of raw materials

8. An advantage for choosing a hometown as a location for a new business venture include the fact that
a. the entrepreneur knows the landmarks around his or her home community.
b. credit can be established more easily.
c. friends and relatives line up new customers.
d. the reduced risk.

B. credit can be established more easily.

9. Which reason is not a potential advantage of establishing a small business in one’s home community?
a. Appreciation of the atmosphere of the community
b. More extensive knowledge of consumer tastes
c. Greater ability to establish favorable credit arrangements
d. Increased stability of operations

D. increased stability of operations

10. Which statement is true concerning business environment conditions for a new business?
a. State governments will hinder new business by levying taxes.
b. Determining the zoning is critical as it may limit a company’s operations.
c. Many states offer location incentives to attract jobs to very stable areas.
d. Finding an area for a new company that has a low cost of living means a low standard of living for employees.

B. Determining the zoning is critical as it may limit a company’s operations.

11. Which advantage provided by incubator facilities makes the largest contribution to small businesses?
a. Shared manufacturing space
b. Postal services
c. Management assistance
d. University sponsorship

C. management assistance

12. The primary advantage an entrepreneur gains by leasing rather than buying a facility is
a. receipt of an investment tax credit.
b. a decrease in investment risk.
c. a decrease in the amount of promotion required.
d. a customized layout.

B. a decrease in investment risk.

13. For many new firms, the most important reason to lease rather than buy a facility is
a. avoidance of a large cash outlay.
b. freedom in modifying the building.
c. avoidance of interest payments.
d. avoidance of liability lawsuits.

A. avoidance of a large cash outlay

14. Which statement is not correct concerning business incubators?
a. They are designed to help new businesses.
b. Their goal is have a long term office rental relationship.
c. They provide office space, phones, and a photocopier.
d. They provide business expertise and management assistance.

B. Their goal is have a long term office rental relationship.

15. Customer accessibility is the most critical factor in evaluating a specific site for a
a. clothing manufacturer.
b. drugstore.
c. plumber.
d. software development company.

B. drugstore

16. Roger is analyzing regional differences in seeking a location for a new firm and is looking at states with favorable tax laws. Based on this information, he should look at which stated?
a. Wyoming
b. Massachusetts
c. Ohio
d. New York

A. Wyoming

17. In a location decision, the availability of raw materials for the following companies is most important for a
a. CPA.
b. manufacturer.
c. management consultant.
d. venture capitalist.

B. manufacturer

18. Which statement is false concerning the general suitability of a building for a new business?
a. The comfort of the customers and employees should be considered.
b. The selection factors for a factory will be weighted the same as for a wholesale or retail operation in relation to appropriate entrances and exits.
c. The age and condition of the building should be considered in relation to possible growth of the company.
d. The building should be practical and not so extravagant as to impact profits.

B. The selection factors for a factory will be weighted the same as for a wholesale or retail operation in relation to appropriate entrances and exits.

19. An example of special-purpose equipment for a carbonated beverage company is a
a. refrigerator that keeps the product at the appropriate temperature.
b. bottling machine that adjusts pressure for different flavors.
c. an assembly line moving the beverages to the loading dock.
d. mixer that combines the ingredients in the proper order.

b. bottling machine that adjusts pressure for different flavors.

20. Harry is starting a business where he restores homes built before 1900 and is purchasing used equipment, specifically lathes, planing mills, and drill presses. This equipment is would be an example of what type?
a. Special-purpose
b. Product-layout
c. General-purpose
d. Automated

C. General-purpose

21. According to a Wall Street Journal article, what is the main reason entrepreneurs buy equipment as opposed to leasing?
a. Can treat the asset as they wish
b. Don’t have to return it
c. Less expense
d. Puts the asset on the books

C. less expense

22. Using special-purpose equipment in the manufacturing process typically results in
a. increased operator errors.
b. higher costs of processing.
c. a rise in accident rates.
d. greater output per machine-hour of operation.

D. greater output per machine-hour of operation.

23. Helen is planning to open a high-fashion clothing store for young professional women. Which descriptor is the most important consideration for the fixtures?
a. Economical
b. Elegant
c. Feminine
d. Practical

B. Elegant

24. Zoning ordinances
a. may limit what type of business can be located on the property.
b. will prevent commercial signs.
c. typically will allow parking of customers but not employees.
d. All of the above statements are true about zoning ordinances.

A. may limit what type of business can be located on the property.

25. Rod is locating his architecture business at his home in a rural area. Which professional should he contact first before starting?
a. The city’s planning and zoning board to make sure he can have a business in the home
b. His CPA to determine if he can claim a tax deduction for the business
c. His insurance agent to increase the policy for coverage on the equipment and business activities on site
d. All of the professionals are equally important and should be contacted before he starts the business.

A. The city’s planning and zoning board to make sure he can have a business in the home

26. Businesses that operate in the home
a. can increase profits by decreasing costs.
b. require customer traffic.
c. are called family businesses.
d. are less common today than they were 10 years ago.

A. can increase profits by decreasing costs.

27. Annie is starting her photography business and is locating it in her family home. Which aspect is critical in the balance between her business and her family?
a. Making sure family members don’t spoil the image of the business when clients arrive
b. Having a professional studio area that is separate from the family area
c. Shielding her family from the business taking over the home
d. All of the above statements are true.

D. All of the above statements are true.

28. E-commerce refers to
a. B2B models of doing business.
b. the facilitation of business by making initial contact by electronic means.
c. the paperless exchange of business information via the Internet.
d. a form of business that involves online trades and auctions.

C. the paperless exchange of business information via the Internet.

29. Web-based businesses that provide customers with the ability to list products for potential buyers are _____ sites.
a. Internet
b. C2B
c. B2C
d. B2B

A. Internet

30. Which emerging model of e-commerce is used to generate significant amounts of advertising revenue?
a. eCRM
b. Disintermediation
c. Blogging
d. Auction Site

A. Auction Site

31. A variation of the content model is sometimes called the ____ model.
a. electronic
b. emerging
c. information
d. transaction

C. information

32. In the B2B model, the customers are
a. businesses.
b. other consumers.
c. franchisees.
d. auction participants.

A. businesses.

33. To establish an effective online presence, which statement is true concerning what should be done at the beginning of the company’s life?
a. Gain the customer as having numbers is more important than the product.
b. Develop a website that is easy to navigate and then fine tune the site to the target market.
c. Asking for customer feedback can come after the company is more established.
d. Ask an lawyer to check for any copyright infringements.

D. Ask an lawyer to check for any copyright infringements.

34. How does electronic commerce benefit small firms?
a. Small firms are often more "tech savvy" allowing quicker adoption of innovations.
b. Large firms may not push the consumer towards the Internet resulting in small firms being able to gain customers.
c. E-commerce allows small firms to expand beyond local markets without having to make a large investment.
d. The government has committed significant resources to encourage small firms to adopt an e-commerce business model.

C. E-commerce allows small firms to expand beyond local markets without having to make a large investment.

35. For small businesses, the Internet tends to blur ____ boundaries.
a. industry
b. geographic
c. skill-dependent
d. technological

B. geographic

36. The Internet has brought new life and technology to the old-fashioned notion of
a. customer service.
b. the "push sell".
c. the firm’s production orientation.
d. strategic management.

A. customer service

37. The basis of eCRM is a
a. focus on customization.
b. conscientious work force.
c. flexible distribution system.
d. consumer-centric data warehouse.

D. consumer-centric data warehouse.

38. Which category is not one of the basic model of e-commerce business?
a. Consumer-to-business
b. Business-to-consumer
c. Business-to-business
d. Auction sites

A. Consumer-to-business

39. An advantage that B2C models has over brick-and-mortar retailing includes all of the following except ______.
a. speed of access
b. speed of transactions
c. 24/7 service
d. superior customer service

D. superior customer service

40. A customer may avoid doing business online because
a. they have had a bad online purchase experience in the past.
b. it is difficult to predict how much time it will take to ship the product.
c. websites are difficult to navigate.
d. they are reluctant to purchase a product without first seeing it.

D. they are reluctant to purchase a product without first seeing it.

41. Revenues from auction sites are derived for the most part from
a. banner ads.
b. listing fees and commissions on sales.
c. corporate sponsors.
d. investors.

B. listing fees and commissions on sales.

42. The vast majority of bloggers earn around ____ a month through advertising.
a. $10 to $20
b. $40 to $50
c. $100 to $200
d. $500 to $1,000

a. $10 to $20

43. During the early days of e-commerce, the model of choice was based on
a. sales.
b. content.
c. advertising information.
d. market identification.

B. content

44. Which statement is true about starting a business online as a part-time entity?
a. While launching a business online as a part-time startup typically has a lower cost, the over all cost is greater as the company grows.
b. Flexibility is the main reason why an entrepreneur will start a business in this format.
c. Starting a Internet-based businesses on a part-time basis reduces the entrepreneur’s personal risk if the company should fail.
d. Two of the above statements are true.

C. Starting a Internet-based businesses on a part-time basis reduces the entrepreneur’s personal risk if the company should fail.

45. Jeff’s Website Design and Data Storage deals directly with corporate customers online and builds websites and data storage to specifications after an order is placed. By reducing the firm’s storage and carrying costs, this example illustrates that B2B firms can create
a. greater efficiency in their selling.
b. greater efficiency it their buying.
c. synergies between buying and selling.
d. market reach through e-commerce.

A. greater efficiency in their selling.

46. John created Acme Online to allow paper suppliers to compete for manufacturers’ orders over the Internet in live auctions. This model would best be described as
a. B2B.
b. B2C.
c. C2B.
d. C2C.

A. B2B

47. Amazon.com represents the classic ____ firm.
a. B2B
b. B2C
c. C2C
d. Auction site

B. B2C

48. Steve started a Web-based business offering a mechanism for buying and selling antiques. He has set up his company using the ____ model.
a. transaction-based
b. content-based
c. information-based
d. premium-based

A. transaction-based

49. Juanita is considering locating her a consulting business in her home. Which consideration is the greatest challenge?
a. The increased time needed to get the business running
b. Her business image may not be perceived as highly as a brick and mortar business
c. The higher cost she may face for equipment and technology
d. The decreased time she will have with friend

B. Her business image may not be perceived as highly as a brick and mortar business

Ch. 10
The ____ shows the results of a firm’s operations over a period of time, usually one year.
a. income statement
b. balance sheet
c. statement of cash flow
d. statement of financial position

A. income statement

The equation "Sales-Expenses = Profits" represents which financial statement?
a. Cash flow
b. Income statement
c. Retained earnings
d. Balance sheet

B. income statement

Earnings before taxes are computed by deducting the firm’s interest expense from its ____ income.
a. total
b. projected
c. net
d. operating

D. operating

Interest expense is deducted from the _____ to arrive at the company’s profits before taxes.
a. operating profits
b. gross profits
c. net profits
d. cost of goods sold

A. operating profits

The number resulting when taxes are subtracted from earnings is the _____ income
a. total
b. projected
c. net
d. operating

C. net

The report that provides a picture of the firm’s assets and its sources of financing at a point in time is the
a. balance sheet.
b. income statement.
c. cash flow statement.
d. asset list.

A. balance sheet

The income statement reports financial information related to the following broad areas of business except
a. sales.
b. operating expenses.
c. accumulated depreciation.
d. interest expense.

C. accumulated depreciation

The "bottom line" of the income statement is affected by all of the following except
a. cost of goods sold.
b. dividends paid to owners.
c. general and administrative costs.
d. marketing expenses.

B. dividends paid to owners.

The computation of cost of goods sold and operating expenses is based on all of the following except
a. the cost of goods sold.
b. general and administrative expenses.
c. the firm’s interest expense.
d. depreciation expenses.

C. the firm’s interest expense.

Operating expenses include
a. marketing-related expenses.
b. the cost for independent dealers to prepare for the distribution of the product.
c. interest on all loans.
d. income taxes.

A. marketing-related expenses.

A business loan for 9 months would be best described as a(n)
a. account payable.
b. accrued expense.
c. short-term note.
d. long-tern debt.

C. short-term note.

A company’s net income depends on all of the following except
a. amount of sales.
b. cost of goods sold.
c. interest expenses and taxes.
d. inventory estimates.

D. inventory estimates.

For the opening day of The Lemonade Kids, MacKenzie and John bought $40 of "premium pink lemonade mix" and paper cups, which constituted their
a. cash balance.
b. fixed assets.
c. inventory.
d. cost of goods sold.

C. inventory

However their cash increased by only $30 because their _____ also increased.
a. debt
b. inventory
c. accounts payable
d. accounts receivable

D. accounts receivable

Assets that are relatively liquid are classified as
a. current assets.
b. fixed assets.
c. short-term assets.
d. other assets.

A. current assets.

The amount of the business owners’ initial investment, owners’ later investment in the business, and retained earnings comprise
a. debt capital.
b. accrued expenses.
c. owners’ long-term debt.
d. owners’ equity capital.

D. owners’ equity capital.

Current debt represents amounts borrowed from banks or other lending sources for _____ or less.
a. 2 years
b. 6 months
c. 1 quarter
d. 12 months

D. 12 months

Raw materials and products held by the firm for sale constitute _____.
a. accounts payable.
b. accounts receivable.
c. cost of goods.
d. inventories.

D. inventories

Which asset would be considered fixed?
a. Land
b. Copyrights
c. Contingency funds
d. Goodwill

A. Land

Which asset would considered an other asset?
a. Land
b. Machinery
c. Contingency funds
d. Goodwill

D. Goodwill

Other assets would include all of the following except
a. startup costs.
b. patents.
c. copyrights.
d. inventories.

D. inventories

Current assets include all of the following accounts except
a. accounts payable.
b. accounts receivable.
c. cash.
d. inventories.

A. accounts payable.

On the balance sheet, every dollar of assets must equal to a dollar of financing in the form of debt or _____.
a. owner’s equity
b. accounts receivable
c. accumulated depreciation
d. net profit

A. owner’s equity

The value of a depreciable asset
a. is constant over time.
b. increases with each use of the asset.
c. decreases over time.
d. increases over time.

C. increases over time.

Cumulative depreciation expense is shown on the
a. balance sheet.
b. cash-flow statement.
c. income statement.
d. all of these.

A. balance sheet

An example of a current asset is
a. land.
b. inventories.
c. equipment.
d. buildings.

B. inventories

An example of a current asset is
a. equipment.
b. land.
c. leased property.
d. accounts receivable.

D. accounts receivable.

An example of a fixed asset is
a. a delivery truck for sale by an automotive dealer.
b. inventory.
c. a delivery truck used by a grocer to deliver merchandise to customers.
d. short-term investments in stock.

C. a delivery truck used by a grocer to deliver merchandise to customers.

A two year-old asset has a depreciable life of 10 years. Its initial purchase cost was $450,000 and it is depreciated by 10 percent annually. What is the remaining depreciable value of the asset?
a. $ 0.00
b. $90,000
c. $200,000
d. $360,000

D. $360,000

The balance sheet and income statement are separate reports, but actually
a. compliment each other.
b. contradict each other.
c. display information for the same time duration.
d. display vision and mission statements for the company.

A. compliment each other

For MacKenzie and John to understand how their company, The Lemonade Kids, performed during 2011, they must know the firm’s financial position at
a. January 1, 2011.
b. January 1, 2010.
c. September 30, 2010.
d. June 30, 2011.

A. January 1, 2011.

For investment purposes, a manager needing a snapshot of the firm’s financial position at a specific point in time would look at the
a. marketing plan.
b. statement of cash flows.
c. balance sheet.
d. income statement.

C. balance sheet.

For any business, both the _______ and ________ are needed to determine a firm’s financial position.
a. income statement; balance sheet
b. income statement; cash flow
c. balance sheet; line of credit
d. cash flow; balance sheet

A. income statement; balance sheet

If Kate, the mother of MacKenzie and John who own The Lemonade Kids, wanted to show the profit of the business from January 1st through December 31, she would show the _______.
a. cash flow statement.
b. income statement.
c. balance sheet.
d. harvest plan.

B. income statement

The _____ shows all cash receipts and payments involved in operating the business and managing its financial activities.
a. income statement
b. balance sheet
c. cash flow statement
d. statement of financial position

C. cash flow statement

The cash flow statement measures cash flows on
a. an annual basis.
b. an accrual basis.
c. a cash-basis.
d. a normalized basis.

C. a cash-basis

Depreciation added back is the cash flow statement in which activity section?
a. Financing
b. Income
c. Investment
d. Operating

D. Operating

The major distinction between cash-basis and accrual-basis accounting is that the
a. cash method is easier to use.
b. cash method matches revenue and expenses better.
c. point of recognition of revenue and expenses is different.
d. cash method involves less record keeping.

C. point of recognition of revenue and expenses is different.

In order to derive a cash flow statement, the owner must add back the _____ to the income statement.
a. depreciation expense
b. increase in accounts receivable
c. increases in inventory
d. decrease in accounts payable

A. depreciation expense

An income statement is not a measure of cash flows because it is calculated on a _______ rather than a _______ basis.
a. annual; cash
b. annual; accrual
c. accrual; cash
d. cash; accrual

C. accrual; cash

The debt ratio is determined by dividing the firm’s total debt by the total _____.
a. income
b. operating profits
c. assets
d. liabilities

C. assets

Which ratio is not used in determining a company’s profitability on assets?
a. return on assets
b. debt ratio
c. operating profit margin
d. total asset turnover

B. debt ratio

The liquidity of a firm is
a. often measured by a ratio of current assets to current liabilities.
b. not important to a company’s financial health.
c. the ability of the firm to sell its products quickly.
d. a measurement of spontaneous financing.

A. often measured by a ratio of current assets to current liabilities.

If a firm’s current ratio improves from 1.5 to 2.0, what has happened?
a. Current liabilities have decreased.
b. Fixed assets have increased.
c. Ownership equity has increased.
d. Long-term debt has decreased.

A. Current liabilities have decreased.

If a firm’s current ratio _____, its liquidity _____.
a. increases; increases
b. increases; decreases
c. decreases; increases
d. increases; remains the same

A. increases; increases

Ch. 12
Compared to firms that provide a good lifestyle for the owner but little in the way of attractive returns, a firm with potential for high growth and large profits has _____ possible sources of financing.
a. fewer
b. about the same number of
c. more
d. many more

D. many more

Most startup investors limit their investing to firms with potentially high returns in a _____ period.
a. 6-12 month
b. 1-2 year
c. 3-5 year
d. 5-10 year

D. 5-10 year

Entrepreneurs who "bootstrap" company financing are
a. enhancing the "corporate image" of the enterprise by the way they raise capital.
b. depending on their own initiative to obtain the capital necessary to start up and grow.
c. subordinating future capital formation to short-term financial performance.
d. waiting to establish a reputation in the marketplace before raising the bulk of the needed capital.

B. depending on their own initiative to obtain the capital necessary to start up and grow.

Typical venture capitalists invest approximately _____ of their investment in later-stage businesses.
a. one-fourth
b. one-half
c. three-fourths
d. nearly all

C. three-fourths

When bankers look for evidence of whether a business will be able to repay a loan, they usually base their assessment on
a. what the firm has done in the past.
b. what the owner says the firm will do in the future.
c. the opinion of investment analysts.
d. the business plan of the enterprise.

A. what the firm has done in the past.

Bankers examine ________ assets to evaluate a possible loan for a company’s financing.
a. direct and indirect
b. tangible and intangible
c. those founded upon past performance and those depending on future performance
d. industry-specific and firm-specific

B. tangible and intangible

A company developing solar panels is applying for a loan. The research the company has done for the manufacturing process would be a(n) _____ asset for the loan evaluation.
a. collateral
b. intangible
c. revolving
d. tangible

B. intangible

As long as a firm’s rate of return on its assets is greater than the cost of the debt, the owner’s rate of return on equity will _____ as the firm uses more debt.
a. decrease
b. increase
c. remain the same
d. fluctuate

B. increase

The return on the owner’s investment (equity) is a better measure of performance than
a. the return on assets ratio.
b. the current ratio.
c. the quick ratio.
d. the absolute dollar amount of income.

D. the absolute dollar amount of income

The tradeoffs that must be understood between debt or equity financing include all of the following except
a. financial risk.
b. potential profitability.
c. return on assets.
d. voting control.

C. return on assets.

Louise plans to sell stock in her company in order to raise capital. A benefit of issuing stock as a source of funds is
a. reduced risk to the Louise since she will not have to invest as much money.
b. sharing success potential especially if she invests with family and friends.
c. confidentiality since the company will not have to disclose information to a bank.
d. periodic reporting requirements which will keep the company on track with their projections.

A. reduced risk to the Louise since she will not have to invest as much money.

A drawback of selling stock as a source of funds includes
a. decreased corporate image.
b. loss of voting control of the company.
c. future financing.
d. estate planning.

B. loss of voting control of the company

If a firm finances with equity rather than debt, net income could potentially be greater because
a. equity financing almost always leads to better firm performance than debt financing.
b. the terms of equity financing are more stable than the terms of debt financing.
c. equity financing has a positive impact on asset selection.
d. there is no interest expense.

D. there is no interest expense.

Equity investors cannot demand more than
a. those who have invested debt in the enterprise.
b. what is earned.
c. anticipated future financing.
d. established cash flows.

B. what is earned.

One factor that influences the choice between debt and equity is the
a. returns anticipated from the enterprise.
b. risk of nationalization.
c. degree of control the owners hope to retain.
d. state of the owners’ estate plan.

C. degree of control the owners hope to retain.

To retain control, an entrepreneur should seek initially to secure _____ financing.
a. debt
b. equity
c. internal
d. asset

A. debt

A company with an operating income of $30,000 and total assets of $200,000 has a return on asset percent of ______.
a. 30
b. 15
c. 12
d. 6

B. 15

Return on equity equals
a. net income divided by owners equity.
b. owners equity divided by net income.
c. total assets divided by owners equity.
d. owners equity divided by total assets.

A. net income divided by owners equity

If the firm’s rate of return on its assets is _____ than the cost of borrowing, then the owners’ rate of return on equity will _____ as the firm uses _____ debt.
a. less, decrease, less
b. greater, decrease, more
c. greater, increase, more
d. less, increase, more

C. greater, increase, more

Though not as common as using personal savings, one of the most often used sources of financing is
a. asset-based lenders.
b. personal credit cards
c. wealthy individuals.
d. venture capitalists.

B. personal credit cards.

One of the major sources of early financing is
a. family members.
b. commercial banks.
c. business suppliers.
d. asset-based lenders.

A. family members.

Prospective entrepreneurs will usually acquire their initial financing from
a. venture capitalists.
b. personal savings.
c. wealthy individuals.
d. the securities market.

B. personal savings

Which financing source has the greatest advantage of speed?
a. local bank
b. credit card
c. angel investor
d. venture capitalist

B. credit card

Kendall is financing her business and is talking to her parents about a loan as well as applying for a bank loan. Which statement is true?
a. Since family and friends provide almost 50% of startup capital beyond an entrepreneur’s personal savings, talking to her parents would be a good idea as long as she knows it will not hurt them financially if the entire amount is lost.
b. The loan will typically take longer to process and she should plan accordingly.
c. Kendall is following a long history of person-to-person loans that started even before money as a currency was invented.
d. Securing a loan from her parents should be completed before obtaining the bank loan to increase the chances of overall success.

c. Kendall is following a long history of person-to-person loans that started even before money as a currency was invented.

A loan covenant is very unlikely to require
a. provision of timely and complete information.
b. salary limitations.
c. a personal guarantee.
d. a fixed business strategy.

D. a fixed business strategy.

Abby is wanting to obtain a loan for a large oven for her bakery. Since the oven will last approximately 8 years, the ideal loan would be a _____ loan.
a. mortgage
b. trade credit
c. asset-based
d. term

D. term

A line of credit is the _____ amount of credit a bank will provide a borrower at any one time.
a. average
b. annual
c. maximum
d. minimum

C. maximum

A _____ mortgage would likely be used to secure financing for mobile construction office.
a. chattel
b. real estate
c. revolving
d. term

A. chattel

If Joan is applying for a loan for an inventory system to improve her retail sales where the system will serve as collateral, what type of loan would be the most appropriate?
a. chattel mortgage
b. line of credit
c. real estate mortgage
d. term loan

A. chattel mortgage

Pro forma statements required by bank loan requests include all of the following statements except
a. balance sheets.
b. cash flow statements.
c. income statements.
d. personal financial statements.

D. personal financial statements.

All of the following terms are included in all bank loan agreements except
a. interest rate.
b. maturity date.
c. repayment schedules.
d. insurance coverage.

D. insurance coverage.

LIBOR is _____ the prime rate.
a. approximately equal to
b. considerably higher than
c. considerably lower than
d. a lagging indicator of

C. considerably lower than

A balloon payment
a. is an up front payment to obtain a loan.
b. is due when a loan comes due.
c. may be due at any time during the term of a loan.
d. is used to lift (remove) a loan covenant.

B. is due when a loan comes due

A source of short-term funds for many small companies with inventories is
a. trade credit.
b. long-term bank loans.
c. mortgages.
d. asset-based notes.

A. trade credit

Instead of borrowing money from suppliers to purchase equipment, an increasing number of small businesses are
a. obtaining trade credit instead.
b. making these purchases outright.
c. choosing to lease the equipment.
d. opting to streamline assembly processes to reduce expenditures.

c. choosing to lease the equipment.

The assets most commonly used for security by asset-based lending companies are
a. land and buildings.
b. accounts receivable and inventory.
c. equipment and buildings.
d. inventory and equipment.

B. accounts receivable and inventory

Ralph owns a lumber yard and has a $500,000 purchase order from a construction company. He plans to use the proceeds to purchase equipment. Because his company is needing working capital, the most logical loan for the lumberyard would be to use ________.
a. an equipment-based loan
b. factoring
c. purchase order financing
d. trade credit

A. an equipment-based loan

Barbara runs an Italian restaurant and is currently considering leasing or purchasing some updated equipment. What statement is correct?
a. Since the equipment she is buying will become outdated in two years, leasing would be a better option than purchasing.
b. Since the restaurant is new and she is wanting to protect her cash flow, purchasing would be better since purchasing costs less than leasing.
c. If the equipment is leased, the restaurant’s lines of credit will be increased.
d. All of the above statements are true.

a. Since the equipment she is buying will become outdated in two years, leasing would be a better option than purchasing.

Traditionally, business angels can be located through
a. contact with business associates, accountants and lawyers.
b. formal angel networks or clubs.
c. advertisements in magazines.
d. contact with friends and relatives.

a. contact with business associates, accountants and lawyers.

Venture capital companies
a. provide investment support to young businesses.
b. provide for the financing needs of large companies only.
c. are corporations or partnerships that operate as liquidation groups.
d. no longer operate in the U.S. market.

a. provide investment support to young businesses.

Business angels, as opposed to venture capitalists, provide
a. asset-based loans.
b. factoring.
c. informal venture capital.
d. trade credit.

C. informal venture capital

How likely is the typical startup to succeed in getting funded by a venture capitalist?
a. Very unlikely (1-2 percent)
b. Unlikely (10-20 percent)
c. Likely (60-75 percent)
d. Very likely (90 percent)

A. very unlikely (1-2 percent)

Will has decided to invest $10,000 into his neighbor’s new company. The money will be used in the early stages of development. Willis is considered a
a. venture capitalist.
b. business angel.
c. business contributor.
d. loan specialist.

B. business angel

Vicki is a business angel who is looking for a start-up company in which to invest. Which company would she most likely invest in based on current research?
a. A company who currently has 50 employees and has plans to grow
b. A business out of her home state to diversify her risk
c. A business in an Industry in which she has had experience
d. All businesses described above would be likely candidates for her investment.

c. A business in an Industry in which she has had experience

Chuck, Marie and Tommy are a group of friends who have formed a LLC to raise capital for an investment in 20 franchises of Rigby’s, a new sports bar concept. Chuck, Marie and Tommy are general partners and considered
a. business angels.
b. formal venture capitalists.
c. creditors.
d. informal venture capitalists.

B. formal venture capitalists.

Guaranty loans are
a. made by private lenders.
b. guaranteed up to 50 percent by the SBA.
c. made through foreign banks.
d. limited to $100,000.

A. made by private lenders.

The federal government primarily provides funds to small businesses through
a. venture capital companies.
b. the Small Business Administration.
c. business angels.
d. the Securities and Exchange Commission.

B. the Small Business Administration.

An SBA loan program that provides loans of up to $35,000 specifically for not-for-profit child-care centers is the
a. 7(a) Loan Guaranty Program.
b. 7(m) Microloan Program.
c. Certified Development Company 504 Loan Program.
d. Small Business Investment Program.

B. 7(m) Microloan Program.

An SBA loan program that provides long-term financing for small businesses to acquire real estate or machinery and equipment is a called the
a. 7(m) Microloan Program.
b. 7(a) Loan Guaranty Program.
c. Certified Development Company 504 Loan Program.
d. Small Business Investment Program.

C. Certified Development Company 504 Loan Program.

Small business investment companies (SBICs)
a. are licensed and regulated by the Federal Trade Commission.
b. may lend funds or supply equity funds.
c. obtain part of their capital from local governments at attractive interest rates.
d. provide only short-term financing.

b. may lend funds or supply equity funds.

Ellie is using a governmental program to help finance her new business. Her company is not eligible for a loan through a normal lending channel and is receiving $120,000 with the SBA guaranteeing 90 percent of the loan. She also had to submit a loan application to the lender. Ellie is participating in the
a. 7(a) Loan Guaranty Program.
b. Certified Development Company 504 Loan Program.
c. Small Business Innovative Research Program.
d. 7(M) Microloan Program.

A. 7(a) Loan Guaranty Program.

Novelty Shirts is a manufacturing company needing to expand its production facilities. Which SBA program would be best to acquire real estate valued at $150,000?
a. 7(a) Loan Guaranty
b. Certified Development Company 504 Loan
c. 7(m) Microloan
d. Small Business Innovative Research

B. Certified Development Company 504 Loan

Private placement
a. is the sale of capital stock to selected individuals.
b. is the sale of capital stock to investment bankers.
c. requires compliance with all securities laws.
d. maintains the ownership control of the original owners.

a. is the sale of capital stock to selected individuals.

Nancy has decided to raise working capital for her upscale boutique business which currently has 4 locations and is considering franchising the concept in the next few years. Because of the current company organization and anticipated future plans, the most like form of financing would be ________.
a. large corporations
b. private placement
c. public sale
d. underwriting

C. public sale

A drawback to "going public" is
a. large profit potential resulting in increased taxation.
b. numerous SEC requirements.
c. national recognition causing increased exposure.
d. additional working capital.

B. numerous SEC requirements.

Sources of financing that are often times incorrectly considered less-important or ignored by entrepreneurs include
a. large corporations.
b. private placement stock sales.
c. public sale of stock.
d. All of the above.

D. All of the above.

Ch. 13
Harvesting refers to
a. starting a business.
b. managing the growth of a business.
c. exiting a business.
d. diversifying a business.

C. exiting a business.

Exiting or harvesting encompasses
a. merely selling and leaving a business.
b. the creation of future options.
c. the establishment of a benchmark for firm risk.
d. capturing future profitability.

B. the creation of future options.

The availability of a company’s exit options is an important determinant of the appeal of the firm to
a. suppliers.
b. investors.
c. employees.
d. management.

B. investors.

Renee has been in business for thirty years as the single owner of a 5 employee company. She has decided to sell the company to her employees as they have expressed interest. Which step should be completed first?
a. Cash out her original investment money.
b. Announce her intentions on the company website.
c. Start planning for the transfer.
d. Tell her banker.

C. Start planning for the transfer.

Which step is not involved in planning for a harvest?
a. Fine tune company strategies.
b. Create an independent board.
c. Improve the financial systems.
d. Develop a new website.

D. Develop a new website.

Taxation of income first as corporate earnings and then as stockholder dividends is known as
a. initial public offering.
b. double taxation.
c. twice taxation.
d. harvesting taxation.

B. double taxation.

An MBO is a(n) _____ in which management is part of the group buying the company.
a. ESOP
b. IPO
c. PPO
d. LBO

D. LBO

A(n) _____ exists when a company offers its stock to the general public.
a. ESOP
b. IPO
c. MBO
d. LBO

B. IPO

Common harvest strategies used by small businesses does not include
a. releasing the firm’s cash flows to its owners.
b. offering stock to the public in an IPO.
c. completing a private placement of a stock.
d. inviting a friendly takeover.

D. inviting a friendly takeover.

Strategic buyers evaluate acquisition candidates according to the
a. stand-along, cash-generating potential of a target business.
b. synergies they think the target business will create.
c. potential of the target business to preserve employment.
d. quality of the business strategy of the target firm.

b. synergies they think the target business will create.

In earlier years, leveraged buyouts became synonymous with the ____ LBO.
a. bust-up
b. build-up
c. owner-financed
d. publicly-funded

A. bust-up

A build-up leveraged buyout involves
a. developing the business to make it an attractive takeover target.
b. acquiring businesses that occupy a higher level in the market channel.
c. a longer time horizon than a bust-up leveraged buyout.
d. constructing a larger enterprise to be taken public via an IPO.

d. constructing a larger enterprise to be taken public via an IPO.

An employee stock ownership plan represents
a. a good way for a business founder to build his/her position in the company.
b. an opportunity for employees to acquire an ownership interest in their company.
c. a harvest method of choice.
d. an effort to ease investor concerns.

b. an opportunity for employees to acquire an ownership interest in their company.

The mere fact that a firm is earning high rates of return on the firm’s asset indicates that
a. the firm is worth more as a going concern than as a dead one.
b. downsizing is likely to be an economically sound option for the business.
c. it is time to start growing the business again.
d. it might be wise to further limit the cash flows returned to investors.

a. the firm is worth more as a going concern than as a dead one.

From the owner’s perspective, what would be considered an advantage of harvesting via withdrawal of cash flows from the firm?
a. Retaining control
b. Preserving cash for later reinvestment
c. Greater latitude in seeking out a buyer for the firm
d. Increasing long-term returns from the business

A. Retaining control

Going public can be beneficial to a firm by helping it
a. create a liquid currency to fund future acquisitions.
b. avoid becoming a takeover target in the future.
c. erect a shield against the fluctuations of the stock market.
d. offer better compensation packages to attract superior management talent.

A. create a liquid currency to fund future acquisitions.

Having publicly traded stock can be beneficial to owners in that a public market offers
a. greater liquidity.
b. protection against an unwanted harvest.
c. insight into how to improve the performance of the firm.
d. a justification for refusing requests for ESOP options.

A. greater liquidity

Which step in the IPO process listed below occurs first?
a. Audit the last three years of financial statements
b. Draft a registration statement
c. Explain IPO attributes to potential investors
d. Decide upon a price for the business

a. Audit the last three years of financial statements

Regarding IPOs, the primary motivation of the issuing firm and that of the investment banker are
a. the same-maximizing the price of the firm.
b. similar-completing the sale.
c. very different because they are compensated for different outcomes.
d. impossible to know since every deal is structured differently.

c. very different because they are compensated for different outcomes.

Michael Handelsman, GM for BizBuySell, suggested selling a business in a difficult economy should involve all of these tips except
a. clean up the books.
b. seek cash buyers only.
c. keep revenue strong.
d. consider your sector and market.

B. seek cash buyers only

What acquisition type is not popular among many small business owners?
a. Competing
b. Employee
c. Financial
d. Strategic

C. Financial

A leveraged buyout involves a high level of _____ financing.
a. debt
b. equity
c. strategic
d. unsecured

A. debt

Once it becomes highly leveraged, the most immediate goal of a company is to
a. make an operating profit.
b. purchase additional assets.
c. restructure its logistics systems.
d. service the debt.

D. service the debt.

Harvesting a business by releasing the cash flows as dividends creates the worst tax disadvantage for _____.
a. C-corporation shareholders
b. partnerships
c. S-corporation shareholders
d. sole proprietors

A. C-corporation shareholders

An IPO occurs when a company offers its stock to
a. investment practitioner organizations.
b. family.
c. intrastate private investors.
d. the general public.

D. the general public

Financial buyers evaluate acquisition candidates according to the
a. stand-alone, cash generating potential of a target business.
b. synergies they think the target business will create.
c. potential of the target business to preserve employment.
d. level of debt the target business has accumulated.

a. stand-alone, cash generating potential of a target business.

ownership to the next generation. Which harvesting form would be best?
a. cash flow distribution
b. initial public offering
c. private placement
d. selling to a strategic buyer

C. private placement

The owner of a hardware store has agreed to sell his business to another local hardware store owner. The purchaser would likely be described as a sale to a _____ buyer.
a. competing
b. employee
c. financial
d. strategic

D. strategic

Matt owns a car dealership that is very profitable. Since he plans to retire in 5-10 years, Matt has decided to retain ownership for now, but without continuing to grow the business. This change would also allow him to invest for retirement some of the cash that the business is now generating. Which harvesting method does this example illustrate?
a. A delayed sellout
b. A strategy to release the firm’s free cash flows to the owners
c. Offering stock to the public through an IPO
d. Issuing a private placement of stock

b. A strategy to release the firm’s free cash flows to the owners

Which question should be asked first as a firm moves toward a harvest?
a. Why do the owners want to harvest?
b. What is the value of the firm?
c. Does the firm have a leadership succession plan in the event that the firm sells?
d. What will be the method of payment?

B. What is the value of the firm?

Which statement best characterizes business valuation?
a. Valuation is almost a perfect science.
b. Since there are so many intangibles, valuation is mostly an art.
c. The buyer determines the value of a business.
d. Negotiation skills play an important part in valuation.

D. Negotiation skills play an important part in valuation.

Harvesting owners generally prefer _____ over _____.
a. cash, stock
b. debt, equity
c. equity, debt
d. stock, cash

A. cash, stock

The value of a business is determined by
a. what the owner believes the business is worth.
b. what a valuation formula determines its worth is to the owner.
c. what a valuation formula determines its worth is to the buyer.
d. what a buyer with the cash is prepared to pay.

D. what a buyer with the cash is prepared to pay.

The opportunity cost on a specific investment is the
a. projected future value of the investment.
b. present value of that investment.
c. value of the assets used for capital for that investment.
d. rate of return that could be earned on a similar investment.

D. rate of return that could be earned on a similar investment

Two years ago, Harold inherited $30,000 and decided to open a coffee shop in his hometown instead of buying stock in Ford. The rate of return he could have gained on his investment in Ford stock represents his
a. lost profit.
b. opportunity cost of funds.
c. investment opportunity.
d. potential profit.

B. opportunity cost of funds

Jill is purchasing a web design company that has patented a new form of technology. Which purchase would be best for her in relation to the web design company’s liabilities?
a. Buy the firm’s assets.
b. Buy the firm’s stock.
c. Merge the company with her present company.
d. Any of the above three would be acceptable.

A. Buy the firm’s assets

In a harvest situation, the exiting owners are usually paid in cash or
a. tangible assets.
b. imputed goodwill.
c. favorable publicity.
d. stock.

D. stock

Uncertainties accompanying an impending sale of a business often
a. lead to lower employee morale.
b. attract the attention of the Securities and Exchange Commission.
c. cause the deal to fall through.
d. increase costs from added legal services.

A. lead to lower employee morale.

Which group is always concerned about how to exit a business?
a. Investors
b. Entrepreneurs
c. Employees of the firm
d. Investment bankers

A. Investors

After harvesting, many entrepreneurs experience conflicts that are _____ in nature.
a. financial
b. practical
c. emotional
d. tactical

C. emotional

Post-harvest entrepreneurs may become disillusioned when they realize their sense of identity
a. was associated with the quest for wealth.
b. derived from interactions with employees.
c. was intertwined with their business.
d. does not return after joining in social or charitable work.

C. was intertwined with their business

The effects of the harvesting process include
a. a reduction in time and energy.
b. an increased managerial focus.
c. an increase in momentum.
d. poor performance.

D. poor performance

Suggestions for an owner who is harvesting a company would include
a. expecting emotional and cultural conflict.
b. obtaining professional and personal advice.
c. understanding any motivating factors.
d. All of the above items should be suggested.

D. All of the above items should be suggested.