Chapter 07 How to Obtain the Right Financing for Your Business
Answer Key
Multiple Choice Questions
1.
_____ are those capital requirements that are of a relatively permanent nature and are
necessary for the functioning of a business.
2.
_____ of a company is its current assets, less current liabilities, that a firm uses to produce
goods and services and to finance the extension of credit to customers.
3.
Working capital needs of a company are projected by estimating what out-of-pocket
expenses will be incurred and when the revenues from sales are to be collected, which is
done by _____.
financing.
4.
_____ is an owner’s share of the assets of a company.
5.
Equity financing in a corporation is evidenced by shares of either common or preferred
_____.
6.
In the context of small businesses, _____ comes from lenders who will be repaid at a
specified interest rate within a specified time span.
7.
In the context of small businesses, what is financial leverage?
8.
A _____ is a contract that permits the use of someone else’s property for a specified time
period.
structure of a small firm.
9.
In the context of small businesses, which of the following statements is true of common
stock?
10.
In the context of small businesses, which of the following statements is true of preferred
stock?
11.
Which of the following statements is true of small company offering registration (SCOR)?
12.
Which of the following statements is true of debt securities?
13.
_____ is a form of debt security with a standard denomination, method of interest
payment, and method of principal repayment.
14.
A(n) _____ is a long-term debt that is secured by real property.
15.
A debt backed by some physical asset other than land, such as machinery, equipment, or
inventory, is termed _____.
16.
In the context of small businesses, which of the following statements is true of asset-
based financing?
17.
In the context of small businesses, which of the following statements is true of debt
securities?
18.
Small business investment companies are:
19.
Which of the following statements is true of venture capital firms?
20.
_____ are wealthy individuals who invest part of their assets in high-risk, high-return
ventures.
21.
In the context of small businesses, which of the following statements is true of business
incubators?
22.
_____ is a source of financing that reaps tax advantages from selling shares to workers.
23.
_____ consists of two or more companies exchanging items of roughly equal value.
24.
_____ refers to purchases of inventory, equipment, and/or supplies on an open account in
accordance with customary terms for retail.
25.
In the context of small businesses, which of the following statements is true of
consignment selling?
26.
In the context of small businesses, which of the following statements is true of a line of
credit?
27.
What is the purpose of specialized small business investment companies?
28.
Which of the following statements is true of the Small Business Administration?
29.
Which of the following statements is true of small business investment companies
(SBICs)?
30.
John, who needs funding for his small business, approaches a few lenders for funds.
Which of the following will be true in this situation?
True / False Questions
31.
If a business has an operating history, its future needs can be estimated with relative
accuracy, even with substantial growth.
32.
Small businesses’ assets such as buildings should be financed with short-term loans.
33.
Growing companies must be financed entirely with debt financing.
financing.
34.
Working capital is an owner’s share of the assets of a company.
35.
When sales are made on credit, a firm must carry the costs of production itself for an
extended period.
36.
A company’s stocks represent an owner’s share of the assets of the company.
37.
Working capital estimates what the out-of-pocket expenses will be for a company during
the following year to produce a product(s) for sale and when revenues from these sales
are to be collected.
38.
A lenders’ income in debt financing varies with the success or failure of a business.
39.
Debt financing comes from lenders who will be repaid at a specified interest rate within an
agreed-on time span.
40.
The role of equity financing is to serve as a buffer that protects debtors from loss in case
of financial difficulty.