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Exam 13: Sources of Financing: Debt and Equity

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Question 21

Multiple Choice

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

A) A strong record of earnings
B) A solid position in a stable market
C) Consistently high growth rates
D) A sound management team with experience and a strong board of directors

E) B) and C)
F) None of the above

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Question 22

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Private investors, or angels, seek 60 to 75 percent annual return on investment, which is much higher than those of professional venture capitalists, and tend to take a 51 percent + share of the business.

A) True
B) False

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Question 23

Multiple Choice

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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:

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.

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

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

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.

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

The biggest benefit of a public stock offering is:

If an entrepreneur needs a relatively small amount of money to launch a company, angels are a primary source of funds.

Regulation D Rule 504 (SCOR) offerings has a $1 million ceiling on the amount raised in any 12-month period.

A company that is experiencing rapid expansion has similar capital requirements as those of a fledgling business.

Since their stock offerings are small, most entrepreneurs are able to take their companies public without the assistance of accountants, attorneys, and underwriters.

Unable to find financing elsewhere, many entrepreneurs launch their companies using the fastest and most convenient source of debt capital available: credit cards.

On a margin loan, if the value of the borrower's investment portfolio drops, the broker can make a margin call, requiring the borrower to provide more cash or securities as collateral, within a matter of days or even hours.

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

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

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

Mini-Case 13-2: Bowden Brake Service Jim Bowden has been operating his business for some time now and thinks it is time to grow and expand. To compute the cost of expanding his existing business, Jim Bowden makes the following estimates: Adjacent lot $40,000 Metal prefab building 25,000 Hydraulic lifts 15,000 Tools and equipment 9,000 Parts and inventory 5,000 Additional operating expenses 55,000 TOTAL $149,000 -Explain to Jim the possible (and realistic) sources of capital for expansion. Where would you recommend that he go for the funds he needs? Why?

A line of credit is a form of financing employed by sellers of big-ticket items such as cars, boats, and furniture, which the retailers pledge as collateral against the loan.