41.
The claims of common and preferred stockholders on the assets of a firm take preference
over those of the creditors in the event of default on a contractual obligation.
42.
From an investor’s point of view, debt investments should have a higher financial return
than common stock investments.
43.
Small firms use debt financing because interest payments are tax-deductible expenses.
44.
Employing a varying charge to increase the return to common stockholders is known as
financial leverage.
45.
A lease is a contract that permits use of someone else’s property for a specified period of
time.
46.
Common stockholders have a legally enforceable claim to dividends.
47.
Common stock usually conveys no voting rights to its holder.
48.
No dividends can be paid to common stockholders until preferred stock dividends have
been paid.
49.
Small company offering registration (SCOR) is the sale of common stock to the public
through a regulated board such as Nasdaq.
50.
Short-term securities have a maturity period of one to five years.
51.
Long-term debt backed by some physical asset other than land is a mortgage loan.
52.
Most asset-based loans are financed against inventory and less often against accounts
receivable.
53.
Many “unsecured” loans that banks extend to small businesses require personal
guarantees by the managers of the firms.
54.
People who start a small business usually seek outside funding before using their own
funds.
55.
Small business investment companies (SBICs) tend to make very small investments as
they are not profit-making institutions.
56.
Venture capital firms generally require a substantial return as either equity or profit.
57.
Venture capitalists insist on looking at business plans rather than executive summaries to
help them make investment decisions.
58.
The percentage of business plans accepted by venture capitalists for investment purposes
is very high.
59.
Professional venture capital firms provide more investment capital for small businesses
than do angel capitalists.
60.
The purpose of business incubators is to shelter failing enterprises by providing financial
services.
Essay Questions
61.
In the context of small firms, explain the terms equity and stock.
62.
Why do small firms use debt financing despite the risks involved?
63.
What is the purpose of small business investment companies (SBICs)?
64.
In the context of small businesses, what is the purpose of business incubators?
65.
In the context of small businesses, what is bartering? Identify its advantages and
disadvantages.
66.
In the context of small businesses, what is trade credit?
67.
Describe credit cards and insurance companies as sources of debt financing for small
businesses.
68.
Describe the guaranteed loans provided by the Small Business Administration (SBA) to
small business owners.
69.
What is the procedure to be followed by a small business owner to get a guaranteed Small
Business Administration (SBA) loan?
70.
What are some of the specialized programs run by the Small Business Administration
(SBA) to help small businesses?