Test Bank For Principles of Small Business Management International Edition 5th Edition by Timothy S. Hatten

Test Bank For Principles of Small Business Management International Edition 5th Edition by Timothy S. Hatten

CHAPTER 9
Small Business Finance

True/False Questions
1. T F Since many businesses are not profitable in their first year, having a cash reserve with which to pay bills can help the business avoid insolvency.
Ans: True LO: 1 Page: 215 AACSB: Analytic
2. T F Each business must have its assets in place, which are all those things it needs to operate, before it ever opens its doors.
Ans: True LO: 1 Page: 215 AACSB: Analytic
3. T F Capital is a function of the applicant’s personal financial strength.
Ans: True LO: 1 Page: 216 AACSB: Analytic
4. T F Figure 9.1 is a pie chart that shows that about 30 percent of the companies listed on the Inc. 500 were started with less than $10,000.
Ans: True LO: 3 Page: 217 AACSB: Analytic
5. T F Assets owned by a loan applicant that can be pledged as security for the repayment of the loan constitute collateral.
Ans: True LO: 1 Page: 217 AACSB: Analytic
6. T F The applicant’s character is not a consideration when being evaluated by a lender.
Ans: False LO: 1 Page: 217 AACSB: Analytic
7. T F Simply having a good idea will not be enough to convince investors to risk their capital. A small business owner must also be able to show that he/she is a competent manager with previous business success.
Ans: True LO: 1 Page: 219 AACSB: Analytic
8. T F Two types of funds are available to the entrepreneur: debt and equity.
Ans: True LO: 2 Page: 219 AACSB: Analytic
9. T F Leverage can enable a small business owner to magnify the potential returns expected.
Ans: True LO: 2 Page: 219 AACSB: Analytic
10. T F In most cases, the sheer strength of a business idea can win full funding for a venture.
Ans: False LO: 1 Page: 219 AACSB: Analytic
11. T F The decision to seek outside funds, either through debt or equity, is relatively unimportant and simple.
Ans: False LO: 2 Page: 220 AACSB: Analytic
12. T F Until the debt is repaid, the creditor has a legal claim on a portion of the cash flows of the business.
Ans: True LO: 2 Page: 220 AACSB: Analytic
13. T F A lender may require a compensating balance, which means that the amount of funds is reduced, causing the rate of interest to increase, since the same amount of interest is paid and fewer funds are available.
Ans: True LO: 2 Page: 221 AACSB: Analytic
14. T F The prime rate is defined as the rate of interest banks charge their “best” customers.
Ans: True LO: 2 Page: 221 AACSB: Analytic
15. T F A fixed-rate loan typically has a higher interest rate than the initial rate on a variable-rate loan.
Ans: True LO: 2 Page: 221 AACSB: Analytic