Entrepreneurship Final

1) Setting prices for products and services requires entrepreneurs to balance a multitude of complex forces as entrepreneurs determine prices for their goods and services that will draw customers and:

B) produce a profit.

2) Which of the following statements about price is true?

D) All of the above

3) A common pricing mistake entrepreneurs make is lowering prices because they fail to recognize the:

A) extra value, convenience, service, and quality they offer their customers.

4) The top business challenge that drives pricing decisions is the:1

B) increased price sensitivity of customers.

5) ________ frequently convey the idea of quality, prestige, and uniqueness to customers.

C) High prices

6) A key ingredient to setting prices properly is to understand a company’s:

C) target market.

7) An entrepreneurial company can differentiate itself by creating a distinctive image in customers’ minds or by offering:

D) All the above provide the opportunity for differentiation.

8) In general, entrepreneurs should ________ head-to-head price competition with firms that can more easily achieve lower prices through lower cost structures.

A) avoid

9) Generally, entrepreneurs should avoid head-to-head price competition with other firms that can more easily achieve lower prices through:

D) lower cost structures.

10) A business with a 25 percent gross profit margin that reduces its price by 10 percent would have to ________ its sales volume just to break even.

B) triple

11) Which of the following statements concerning the impact of competition on a small company’s prices is true?

C) When going up against larger, more powerful rivals, small firms should consider using nonprice competition as a way to differentiate their products or services rather than head-to-head price competition.

12) One key to setting prices properly is based on understanding a company’s:

C) target market.

13) ________ value is the price customers would be willing to pay if they perfectly understood the benefits offered, while ________ value is what determines the price they are willing to pay.

A) Objective; perceived

14) Ultimately, the "right" price for a product or service depends on one factor:

C) the value that it provides for a customer.

15) One of the most important determinants of customers’ response to a price is whether they perceive the price to be a fair exchange:

D) for the value they receive from the product or service.

16) The final price a business owner sets within the acceptable price range depends on:

D) All of the above

17) Businesses facing rapidly rising costs should consider:

D) All the above

18) The acceptable price range of a product or service is the area between the ________ defined by customers in the market and the ________ established by the company’s cost structure.

C) price ceiling; price floor

19) The "ideal price" for a product:

D) All of the above

20) Management consulting firm McKinsey and Company states that more than ________ percent of the pricing problems on new products are the result of companies setting prices that are too low.

D) 80

21) When pricing a new product, a small business owner should strive to always satisfy which three objectives?

A) Product acceptance, maintaining market share, and earning a profit

22) A pricing technique that sets different prices on the same products and services for different customers using the information that a company collects about its customers is called:

B) customized or dynamic pricing.

23) ________ pricing strategies work best in markets where no "elite" segments exist or in highly competitive markets where similar products are trying to gain a foothold.

D) Penetration

24) Once a company has invested time and money developing a unique new product, in order to recoup some of the high R&D costs, they will likely use a:

A) skimming pricing strategy.

25) ________ is a short-term strategy that assumes that competition will eventually emerge.

A) Life cycle pricing

26) A pricing technique that sets prices that always end in numbers like "99" for prices such as $9.99 and $19.99 is an example of:

A) odd pricing.

27) CD Connection sells popular CDs at three price levels: $11, $14, and $17. This illustrates which of the following pricing techniques?

C) Price lining

28) ________ pricing is a technique that involves marking down the normal price of a popular item in an attempt to attract more customers who make incidental purchases of other items at regular prices.

A) Leader

29) Your local grocery store uses a pricing technique known as ________ on a weekly basis, in which they mark down the price of several popular items, sometimes well below their normal price, in an effort to increase customer traffic and to boost sales of other items.

B) leader pricing

30) Although many retailers must match competitors’ prices on identical items, maintaining a ________ pricing policy may not be healthy for a small business because it robs the company of the opportunity to create a distinctive image in its customers’ eyes.

B) follow-the-leader

31) A technique offering customers discounts if they purchase in quantity is referred to as:

C) multiple-unit pricing.

32) Optional product pricing involves selling the base product at:

A) what may be a "standard" margin and selling the options or accessories at a higher markup.

33) An MP3 player is sold at a price close to the break even point, but the accessories for the product are priced at a premium, offering impressive contribution margins. This is an example of:

C) captive-product pricing.

34) A technique that involves selling a product for a low price and charging a higher price for the accessories that accompany it is called:

C) captive-product pricing.

35) A technique in which a company uses the revenues from the sale of those products that were once considered as waste to be more competitive in pricing their main product is:

A) by-product pricing

36) ________ is the difference between the cost of a product or service and its selling price.

A) Markup

37) Macy’s buys white, pinpoint oxford blouses at $14 each and sells them at $30 each. Macy’s percentage (of cost) markup is:

D) 114.3 percent.

38) Macy’s buys white, pinpoint oxford blouses at $14 each and sells them at $30 each. Macy’s percentage (of retail price) markup is:

C) 53.3 percent.

39) The Sound Shop buys a popular programmable telephone from a supplier for $12.19. If the desired markup of retail price on the telephone is 35 percent, the retail price should be:

C) $16.46.

40) Which of the following is/are true regarding cost-plus pricing?

B) It fails to consider competitors’ prices appropriately.

41) A reliable cost accounting system is necessary for accurate pricing. The traditional method of product costing, where the costs of direct materials, direct labor, and factory overhead are included in a finished product’s total cost is called ________.

A) absorption costing

42) Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. If Pandecker’s profit target is $75,000, what price should it charge?

C) $17.21

43) ________ tells what portion of the total revenue remains, after covering variable costs, to contribute toward meeting fixed expenses and earning a profit.

C) The contribution percentage

44) Pandecker, Inc., estimates the variable costs of producing one unit to be $11.26. The company plans to produce 26,500 units. The fixed costs the company expects to incur are $82,770. What is Pandecker’s break-even selling price?

A) $14.38

45) Which of the following is/are not true regarding pricing for service firms?

C) For most service firms, labor and profit comprise the largest portion of the cost of the service.

46) It has been reported that the use of credit cards increases the ________ of customer spending.

D) All of the above

47) Small companies have three options for selling to customers on credit:

B) credit cards, installment credit, and trade credit.

48) The fee that banks collect from retailers whenever customers use a credit or a debit card to pay for a purchase is known as the:

A) interchange fee.

49) The use of credit cards by consumers:

B) broadens a small company’s customer base.

50) A customer who purchases a television from Ace Appliance Store and pays for it in 36 monthly payments is most likely using:

C) installment credit.

51) One of the requirements to be able to offer ________ is to make certain that the firms’ cash position is ________.

D) trade credit; strong enough to support the additional pressure

52) Which of the following businesses would be most likely to offer installment credit to its customers?

A) A retailer of major appliances

1) In order to reach profit objectives, entrepreneurs must be aware of their firms’:

D) overall financial position and any changes in the financial status.

2) The ________ shows what assets the business owns and what claims creditors and owners have against those assets, and is built on the basic accounting equation: Assets = Liabilities + Owner’s Equity.

C) balance sheet

3) The ________ represents a "snapshot" of a business, showing an estimate of its value on a given date, while the ________ is a "moving picture" of the firm’s profitability over time.

A) balance sheet; income statement

4) Which of the following associations is correct?

C) Current assets – inventory

5) The first section of a balance sheet lists:

A) assets.

6) Which of the following items would not be listed as a current asset in a company’s financial reports?

C) Fixtures

7) ________ are those items of value the business owns; ________ are those things the business owes.

A) Assets; liabilities

8) Cost of goods sold is located on which financial statement?

A) Income statement

9) Which of the following is not true regarding the components of the income statement?

A) Cost of goods sold represents the total cost, excluding shipping, of the merchandise sold during the accounting period.

10) The statement of cash flows:

D) shows changes in working capital by listing sources and uses of funds.

11) On a company’s statement of cash flows, depreciation is:

B) listed as a source of funds because it is a noncash expense, already deducted as a cost of doing business.

12) Creating projected (pro forma) financial statements would allow a business owner to answer which of the following questions?

D) All of the above

13) On a projected income statement, a business owner’s target income is:

A) the sum of a reasonable salary for the time spent running the business and a normal return on the amount invested in it.

14) You are to prepare a projected income statement for a proposed business venture. Your desired income is $28,000 and you have the following published statistics: Costs of goods sold = 56.9 percent of net sales Operating expenses = 37.1 percent of net sales Gross profit margin = 43.1 percent of net sales. This information indicates the net sales on your pro forma "P & L" (income statement) would be:

A) $466,667.

15) Gaither Mack is preparing projected financial statements to include in the business plan he is preparing for the launch of a specialty retail store. Using published financial statistics, Mack finds that the typical net profit margin for a store like his is 7.3 percent. If Mack’s target income for his first year of operation is $32,000, what level of sales must he achieve to reach it?

B) $438,356

16) Michelle Becker’s target income in her business for the upcoming year is $78,500. The company’s gross profit margin averages 32.6 percent of sales, and its total operating expenses run 24.7 percent of sales. To achieve her target income, sales of Michelle’s company should be:

B) $993,671.

19) Cash requirements can be determined by dividing cash expenses by:

D) the average inventory turnover.

20) A technique that allows the small business owner to perform financial analysis by understanding the relationship between two accounting elements is called:

D) ratio analysis.

21) Analyzing financial ratios could alert a business owner to which of these problems?

D) All of the above

22) Which of the following is not a liquidity ratio?

B) Total asset turnover ratio

23) The ________ ratio is a measure of the small company’s ability to pay current debts from current assets and is the liquidity ratio most commonly used as a measure of short-term solvency.

C) current

24) ________ ratios tell whether or not the small company will be able to meet its short-term obligations.

C) Liquidity

25) Financial analysts suggest that a small business should maintain a current ratio of at least:

B) 2:1.

26) The ________ ratio is a conservative measure of a firm’s liquidity and shows the extent to which a firm’s most liquid assets cover its current liabilities.

B) quick

27) Bettina has just calculated her company’s current ratio. To calculate the quick ratio, she should:

C) subtract inventory from current assets before dividing by current liabilities.

28) When a company is forced into liquidation, owners are most likely to incur a loss when selling:

B) inventory.

29) ________ ratios measure the extent to which an entrepreneur relies on debt capital rather than equity capital to finance a business.

B) Leverage

30) Which of the following combinations of ratios would indicate that a company is financially mismanaged and is not a good credit risk?

B) Low liquidity; high leverage

31) The ________ ratio measures the percentage of total assets financed by a small company’s creditors compared to its owners.

A) debt

32) A high debt ratio:

A) means that creditors provide a large percentage of the company’s total financing.

33) Which ratio would best give an owner an indication that the business is undercapitalized?

A) Debt-to-net worth

34) The higher the ________ ratio, the lower the degree of protection afforded creditors, and the closer creditors’ interest approaches the owner’s interest.

A) debt-to-net worth

35) ________ is one indication that a small business may be undercapitalized.

C) A debt-to-net worth ratio above 1:1

36) The ________ ratio tells how many times the company’s earnings cover the interest payments on the debt it is carrying.

C) times-interest-earned

37) ________ ratios help a business owner evaluate the company’s performance and indicate how effectively the business employs its resources.

C) Operating

38) The average inventory turnover ratio:

D) All of the above

39) Sarah’s Smart Shop has an inventory turnover ratio of 3 times per year and an average inventory of $156,000. If Sarah could manage her inventory better and increase the number of turnovers to the industry average of 6 times per year, what average inventory would she need to generate the same level of sales?

A) $78,000

40) A business that turns over its receivables 5.9 times a year would have an average collection period of about:

D) 62 days.

41) If the accounting period is one year with credit sales totaling $2,500,000 and accounts receivable totaling $200,000, what is the average collection period ratio?

A) 29.2 days

42) For the most meaningful interpretation, the small business owner should compare his firm’s average collection period to:

D) the average for the industry and the firm’s credit terms.

43) A business with a payables turnover ratio of 10.4 times a year would have an average payable period of about:

C) 35 days.

44) An excessively high average payable period ratio:

C) indicates the presence of a significant amount of past-due accounts payable.

45) The ________ ratio measures a company’s ability to generate sales in relation to its assets.

B) net sales to total assets

46) ________ ratios indicate how efficiently the small firm is being managed.

B) Profitability

47) Which ratio would be most helpful to a business owner to measure the profit per dollar of sales?

C) Net profit on sales

48) The ________ ratio shows the portion of each sales dollar remaining after deducting all expenses.

A) net profit on sales

49) Port Royal’s debt-to-net worth ratio is:

D) 0.57:1.

50) Port Royal’s profit margin on sales is:

A) 5.2 percent.

52) A business should provide the owner with a reasonable rate of return based upon:

A) the time and money invested in the business.

53) Ideally, a company reaches a point where increases in operating efficiency mean that expenses as a percentage of sales revenue flatten or even decline. This is referred to as:

D) operating leverage.

54) The ________ ratio measures the owner’s rate of return on the investment in the business.

A) net profit to equity

55) The net profit to asset ratio measures:

B) how much profit a company generates for each dollar of assets that it owns.

56) You are provided this information about a retail store called "BoardSports:" BoardSports Industry Mean Current Ratio 1.5 : 1 2: 1 Quick ratio .75 : 1 1 : 1 Debt ratio 0.87 : 1 0.75 : 1 Average collection ratio 46 days 33 days Net profit on sales ratio 5.5% 8.2% Net profit to equity ratio 7.7% 13.2% What can you reasonably assess about the current financial status of this company?

D) The company is in poor financial condition with significant changes required.

57) The break-even point:

D) All of the above

58) Which of the following is an assumption of break-even analysis?

D) All of the above

59) Refer to the following information Smith Office Supply Industry Mean Current ratio 2.3 1.8 Quick ratio .4 .8 Average inventory turnover 2.0 3.9 Net sales-to-working capital 4.0 7.8 Debt-to-net worth ratio 3.0 1.7 Net profit to equity ratio 40.1 percent 22.2 percent Which of the following statements is most likely false?

B) Smith is sufficiently capitalized.

65) Line T is the ________ line, while Line S is the ________ line.

B) total expense; total revenue

66) The area labeled ________ represents the firm’s fixed expenses, while ________ represents its variable expenses.

B) X; Y

67) The area labeled ________ is the "profit area."

D) Z

68) The area labeled ________ is the "loss area."

A) W

1) Solid cash management enables a business owner to:

D) All of the above

2) ________ is the most important, yet least productive, asset that a small business owns.

B) Cash

3) Which of the following statements concerning cash management is false?

C) Fast-growing businesses are least likely to experience shortages.

4) The first step in managing cash more effectively is:

D) understanding the company’s cash flow cycle.

5) More companies fail for the lack of ________ than for the lack of ________.

A) cash; profit

6) Which of the following measures a company’s liquidity and its ability to pay its bills and other financial obligations on time?

B) Cash flow

7) ________ typically lead(s) sales; ________ typically lag(s) sales.

D) Purchases; collections

8) A cash budget reveals important clues about how well a company ________.

D) All of the above

9) A firm’s cash budget should:

D) show the amount and timing of cash receipts and cash disbursements on a quarterly basis.

10) A cash budget:

D) All of the above

11) Which of the following is not a step in creating a cash budget?

B) Forecasting profits

12) A cash budget is based on the cash method of accounting, meaning that cash receipts and cash disbursements are recorded in the forecast only when ________ is expected to take place.

C) the cash transaction

13) On March 10th, a business owner receives an invoice from a supplier for $416.27 with "net 30" credit terms marked on it. On April 7th, the owner writes the supplier a check for $416.27 and mails it. When would this cash disbursement show up on the company’s cash budget?

C) April 7th

14) Jane is arguing with Joan about how much cash their small retail outlet needs as they prepare their cash budget. Jane feels that with the Christmas season coming, their busiest time, they need more cash available while Joan feels they do not because their sales volume will be up significantly. Jane and Joan are discussing which step of the cash budgeting process?

A) Determining an adequate minimum cash balance

15) A cash budget is only as accurate as the ________ forecast from which it is derived.

D) sales

16) What factors can drastically affect a company’s cash flow?

D) All of the above

17) Which of the following would be a potential source of information for preparing a sales forecast?

D) All of the above

18) When a firm sells goods or services on credit, the owner needs to remember that for cash budgeting purposes:

C) she must account for a delay between the sale and the actual collection of the proceeds.

19) It is recommended that new business owners estimate cash disbursements as best they can and then add on another ________.

C) 10-25 percent

20) When estimating the firm’s end-of-month cash balance, the owner should first:

A) determine the cash balance at the beginning of the month.

21) The fact that the cash budget illustrates the flow of cash in a business helps the owner to:

B) get a seasonal line of credit rather than an annual line of credit.

22) By planning cash needs ahead of time, a small business is able to achieve all but which of the following?

B) Provide the opportunity to forgo quantity and cash discounts.

23) The "big three" of cash management include:

C) accounts receivable, accounts payable, and inventory.

24) Experts estimate that ________ percent of industrial and wholesale sales are on credit, while ________ percent of retail sales are on credit.

D) 90, 40

25) Small businesses selling on credit find that:

B) it is expensive, requires a great deal of effort, and it is risky.

26) The cost to check a potential customer’s credit at a reporting service starts at:

B) $85.

27) ________ small businesses take the time to conduct a credit check.

C) Few

28) An important source of credit information that collects information on small businesses that other reporting services ignore is:

A) National Association of Credit Management.

29) According to the American Collectors Association, if a business is writing off more than ________ of its sales as bad debts, it needs to tighten its credit and collection policies.

B) 5 percent

30) A collection agency typically takes ________ percent of the amounts they collect on past due accounts.

C) 25 to 30

31) To encourage credit customers to pay invoices promptly, a business owner should:

D) All of the above

32) Once a small business has established a firm written credit policy and has clearly communicated it, the next step in building an effective credit policy is to:

A) send invoices promptly.

33) Once a credit account becomes past due, a small business owner should:

C) send a "second notice" letter requesting immediate payment.

34) According to the American Collector’s Association, only ________ of accounts more than 90 days delinquent will be paid voluntarily.

A) 5 percent

35) The Fair Debt Collection Practices Act prohibits business owners from:

A) harassing people who are past due.

36) An effective approach to successful collections includes:

D) timely, well-communicated payment expectations with well-documented records.

37) A contract in which a business selling an asset on credit gets a security interest in that asset (the collateral), protecting its legal rights in case the buyer fails to pay, is a:

D) security agreement.

38) An entrepreneur can potentially improve collections by:

D) all the above

39) Patel Industries recently filled an order from one of its customers, Oxmoor Gardens, a small garden supply store. Oxmoor’s owner recently received an invoice from Patel for $1,278.64 with selling terms of "2/10, net 30." Therefore:

B) the selling terms are offering Oxmoor a 2 percent discount if the bill is paid within 10 days; otherwise the full amount of the invoice is due in 30 days.

40) Efficient cash managers:

C) set up a payment calendar in order to both pay on time and take advantage of cash discounts for early payment.

41) For product-based businesses, ________ often represents their largest capital investment.

B) inventory

42) Which of the following is true about inventory management for the small business owner?

B) Inventory is the largest capital investment for most businesses but few owners use any formal means for managing it.

43) Only about ________ percent of a typical business’ inventory turns over quickly.

A) 20

44) Which of the following inventory management techniques would help a business owner make the best use of his company’s cash?

D) All of the above

45) Exchanging goods and services for other goods and services, or ________, is an effective way for a small business to conserve cash.

B) bartering

46) It is estimated that approximately ________ companies, most of them small, engage in barter exchanges every year.

C) 350,000

47) The real benefit of barter for the entrepreneur is that:

D) it is "paid" for at the wholesale cost of doing business, yet it is credited at the retail price.

48) Barter offers business owners the benefit of:

D) All of the above

49) Which of the following is an effective way to trim overhead?

D) Negotiate fixed loan payments to coincide with company cash flow.

50) Which of the following statements concerning leasing is true?

D) All of the above

51) Leasing allows business owners to forecast cash flows more ________ because lease payments are ________ amounts paid over a particular time period.

C) accurately; fixed

52) "Stick to what you are good at and ________ everything else" is an approach to reduce overhead costs.

D) out source

53) Rather than build the current year budget on increases from the previous year’s budget, ________ evaluates the necessity of every item.

A) zero-based budgeting

54) When investing surplus cash, the small business owner’s key objectives should be on the ________ of the investment.

C) liquidity and safety

55) A checking account that never has idle funds-because it draws funds from an interest-bearing master account to cover checks written-is called a:

A) zero-balance account.

56) A sweep account is a checking account that:

C) automatically moves all funds in a company’s checking account above a predetermined minimum into an interest-bearing account.

1) Entrepreneurs needing between $100,000 and $3 million in the current financial environment will likely find acquiring financing to be:

A) challenging.

2) Unlike entrepreneurs of the past, today’s entrepreneurs:

C) have to piece their capital together from several sources.

3) When searching for capital to launch their companies, entrepreneurs should remember several "secrets" to successful financing. Which of the following is not one of those secrets?

D) Raising money should not take very long; therefore, if it does not come quickly, it probably will not come at all.

4) The Kauffman Foundation reports that the average amount of capital that entrepreneurs use to start small businesses in the U.S. is nearly:

C) $80,000.

5) Which of the following represents capital?

D) All of the above

6) The primary disadvantage of equity capital is that the entrepreneur:

B) must give up some-perhaps most-of the ownership in the business to outsiders.

7) The primary advantage of equity capital is:

C) that it does not have to be repaid like a loan does.

8) Entrepreneurs are most likely to give up more equity in their businesses in the ________ phase of their companies than in any other.

A) startup

9) The first place an entrepreneur should look for startup capital is:

D) his own savings.`

10) A method of raising capital that taps the power of social networking and allows entrepreneurs to post their elevator pitches and proposed investment terms on specialized Web sites and raise money from ordinary people who invest as little as $100 is called:

A) crowd funding.

11) The largest single source of external equity capital for small businesses is:

A) angels.

12) When looking for an angel, the key is:

A) networking.

13) Angels are an excellent source of ________ money, often willing to wait ________ years or longer to cash out their investment.

B) patient: 7

14) The general trend of angel financing is that it has ________ as a source of capital for entrepreneurs over the past 9 years.

A) increased

15) Which of the following is not a characteristic of a typical angel investor?

B) Purchasing majority ownership in the company

16) Before entering into any partnership arrangement, entrepreneurs must consider:

C) the impact of giving up some personal control and sharing profits with others.

17) A/An ________ is a private, for-profit organization that purchases equity positions in young businesses that will potentially produce returns of 300 to 500 percent over five to seven years.

B) venture capital company

18) The average venture capital firm screens about ________ investment proposals each year and ultimately invests in ________ of them.

B) 1,000; 1

19) Although there is no limit on the amount of stock it can buy, a typical venture capital firm will purchase less than ________ percent of the ownership in a small firm.

B) 50

20) Venture capitalists look for ________ as the most important ingredient in the success of any business.

D) competent management

21) When evaluating a company as a potential investment target, venture capitalists look for all but which of the following?

D) Stable industry

22) Approximately ________ percent of all venture capital invested comes from corporations.

C) 14

23) A(n) ________ is when a company raises capital by selling shares of its stock to the general public for the first time.

D) initial public offering

24) Less than ________ percent of all U.S. companies are publicly held corporations.

A) 1

25) The biggest benefit of a public stock offering is:

A) the capital infusion the company receives.

26) Investment bankers who underwrite public stock offerings typically look for all but which of the following characteristics in a small company?

B) A solid position in a stable market

27) In an initial public offering, the underwriter, or investment banker, serves to:

D) All of the above

28) The single most important ingredient in making a successful public offering is:

A) choosing a capable underwriter.

29) The document outlining the details of the agreement between the entrepreneur and the stock underwriter is called:

C) the letter of intent.

30) The "wait to go effective" is the time period when:

D) the company is waiting for SEC approval after filing the registration statement.

31) The formal underwriting agreement between the company and the underwriter is signed:

A) on the last day before the registration statement becomes effective.

32) Typically, the entire process of going public takes ________, but it can take much longer if the issuing company is not properly prepared for the process.

C) 120 to 180 days

33) The goal of the SEC’s Regulation S-B and S-K is:

C) to open the doors to capital markets to smaller companies by cutting the paperwork and the costs normally required to make a public offering.

34) To be eligible for the simplified registration process under Regulation S-B and S-K, a company must:

D) All of the above

35) In a Regulation D stock offering, the company:

D) All of the above

36) To qualify for a Rule 147 (intrastate) public stock offering, a company must ________ in the state in which it makes this offering.

D) All of the above

37) Because of the risk/return tradeoff, small businesses that borrow money repay it with interest at the:

C) prime interest rate plus a few percentage points.

38) For small businesses, ________ are the very heart of the financial market, providing the greatest number and variety of loans to small companies.

A) commercial banks

39) The recent turbulence in the financial markets has caused banks to ________ their lending standards, making it ________ for small businesses to qualify for loans.

B) tighten; more difficult

40) Commercial banks provide ________ of loans to small business.

C) the greatest number and variety

41) Before making a loan to a business startup, banks prefer to see:

D) All of the above

42) The most common type of commercial bank loan granted to small businesses is:

A) the short-term loan.

43) Entrepreneurs basically "borrow from themselves" by pledging their ________ as collateral for the loans they receive in a ________ .

C) home; home equity loan

44) A ________ is an agreement with a bank that allows a small business to borrow up to a predetermined specified amount during the year without making an application each time.

C) line of credit

45) The Tanning Parlor is in the middle of the busy season. Owner Sunny Bright has hired extra help and encountered some unexpected repairs that have left her short of operating capital. What type of financing would Sunny most likely use in this situation?

A) A line of credit

46) ________ is a method of financing frequently used by retailers of "big ticket items" such as autos.

D) Floor planning

47) The Boat and Ski Shop, a small retail boat shop, would most likely rely on which of the following methods to finance its inventory?

B) Floor planning

48) A bank loan that imposes restrictions or covenants on the business decisions an entrepreneur makes concerning the company’s operations is called a:

C) term loan.

49) A term loan:

D) All of the above

50) The most common method used by commercial finance companies to provide credit to small businesses is:

A) asset based.

51) Asset-based borrowing permits small businesses:

B) to use normally unproductive assets such as accounts receivable and inventory.

52) In asset-based borrowing, the ________ is the percentage of an asset’s value that a lender will lend.

C) advance rate

53) Which of the following is not an asset-based financing technique?

C) Term loan

54) A company pledging its inventory, accounts receivables, or fixtures as collateral for a loan is using:

B) asset-based financing.

55) The advance rate on inventory-based loans is usually between 10 to 50 percent, but a business pledging high-quality accounts receivable as collateral may be able to negotiate up to an ________ percent advance rate.

D) 85

56) In discounted accounts receivable financing, a small business can typically borrow an amount equal to ________ percent of its receivables it pledges as collateral.

C) 55 – 85

57) In inventory financing, a small business can typically borrow an amount equal to ________ percent of the inventory it pledges as collateral.

A) no more than 50

58) Financing through ________ is similar to trade credit and this source of financing offers reasonable credit terms with only a modest down payment with the balance financed over the life of the purchase.

B) equipment suppliers

59) The loans from commercial finance companies to small businesses:

D) are often similar to the types of loans commercial banks offer, but commercial finance loans usually carry higher interest rates.

60) Savings and loan associations typically specialize in loans for:

C) real property.

61) A margin loan:

C) is a loan from an entrepreneur’s stockbroker that uses the entrepreneur’s investment portfolio as collateral for the loan.

62) A loan from a stockbroker based on the stocks and bonds in the customer’s portfolio:

B) can be "called" for payment in a matter of hours or days.

63) If the value of the borrower’s collateral drops, a stockbroker can make a ________, requiring the borrower to provide more collateral for his margin loan.

B) margin call

64) A(n) ________ is a private nonprofit financial institution that will make small loans to its members for the purpose of starting a business.

C) credit union

65) A ________ is a hybrid between a conventional loan and a bond; at its heart it is a bond, but its terms are tailored to the borrower’s individual needs, as a loan would be.

A) private placement

66) Private placements of debt offer all but which of the following advantages?

A) Variable interest rates

67) Which of the following is a characteristic of a typical private placement of debt?

D) It operates much like a bond, but its terms are tailored to the borrower’s individual needs, as a loan would be.

68) SBICs:

D) were created by the Small Business Investment Act to use a combination of private and federal guaranteed debt to provide long-term capital to small businesses.

69) SBICs:

D) All of the above

70) A(n) ________ makes only intermediate and long-term SBA guaranteed loans. It specializes in loans many banks would not consider.

C) small business lending company

71) A federally sponsored program which offers loan guarantees to create and expand businesses in areas with below-average income and high unemployment is called:

B) the Economic Development Administration.

72) Grants to small businesses made to strengthen the local economy in cities and towns that are considered economically distressed are made by:

A) the Department of Housing and Urban Development.

73) Malcolm wants to start a business in the prosperous little town of Grove City, a rural town of 10,000 about 65 miles from Pittsburgh, Pennsylvania. His business will create 25 manufacturing jobs. What federal agency would most likely be interested in guaranteeing a bank loan for Malcolm?

C) U.S. Department of Agriculture’s Rural Business Co-op Service

74) The ________ awards cash grants or long-term contracts to small companies that want to initiate or to expand their research and development efforts and give the opportunity to attract early-stage capital investments without having to give up significant equity or take on burdensome levels of debt.

A) SBIR

75) When a bank makes enough SBA-guaranteed loans to become a ________ lender, the SBA promises a faster turnaround time for the loan decision, typically 3 to 10 business days.

C) certified

76) When a bank proves the quality of its loan decisions to the SBA and becomes a ________ lender, the bank makes the final lending decision itself, subject to SBA review.

A) preferred

77) The majority of loans provided by the SBA are:

C) guaranteed.

78) About ________ percent of SBA-backed loans go to start-up companies.

C) 29

79) Under the SBA’s Patriot Express Program, the ceiling is ________ and the SBA guarantees up to ________ percent of the loan.

B) $500,000: 85

80) The ________ provides loans to entrepreneurs in economically challenged communities and viewed as high-risk borrowers.

C) Community Express Program

81) The maximum loan under the SBA’s Community Express Program is ________ with an SBA guarantee of up to ________ percent with a streamlined application process .

C) $250,000; 85

82) In the ________ program, participating lenders use their own loan procedure and applications to make loans of up to $350,000 to small businesses and the SBA guarantees 50 percent of the loan. .

D) SBAExpress

83) In 2007, the SBA launched the Patriot Express loan program, which is designed to assist some of the nation’s 25 million ________ who want to become entrepreneurs.

A) veterans and their spouses or widows

84) ________ were created by the SBA to provide loans under $100,000 that are normally shunned by banks.

A) Microloans

85) For small businesses going global, the SBA offers this program with a one-page loan application and a response time normally within 10 days.

A) Export Working Capital (EWC) Program

86) The second most popular SBA loan program is the ________ and designed to encourage small businesses to purchase fixed assets, expand their facilities, and create jobs. :

B) Section 504 Certified Development Company Program.

87) Small businesses devastated by floods, earthquakes, fires, and other maladies would seek assistance through which SBA loan program?

C) Disaster

88) Disaster loans carry below-market interest rates and terms as long as ________ years

B) 30

89) A program offered by communities that combine private and public funds to make loans to small businesses, often at favorable interest rates, is the:

D) revolving loan fund.

90) Factors typically discount ________ percent of the face value of a company’s accounts receivable.

A) 5 – 40

91) Selling the small company’s accounts receivable outright to another business is called:

B) factoring.

92) Factoring:

A) is a more expensive method of financing than borrowing from a bank.

93) A small business that uses factoring:

C) sells its accounts receivable to a third party to get the capital it needs.

94) One of the easiest and most common methods of debt capital available is:

C) credit cards.

95) Entrepreneurs have access to two different types of capital, ________ and ________ .

A) debt; equity

96) Equity capital represents the personal investment of the owner (or owners) in a business and is sometimes called ________ because of the potential outcome.

C) risk capital