25) Legal reduction in taxes is called ________.
A) Tax abatement
B) Tax evasion
C) Tax avoidance
D) Tax cheating
E) Tax planning
Learning Obj.: LO 3
AACSB: Analytical thinking
26) Which of the following is not one of the “Five C’s of Borrowing”?
A) Constitution
B) Character
C) Collateral
D) Capacity
E) Capital
Learning Obj.: LO 4
AACSB: Analytical thinking
27) ________ is the term for the time between a payment transaction and when the cash is
actually in the seller’s account.
A) Float
B) Bloat
C) Buffer
D) Balance
E) None of the above
Learning Obj.: LO 4
AACSB: Analytical thinking
28) If an investment is not risky, the reward, the potential return, will probably be ________.
A) Low
B) Around 15%
C) High
D) Around 20%
E) Around 75%
Learning Obj.: LO 3
AACSB: Analytical thinking
7
29) An investor who invests money into your business in exchange for equity receives ________.
A) A share of ownership of the business
B) Liability for any debt the business incurs
C) A monthly dividend out of the business profits
D) Bonds
E) Headaches
Learning Obj.: LO 3
AACSB: Analytical thinking
30) You could borrow money from friends and family who would like to invest in your business
or you could offer them ________.
A) Equity
B) Debt
C) Stock
D) Bonds
E) Notes
Learning Obj.: LO 4
AACSB: Analytical thinking
31) Community Development Banks (CDBs) provide capital to rebuild economically vibrant
communities through targeted lending and investing.
Learning Obj.: LO 4
AACSB: Analytical thinking
32) The principal is the amount of the loan or outstanding balance on the loan amount, including
interest.
Learning Obj.: LO 3
AACSB: Analytical thinking
33) Business grants are primarily for research and commercialization efforts and are difficult for
start-up, low-technology companies to acquire.
Learning Obj.: LO 2
AACSB: Analytical thinking
8
34) A creditor is an organization or individual that you have borrowed from and must repay.
Learning Obj.: LO 1
AACSB: Analytical thinking
35) Your danger tolerance, meaning the amount of risk (threat of loss) that you are willing to
sustain, will also help to define possible financing options.
Learning Obj.: LO 2
AACSB: Analytical thinking
36) If you are trying to finance your business with debt, your lenders will want to know what you
own, what you owe, and what your business finances are.
Learning Obj.: LO 2
AACSB: Reflective thinking
37) Equity financing is riskier for the investor, so the investor frequently wants both to be able to
influence how the company is run and to receive a higher rate of return than a lender.
Learning Obj.: LO 3
AACSB: Analytical thinking
38) There is no need to have proper documentation with family and friends if they become
investors in your business. Everybody can be trusted on their word.
Learning Obj.: LO 4
AACSB: Analytical thinking
39) Financing is a one-size-fits-all proposition.
Learning Obj.: LO 2
AACSB: Analytical thinking
40) A personal guarantee states that you will be responsible for paying off the loan in the event
that the business cannot do so.
Learning Obj.: LO 4
AACSB: Analytical thinking
9
41) The equity investor assumes less risk than does the debt lender.
Learning Obj.: LO 3
AACSB: Analytical thinking
42) Venture capitalists specialize in financing new, high-potential entrepreneurial companies and
second-stage companies.
Learning Obj.: LO 4
AACSB: Analytical thinking
43) If the business does not make a profit, the investor does not get paid.
Learning Obj.: LO 3
AACSB: Analytical thinking
44) One way to finance a business is to exchange a share of the business for money.
Learning Obj.: LO 5
AACSB: Analytical thinking
45) If you finance your business with debt, it is called equity financing.
Learning Obj.: LO 4
AACSB: Analytical thinking
46) Why might a bank be more willing to loan money to a large, successful company than to a
start-up business?
Learning Obj.: LO 3
AACSB: Analytical thinking
47) Describe the three categories of financial investments that can provide funds.
Learning Obj.: LO 5
AACSB: Analytical thinking
10
48) There are many sources of capital to start a business. What are they?
Learning Obj.: LO 4
AACSB: Analytical thinking
49) What would be some of the risks involved in loaning a friend money to help start a business?
Learning Obj.: LO 4
AACSB: Analytical thinking
50) What are the Five “C’s” of borrowing?
Learning Obj.: LO 4
AACSB: Analytical thinking
11