After successfully operating for five years, Tina plans to sell her computer service center. Which of the following would be Tina's main financial management need as she exits the business through sale?

After successfully operating for five years, Tina plans to sell her computer service center. Which of the following would be Tina's main financial management need as she exits the business through sale? 

A. Obtaining increasing amounts of cash inflows

B. Building her wealth and conserving assets

C. Optimizing capital structure for profits

D. Conserving the money that the business has

Answer: C

After being in business for 24 months, Paul's auto spare parts company Chromson Inc. grows to a relatively stable size. Which of the following would be Paul's primary financial management need at this stage?

After being in business for 24 months, Paul's auto spare parts company Chromson Inc. grows to a relatively stable size. Which of the following would be Paul's primary financial management need at this stage? 

A. Building owner's wealth

B. Clearing all debts

C. Implementing bootstrapping techniques

D. Establishing internal control over assets

Answer: A

If the owner plans to _____ a business, he or she should be removing all surplus cash and tightening the cash-to-cash cycle to the shortest time possible.

If the owner plans to _____ a business, he or she should be removing all surplus cash and tightening the cash-to-cash cycle to the shortest time possible. 

A. transfer

B. sell

C. terminate

D. start

Answer: B

For an owner, the main financial management emphasis while transferring a business to family members must be to:

For an owner, the main financial management emphasis while transferring a business to family members must be to: 

A. increase the cash-to-cash cycle to the highest time possible.

B. increase asset value.

C. optimize capital structure for profits.

D. maximize debt.

Answer: B

Which of the following is true of financial management for a business exit?

Which of the following is true of financial management for a business exit? 

A. Its main emphasis is on conserving what little cash the business has.

B. Its main emphasis is on maximizing the value of the business for successors.

C. Its main emphasis is to obtain increasing amounts of cash inflows to pay for added inventory.

D. Its main emphasis is on increasing amounts of cash inflows to pay for added inventory, productive assets, and employees.

Answer: B

At the _____ stage of a business, the emphasis of financial management is to build owner wealth, to conserve assets, to match cash inflows to outflows, and to maximize the return on capital assets by making optimal investing decisions.

At the _____ stage of a business, the emphasis of financial management is to build owner wealth, to conserve assets, to match cash inflows to outflows, and to maximize the return on capital assets by making optimal investing decisions. 

A. operations

B. exit

C. growth

D. start-up

Answer: A

The emphasis of financial management during the _____ phase is to obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees.

The emphasis of financial management during the _____ phase is to obtain increasing amounts of cash inflows to pay for added inventory, productive assets, and employees. 

A. start-up

B. exit

C. growth

D. operations

Answer: C

Which of the following is true of the debt-to-equity ratio?

Which of the following is true of the debt-to-equity ratio? 

A. It measures the relative risk that a business setback could cause bankruptcy.

B. It is calculated using the formula: Total Liabilities/Total Assets.

C. If the ratio is lower, it indicates lesser solvency.

D. If the ratio is greater, it indicates increased business risk.

Answer: D

____ measures the extent to which a business can meet its obligations for the long haul.

____ measures the extent to which a business can meet its obligations for the long haul. 

A. Profitability ratio

B. Current ratio

C. Return on investment

D. Debt-to-equity ratio


Answer: D

_____ is a measure of how much money can be made available to pay obligations within the fiscal year.

_____ is a measure of how much money can be made available to pay obligations within the fiscal year. 

A. Current ratio

B. Return on investment

C. Return on equity

D. Profitability ratio

Answer: A

____ measure a management's effectiveness in using the invested capital of the business to provide profits.

____ measure a management's effectiveness in using the invested capital of the business to provide profits. 

A. Profitability ratios

B. Gross margin ratios

C. Return on investments

D. Return on equity

Answer: C

____ ratios measure the relative risk that a business setback could cause bankruptcy.

_____ ratios measure the relative risk that a business setback could cause bankruptcy. 

A. Liquidity

B. Gross margin

C. Leverage

D. Profitability

Answer: C

____ ratios measure the business's ability to pay debts and expenses that are due in the current accounting period.

____ ratios measure the business's ability to pay debts and expenses that are due in the current accounting period. 

A. Liquidity

B. Profitability

C. Activity

D. Leverage

Answer: A

____ ratios measure management effectiveness in creating wealth from sales and from invested funds.

____ ratios measure management effectiveness in creating wealth from sales and from invested funds. 

A. Liquidity

B. Activity

C. Leverage

D. Profitability

Answer: D

____ ratios measure how productive a particular asset is in producing sales movement.

____ ratios measure how productive a particular asset is in producing sales movement. 

A. Current

B. Profitability

C. Activity

D. Leverage

Answer: C

Restrictions imposed by loan contracts on the operations of a business, such as requiring that a specific minimum net worth be maintained, a specific debt-to-equity ratio not be exceeded, no dividends be paid to stockholders and so on, are known as _____.

Restrictions imposed by loan contracts on the operations of a business, such as requiring that a specific minimum net worth be maintained, a specific debt-to-equity ratio not be exceeded, no dividends be paid to stockholders and so on, are known as _____. 

A. loan amortizations

B. loan yields

C. loan covenants

D. credit assurance

Answer: C

Borrowing money is a better alternative to investing additional personal funds because obtaining equity investment from others:

Borrowing money is a better alternative to investing additional personal funds because obtaining equity investment from others: 

A. reduces the potential loss for any single investor.

B. allows lesser debt to be included in the capital mix.

C. increases the cost of capital for the business.

D. increases the weighted average cost (WAC) of the business.

Answer: A

Which of the following ways does borrowing help increase potential profits?

Which of the following ways does borrowing help increase potential profits? 

A. By increasing the weighted average cost (WAC) of the business

B. By allowing less debt to be included in the capital mix

C. By providing capital funds for additional business opportunities

D. By increasing the cost of capital of the business

Answer: C

Which of the following is the formula for calculating owner's return on equity (ROE)?

Which of the following is the formula for calculating owner's return on equity (ROE)? 

A. Net Income/Average Investment

B. Net Income/Owner's Equity Investment

C. Total Liabilities/Total Owner's Equity

D. Total Liabilities/Total Assets

Answer: B

Uncertainty of returns in a business is referred to as _____.

Uncertainty of returns in a business is referred to as _____. 

A. financial risk

B. accelerated cash-out

C. overpayment

D. collateral

Answer: A

The ratio of debt to equity that provides the maximum level of profits is called _____.

The ratio of debt to equity that provides the maximum level of profits is called _____. 

A. cost of capital

B. declining financial leverage position

C. optimum capital structure

D. weighted average cost

Answer: C

When debt increases as a percentage of total investment, the value of the firm:

When debt increases as a percentage of total investment, the value of the firm: 

A. increases at a decreasing rate.

B. decreases at an accelerated rate.

C. increases at an accelerated rate.

D. decreases at a decreasing rate.

Answer: A

_____ is a measure of the amount of debt relative to total investment.

_____ is a measure of the amount of debt relative to total investment. 

A. Cost of capital

B. Financial leverage

C. Optimum capital structure

D. Financial risk

Answer: B

The weighted average cost (WAC) refers to:

The weighted average cost (WAC) refers to: 

A. a legal reduction in taxes by the government.

B. the average equity capital costs incurred by a firm per year.

C. the percentage cost of obtaining future funds.

D. the expected average future cost of funds.

Answer: D

____ refers to the percentage expense of obtaining future funds.

____ refers to the percentage expense of obtaining future funds. 

A. Risk

B. Cost of capital

C. Rate on investment

D. Return on investment

Answer: B

Crowdfunding refers to:

Crowdfunding refers to: 

A. approaching several foundations to acquire grants to fund a business.

B. approaching several commercial banks to fund a business.

C. funding a business through partnerships with several companies.

D. funding a business online through gifts made to the business.


Answer: D

_____ refers to a type of formal gift where someone buys something on behalf of the entrepreneur's business and lets the entrepreneur benefit from it.

_____ refers to a type of formal gift where someone buys something on behalf of the entrepreneur's business and lets the entrepreneur benefit from it. 

A. Overpayment

B. Accelerated cash-out

C. Picking up the tab

D. Piggybacking

Answer: C

Which of the following is a form of personal gift?

Which of the following is a form of personal gift? 

A. Tax credits

B. Free use

C. Grants

D. Tax abatements

Answer: B

Hugh starts his own animation company by borrowing funds from his parents. His parents tell him that he can repay them when the business is generating profits. This is an example of _____.

Hugh starts his own animation company by borrowing funds from his parents. His parents tell him that he can repay them when the business is generating profits. This is an example of _____. 

A. accelerated cash-out

B. deferral

C. free work

D. free use

Answer: B

When an entrepreneur gets funding for his business from an account that his family had initially set up for his future education or a first home, it is referred to as _____.

When an entrepreneur gets funding for his business from an account that his family had initially set up for his future education or a first home, it is referred to as _____. 

A. piggybacking

B. accelerated cash-out

C. free use

D. overpayment

Answer: B

___ exist for the purpose of addressing some identified social need that cannot be adequately met by market forces.

___ exist for the purpose of addressing some identified social need that cannot be adequately met by market forces. 

A. SBAs

B. Limited Liability Companies

C. EDAs

D. Foundations

Answer: D

Which of the following is true of government agencies that issue grants?

Which of the following is true of government agencies that issue grants? 

A. They publish RFPs that specify the conditions of a grant.

B. They require each business to create a proposal using formats that best fits the business.

C. They only provide funding after a long evaluation of applications which generally takes over a year to process.

D. They are unstructured and prefer informal approaches from companies.

Answer: A

The two largest governmental grant programs that are specifically intended for small business are:

The two largest governmental grant programs that are specifically intended for small business are: 

A. SBIR and STTR.

B. SBA and SBDC.

C. EDA and DBED.

D. EDA and SBA.

Answer: A

Gifts of money made to a business for a specific purpose are referred to as _____.

Gifts of money made to a business for a specific purpose are referred to as _____. 

A. equities

B. debts

C. tax credits

D. grants

Answer: D

Direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria are referred to as _____.

Direct reductions in the amount of taxes that must be paid, dependent upon meeting some legal criteria are referred to as _____. 

A. tax abatements

B. grants

C. tax credits

D. debts

Answer: C

The most common form of institutional gift financing is in the form of _____.

The most common form of institutional gift financing is in the form of _____. 

A. state loans

B. reduced taxes

C. state grants

D. donated capital

Answer: B

There are two general sources of gift financing:

There are two general sources of gift financing: 

A. institutional and personal.

B. friends and family.

C. consumer and commercial banks.

D. angel and venture investors.

Answer: A

____ refers to the value of a business that exceeds the sum of the value of all individual assets but that cannot be sold separately from the business.

____ refers to the value of a business that exceeds the sum of the value of all individual assets but that cannot be sold separately from the business. 

A. Goodwill

B. Collateral

C. Inventory

D. Debt

Answer: A

Something of value given or pledged as security for payment of a loan is called _____.

Something of value given or pledged as security for payment of a loan is called _____. 

A. chargeback

B. capital equity

C. collateral

D. personal equity

Answer: C

The amount that revenues exceed expenses is referred to as _____.

The amount that revenues exceed expenses is referred to as _____. 

A. profit

B. cash flow

C. operating margin

D. debt

Answer: A

Which of the following statements is true regarding the Fair Credit Reporting Act?

Which of the following statements is true regarding the Fair Credit Reporting Act? 

A. It requires that consumers investigate and directly report any inaccuracies to the source of the inaccurate information.

B. It provides CRAs with a period of one year to investigate cases of inaccurate information.

C. It requires that CRAs independently confirm information.

D. It requires that the CRA forward copies of all relevant information to the source of the inaccurate information.

Answer: D

A business that collects, collates, and reports information concerning an entity's use of debt is referred to as a(n) _____.

A business that collects, collates, and reports information concerning an entity's use of debt is referred to as a(n) _____. 

A. accelerator

B. credit reporting agency

C. debt reporting organization

D. community development organization

Answer: B

An organization, usually associated with universities, that supports start-up technology businesses by providing inexpensive office space, a variety of support services, and resources is called a(n) _____.

An organization, usually associated with universities, that supports start-up technology businesses by providing inexpensive office space, a variety of support services, and resources is called a(n) _____. 

A. LLC

B. community development organization

C. small business investment company

D. incubator

Answer: D

Private businesses that are authorized to make SBA insured loans to start-ups and small businesses are called _____.

Private businesses that are authorized to make SBA insured loans to start-ups and small businesses are called _____. 

A. community development organizations

B. accelerators

C. small business investment companies

D. LLCs

Answer: C

In the Small Business Administration guaranteed loan payment programs, the owners must be _____ before they qualify.

In the Small Business Administration guaranteed loan payment programs, the owners must be _____ before they qualify. 

A. backed by personal equity for half the loan sum

B. turned down by a bank

C. partnered with a successful entrepreneur

D. the heads of an already successful business

Answer: B

Orion Inc. was started as a small organization with five employees. After the first year's profits were made, the owners decided to invest the profits in expanding the business. This is an example of financing the business using _____.

Orion Inc. was started as a small organization with five employees. After the first year's profits were made, the owners decided to invest the profits in expanding the business. This is an example of financing the business using _____. 

A. benchmarking

B. bootstrapping

C. piggybacking

D. outside equity

Answer: B

Investing in multiple investments of differing risk profiles for the purpose of reducing overall investment risk is called _____.

Investing in multiple investments of differing risk profiles for the purpose of reducing overall investment risk is called _____. 

A. digression

B. deviation

C. specialization

D. diversification

Answer: D

The level of probability that an investment will not produce expected gain is called _____.

The level of probability that an investment will not produce expected gain is called _____. 

A. interest

B. dividend

C. risk

D. diversification

Answer: C

The percentage amount that the payout of an investment differs from original cost is known as:

The percentage amount that the payout of an investment differs from original cost is known as: 

A. dividend on capital.

B. gain on investment.

C. risk on investment.

D. interest on the principle.

Answer: B

A charge for the use of money, usually figured as a percentage of the principal is called _____.

A charge for the use of money, usually figured as a percentage of the principal is called _____. 

A. interest

B. dividend

C. tax

D. chargeback


Answer: A

Ownership of corporations is established by _____.

Ownership of corporations is established by _____. 

A. stock certificates

B. share agreements

C. member share certificates

D. partnership share agreements

Answer: A

In general, all forms of business organization can be categorized based on the owners' responsibilities for the organization's liabilities, and _____.

In general, all forms of business organization can be categorized based on the owners' responsibilities for the organization's liabilities, and _____. 

A. how the business is taxed

B. how the business is financed

C. the business's target market

D. whether it is a manufacturing or service organization

Answer: A

Which of the following is true of an LLC?

Which of the following is true of an LLC? 

A. LLCs are the same as partnerships.

B. LLCs have a choice of being taxed as either corporations or partnerships.

C. LLCs are a legal form of business that have no flexibility regarding taxes.

D. LLCs are the same as S-corporations.

Answer: B

A legal "artificial" entity that is formed by filing specific documents with a state government is called a _____.

A legal "artificial" entity that is formed by filing specific documents with a state government is called a _____. 

A. sole proprietorship

B. partnership

C. corporation

D. general partnership

Answer: C

_____ is money from selling part of a business to people who are not and will not be involved in the management of the business.

_____ is money from selling part of a business to people who are not and will not be involved in the management of the business. 

A. Dividend

B. Bond

C. Equity capital

D. Outside equity

Answer: D

Any valuable asset that is donated to a business without any obligation to repay or to give any ownership interest is called a(n) _____.

Any valuable asset that is donated to a business without any obligation to repay or to give any ownership interest is called a(n) _____. 

A. debt

B. equity capital

C. gift

D. investment

Answer: C

Money contributed to businesses in return for part ownership of the business is called a(n) _____.

Money contributed to businesses in return for part ownership of the business is called a(n) _____. 

A. debt

B. equity capital

C. gift

D. loan

Answer: B

A(n) _____ is a legal obligation to pay money in the future.

A(n) _____ is a legal obligation to pay money in the future. 

A. equity capital

B. stake

C. debt

D. gift

Answer: C

The number one source of financing for small businesses is from _____.

The number one source of financing for small businesses is from _____. 

A. the owners themselves

B. angel investors

C. government programs

D. banks

Answer: A

Which of the following is true of financing small businesses?

Which of the following is true of financing small businesses? 

A. There are several resources available for financing start-ups.

B. Funding is only important when a business is just starting.

C. A business has fixed financial goals in all stages of its development.

D. The most popular source of financing for start-ups is from commercial banks.

Answer: A