Chapter 10: Getting Financing or Funding (L10)

1) In startup firms, inventory must be purchased, employees must be trained and paid, and advertising must be paid for before cash is generated from sales. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example?

• A) Cash flow challenges

• B) Marketing costs

• C) Personnel costs

• D) Capital investments

• E) Lengthy product development cycles

2) For startup firms, the cost of buying real estate, building facilities, and purchasing equipment often exceeds the firm's ability to provide funds for those needs on its own. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example?

• A) Lengthy product development cycles

• B) Costs associated with building a brand

• C) Cash flow challenges

• D) Capital investments

• E) Personnel costs

3) For startup firms, some products are under development for years before they generate earnings. The upfront costs often exceed a firm's ability to fund these activities on its own. Which of the following reasons that motivate firms to seek funding or financing is illustrated in this example?

• A) Cash flow challenges

• B) Marketing costs

• C) Capital investments

• D) Personnel costs

• E) Lengthy product development cycles

4) According to the textbook, beyond their own funds, the second source of funds for many new ventures is ________.

• A) government grants

• B) business angels

• C) friends and family

• D) banks

• E) venture capital

5) Equity financing (or funding) means ________.

• A) exchanging partial ownership in a firm, usually in the form of stock, for funding

• B) getting a grant or outright gift

• C) getting a loan

• D) getting a lease

• E) getting a loan guarantee

6) A liquidity event accomplishes which of the following purposes?

• A) Provides a business sufficient funding to operate for up to a year without raising additional funding

• B) Provides the founders of a firm a salary

• C) Converts some or all of a company's stock to cash

• D) Allows the founders of a firm to sell stock to the public

• E) Allows a business to liquidate in an ethical and cost-effective manner

7) A brief, carefully constructed statement that outlines the merits of a business opportunity is called a(n) ________ speech.

• A) subway

• B) sway

• C) bootstrap

• D) teaser

• E) elevator

8) The three most common forms of equity funding are ________.

• A) friends and family, venture capital, bank loans

• B) SBIR grants, SBA guaranteed loans, bank loans

• C) initial public offerings, business angels, venture capitalists

• D) friends and family, business angels, bootstrapping

• E) SBIR grants, venture capital, initial public offerings

9) ________ are individuals who invest their personal capital directly in start-ups.

• A) Venture capitals

• B) Business angels

• C) Institutional investors

• D) Investment bankers

• E) Business capitalists

10) A(n) ________ is a written agreement in which the owner of a piece of property allows an individual or business to use the property for a specified period of time in exchange for payments.

• A) assurance

• B) loan

• C) guarantee

• D) warranty

• E) lease