Key Concept Quiz


1	When determining a business' capital requirements, one needs to estimate:
		A)	Start-up costs
		B)	Operating requirements
		C)	Owner assets available for the investment
		D)	All of the above


2	Which of the following are expenses that may be incurred before a business begins operating?
		A)	Rent
		B)	Utilities
		C)	Licenses and permits
		D)	All of the above


3	Phil Jackson secured an operating line of credit worth $66,000 for his business. This means that:
		A)	Phil can withdraw funds anytime as long as the amount does not exceed $66,000
		B)	Phil has raised at least $33,000 in equity to start-up the business
		C)	Phil has found a lender to cover the $66,000 if required
		D)	A and C


4	A __________ statement determines the amount of owner's funds to invest in the business and is required by a financial institution if additional capital has to be borrowed.
		A)	Start-up cost
		B)	Cash flow
		C)	Personal net worth
		D)	Financial


5	Obtaining funds by borrowing is referred to as equity financing.
		A)	True
		B)	False


6	Which of the following is a source of debt financing?
		A)	A lending institution such as the Royal Bank
		B)	Funds from friends and relatives
		C)	A corporation that is interested in investing
		D)	Canada Development Corporation


7	Debt financing spreads the risk of failure of the business to others.
		A)	True
		B)	False


8	Harold Taylor of Reclino-Bath had difficulty obtaining additional financing for his business because:
		A)	He had already suffered a previous business failure
		B)	He did not adequately plan his financial requirements
		C)	He did not possess enough owner's equity
		D)	He had already launched the product into the marketplace


9	When developing a loan proposal, the applicant should emphasize most the following area:
		A)	Past business mistakes and how they may have been avoided
		B)	Skills that that need to be further developed and/or are weak
		C)	Knowledge of the industry that the business will operate in
		D)	None of the above


10	The "Quick Ratio" is used by lenders to evaluate a potential investment and refers to:
		A)	Current assets compared with current liabilities
		B)	The dollar difference between current assets and current liabilities
		C)	Current assets less inventories compared to liabilities
		D)	None of the above


11	The level of working capital that a business maintains should be enough to:
		A)	Meet current obligations
		B)	Finance delays in revenue
		C)	Pay off the business' long-term debt
		D)	A and B


12	The amount of equity that a lender requires of the applicant in a loan request depends on the risk associated with the project.
		A)	True
		B)	False


13	The advantage(s) of equity capital over debt financing include:
		A)	Expertise of the investors
		B)	Expanded borrowing power
		C)	Spreading of the risk
		D)	All of the above


14	Short-term loans typically provide enough cash flow to cover which asset(s)?
		A)	Equipment and furnishings
		B)	Working capital
		C)	Property, land and buildings
		D)	All of the above


15	An inability to manage working capital is one of the largest financial management problems contributing to bankruptcy for small businesses.
		A)	True
		B)	False

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