Small Business Financing BUSG 1341
Text: Entrepreneurial Finance, 5th Edition (2010)
Authors: Adelman, Philip J. and Marks, Alan M.
Publisher: Pearson/Prentice Hall

TEST Due 02/21/2011
Instructions Choose the most appropriate response to the multiple-choice questions and submit your answers. There are 50 questions and each question is worth 2 points. You may use your textbook and notes. IMPORTANT INFORMATION: There is a time limit of 3 hours and you have 1 attempt. Do not hit the forward or back buttons in your browser because you will not be able to complete the exam. 

1) Multiple Choice 
Which of the following can be used to finance a small business?
A. borrowing from other individuals 
B. borrowing money from financial institutions 
C. cash generated from current sales. 
D. using one's own savings. 
E. all of the above. 


2) Multiple Choice 
There are several markets in the United States. The market where television sets are exchanged is the
A. commodity market. 
B. financial market. 
C. real estate market. 
D. retail market. 
E. none of the above. 


3) Multiple Choice 
Human beings have _________ wants and desires for goods and services. They also have ________ financial means with which to pay for them. 
A. limited, limited 
B. limited, unlimited 
C. unlimited, limited 
D. unlimited, unlimited 


4) Multiple Choice 
When Bill Gates developed MS-DOS and founded Microsoft to market this product, he was using a 
A. capital resource. 
B. entrepreneurial resource. 
C. human resource. 
D. natural resource. 


5) Multiple Choice 
Which of the following is not an example of economic capital? 
A. a delivery truck used by Federal Express. 
B. a desk in a classroom. 
C. a share of stock issued by IBM. 
D. an electric plant used by your local utility to generate electricity. 
E. all of the above are examples of economic capital. 


6) Multiple Choice 
The cost associated with hiring one more unit of labor is 
A. absolute cost. 
B. capital cost. 
C. economic cost. 
D. marginal cost. 
E. opportunity cost. 


7) Multiple Choice 
Jane just graduated from college with a Bachelor of Science Degree in Computer Information Systems. She received the following job offers: Jones and Associates at a starting salary of $30,000; Smith Brothers at a starting salary of $33,000; Joan Cannery Consulting at a starting salary of $35,000; Consultant-R-We at a starting salary of $32,000; and Andrews Computer Vendors at a starting salary of $36,000. If she takes the job with Andrews Computer Vendors her opportunity cost is 
A. $30,000 
B. $32,000 
C. $33,000 
D. $35,000 
E. nothing because she took the job with the highest salary. 


8) Multiple Choice 
Which of the following is included in Gross Income? 
A. Interest earned on savings accounts. 
B. Profit made by an entrepreneur. 
C. Rental income on property. 
D. Wages and tips. 
E. All of the above are included in Gross Income. 


9) Multiple Choice 
John Gates made $25,000 last year and paid taxes on this income of $2,500. Jane Smith made $30,000 last year and paid taxes on this income of $3,000. What type of tax is the government using? 
A. progressive taxes. 
B. proportional taxes. 
C. proposed taxes. 
D. regressive taxes. 
E. impossible to calculate with the information provided. 


10) Multiple Choice 
John Gates made $25,000 last year and paid $2,500 in taxes. What percentage of his income did John pay in taxes?
A. 1% 
B. 9% 
C. 10% 
D. 90% 
E. Impossible to calculate with the information provided. 


11) Multiple Choice 
Table 1-1
Supply and Demand for Personal Computers 
Market Price per Computer Quantity Demanded Quantity Supplied
$2,000 14,000 20,000
$1,900 15,000 19,000
$1,800 16,000 18,000
$1,700 17,000 17,000
$ 1,600 18,000 16,000
$1,500 19,000 15,000








Refer to Table 1-1.
At a market price of $1,800, there will be 
A. a shortage of 2,000 computers. 
B. a surplus of 2,000 computers. 
C. a surplus or a shortage of 2,000 computers. 
D. neither a surplus or a shortage of computers as the market is in equilibrium at this price. 


12) Multiple Choice 
The four basic factors that affect the price paid (interest rate) for money are 
A. the demand for money saved, the demand for borrowed funds, Federal Reserve policy, and risk. 
B. the demand for money saved, the supply for borrowed funds, Federal reserve policy, and risk. 
C. the supply of money saved, the demand for borrowed funds, Federal Reserve policy, and risk 
D. the supply of money saved, the supply for borrowed funds, Federal Reserve policy, and risk. 


13) Multiple Choice 
The probability that the desired return on an investment will be different from the desired return is defined as 
A. discount rate. 
B. open market operations. 
C. reserve requirements ratio. 
D. risk. 
E. unable to tell with the information provided. 


14) Multiple Choice 
Carla has just started a business and is asking herself the following question. Where do I want my business to be in five years? Carla is in the process of 
A. analyzing her financial requirements. 
B. determining how to write a functional plan. 
C. developing a strategic plan. 
D. establishing basic parameters for her business. 
E. establishing the basic control functions for her business. 


15) Multiple Choice 
Converting functional plans into annual dollar requirements is the process of
A. accounting. 
B. budgeting. 
C. controlling. 
D. financial planning. 
E. monetary planning. 


16) Multiple Choice 
Timothy is in the process of establishing goals for his company. Which of the following is a goal? 
A. Our business should increase sales by 10% every year for the next five years. 
B. Our business should increase sales by 10%. 
C. Our business should increase sales every year. 
D. Our business should market to all customers. 
E. Our marketing area should include the entire United States. 


17) Multiple Choice 
Jennifer is the manager of a credit card processing department. She has determined that each processor should be able to input information on 75 credit purchases per hour. She has established a range of plus or minus 5 purchases and an error rate of no more than 2 per hour. Jennifers is performing the management function of 
A. controlling. 
B. directing. 
C. organizing. 
D. planning. 
E. staffing. 


18) Multiple Choice 
The majority of businesses in the United States today are organized as 
A. corporations. 
B. limited partnerships. 
C. partnerships. 
D. sole proprietorships. 
E. S corporations. 


19) Multiple Choice 
The sole proprietor has all of the following advantages, except 
A. choice of how to pay federal and local taxes. 
B. choice of location for the business. 
C. choice of product to be sold. 
D. choice of retirement plan. 
E. choice of services to be offered. 


20) Multiple Choice 
One drawback to a partnership is that it 
A. generally has more access to capital than the sole proprietor. 
B. generally has more management expertise that the sole proprietorship. 
C. is subject to double taxation. 
D. has unlimited liability for each of the partners. 


21) Multiple Choice 
Carl, Anne, and Al were friends in college. After graduation they decided to open a computer consulting business. They each have $20,000 to put into the business, and want equal shares of the business. However, they are worried about liability because they heard of a consultant who crashed a client's computer and was sued for $1,000,000. They also want to avoid double taxation. the most likely form of business organization for them would be a 
A. coropration. 
B. limited partnership. 
C. partnership. 
D. sole proprietorship. 
E. Subchapter S corporation. 


22) Multiple Choice 
Which of the following is not an advantage of obtaining a franchise? 
A. having a pre-determined location that guarantees a profit. 
B. marketing strategy and advertising. 
C. name recognition. 
D. standardization of products and services. 
E. training of employees and managers. 


23) Multiple Choice 
Which of the following pertain to the internal workings of a company? 
A. opportunities and threats. 
B. opportunities and weaknesses. 
C. strengths and opportunities. 
D. strengths and threats. 
E. strengths and weaknesses. 


24) Multiple Choice 
George is analyzing the market for his business. He saw an advertisement for a new bagel shop which has just opened one mile from his bagel shop. For George's bagel business, this represents a(n) 
A. obligation. 
B. oppportunity. 
C. strength. 
D. threat. 
E. weakness. 


25) Multiple Choice 
Which of the following hold true with regard to grants?
I. Grants are moneys provided to business and other entities that don't have to be repaid.
II. The grantee must perform the service for which the grant was approved.
III. Govenment grants exceed $400 billion per year.
IV. Size standards for all businesses to qualify for grants are the same for all industries.
A. I & II 
B. I & IV 
C. I, II, & IV 
D. I, II, & III 
E. I, II, III, & IV 


26) Multiple Choice 
Expenses that are contractual in nature and are normally paid every month are 
A. accounting expenses. 
B. automatic expenses. 
C. fixed expenses. 
D. monthly expenses. 
E. variable expenses. 


27) Multiple Choice 
The income statement shows net sales which is equal to 
A. earnings before taxes minus taxes. 
B. gross revenues minus returns and allowances. 
C. net sales minus cost of goods sold. 
D. operating income minus interest. 
E. operating income minus operating expenses. 


28) Multiple Choice 
Which of the following would be considered to be an operating expense for a computer manufacturing firm? 
A. accountant's wages 
B. assembly line wages 
C. disk drives 
D. memory chips. 
E. speakers 


29) Multiple Choice 
Net income on the income statement is obtained after subtracting taxes for the 
A. corporation 
B. partnership 
C. sole proprietorship 
D. Subchapter S corporation. 
E. all of the above. 


30) Multiple Choice 
Current assets include 
A. cash 
B. savings 
C. inventory 
D. accounts receivable 
E. all of the above 


31) Multiple Choice 
Which of the following fixed assets are always carried on the business books at the price paid for the asset and cannot be depreciated? 
A. buildings 
B. equipment 
C. land 
D. machinery 
E. store fixtures 


32) Multiple Choice 
Current assets are assets _________ and fixed assets are assets ___________. 
A. converted to cash during the accounting year, converted to cash during the accounting year. 
B. converted to cash during the accounting year, that have an expected life in excess of one year. 
C. that have an expected life in excess of one year, converted to cash during the accounting year. 
D. that have an expected life in excess of one year, that have an expected life in excess of one year. 


33) Multiple Choice 
Total assets on the balance sheet include 
A. current assets - fixed assets - depreciation 
B. current assets - fixed assets + depreciation 
C. current assets + fixed assets - depreciation 
D. current assets + fixed assets + depreciation 
E. none of the above are correct 


34) Multiple Choice 
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land, $50,000.
Owner's equity for this corporation is
A. $45,000 
B. $55,000 
C. $95,000 
D. $150,000 
E. $190,000 


35) Multiple Choice 
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land, $50,000.
Total liabilites for this corporation are
A. $45,000 
B. $55,000 
C. $95,000 
D. $155,000 
E. $190,000 


36) Multiple Choice 
The Tom Smith Corporation has the following items: Cash, $5,000; Machinery, $50,000; Building, $150,000; Note payable bank, $10,000; Savings, $10,000; Long term debt, $50,000; Accounts payable, $30,000; Taxes payable, $5,000; Accounts receivable, $30,000; Inventory, $10,000; Depreciation Building, $35,000; Depreciation Machinery, $25,000; Land, $50,000.
Fixed assets for this corporation are
A. $45,000 
B. $55,000 
C. $95,000 
D. $155,000 
E. $190,000 


37) Multiple Choice 
Cash paid in the acquisition of land, buildings, or equipment; loans to other companies; and the proceeds from the sale of land, buildings, or equipment will show up on the cash flow statement under the category of 
A. cash flows from financing activities. 
B. cash flows from investing activities. 
C. cash flows from operating activities. 
D. both a and b above. 
E. both b and c above. 


38) Multiple Choice 
Table 4-1 
Income Statement January February
Total Revenues 46,062 44,759 
Returns & Allowances 545 685 
Net Sales 45,517 44,074 
Cost of Goods Sold 13,841 11,583 
Gross Profit 31,676 32,491 
Operating Expenses
Officer’s Salary 2,500 2,500 
Salaries 15,750 14,250 
Payroll Taxes 3,623 3,278 
Rent 2,000 2,000 
Janitorial 150 150 
Utilities 512 485 
Depreciation 500 500 
Sales Taxes 2,994 2,909 
Total Operating Expenses 28,029 26,072
Operating Profit/Loss 3,647 6,419
Interest Expense 150 150 
Net Profit/Loss 3,497 6,269 
Refer to Table 4-1. 
Using vertical analysis of January data, Cost of Goods Sold was approximately _____ percent.
A. .3041 
B. 30.05 
C. 30.41 
D. 35.65 


39) Multiple Choice 
Table 4-1
Income Statement January February
Total Revenues 46,062 44,759 
Returns & Allowances 545 685 
Net Sales 45,517 44,074 
Cost of Goods Sold 13,841 11,583 
Gross Profit 31,676 32,491 
Operating Expenses
Officer’s Salary 2,500 2,500 
Salaries 15,750 14,250 
Payroll Taxes 3,623 3,278 
Rent 2,000 2,000 
Janitorial 150 150 
Utilities 512 485 
Depreciation 500 500 
Sales Taxes 2,994 2,909 
Total Operating Expenses 28,029 26,072
Operating Profit/Loss 3,647 6,419
Interest Expense 150 150 
Net Profit/Loss 3,497 6,269 
Refer to Table 4-1. 
Using horizontal analysis, Net Profit ______ by approximately ______ percent. 
A. decreased, 44.22 
B. decreased, 79.25 
C. increased, 44.22 
D. increased, 79.25 


40) Multiple Choice 
__________ are used to determine how well a company is managing its assets. 
A. Activity ratios 
B. Leverage ratios 
C. Liquididty ratios 
D. Market ratios 
E. Profitability ratios 


41) Multiple Choice 
______________ determine how well the firm is using its assets and sales revenue to generate a positive return for its owners. 
A. Activity ratios 
B. Leverage ratios 
C. Liquidity ratios 
D. Market ratios 
E. Profitability ratios 


42) Multiple Choice 
In 2007, Joan's Coffee Shop had Cost of Goods Sold of $58,358; in 2008, they were $65,069. On the last day of 2007 her inventory was $675, and on the last day of 2008 it was $1,559. What is the Inventory Turnover for Joan's Coffee Shop for 2008? 
A. 41.74 
B. 52.25 
C. 55.25 
D. 58.25 
E. 86.46 


43) Multiple Choice 
Table 4-3
Income Statement and Balance Sheet for Sam's Appliances
Income Statement
Years Ending 12/31/07 & 12/31/08 $(000) Balance Sheet
As of 12/31/07 and 12/31/08 $(000) 
Years Years
ACCOUNT 2007 2008 CATEGORY 2007 2008
Net Sales $441 462 Current Assets $ 94 $ 111
Cost of Goods Sold 200 235 Fixed Assets 208 195
Gross Profit $241 $227 Total Assets $ 302 $ 306
Operating Expenses 163 181 Liabilities and Owner’s Equity.
EBIT $ 78 $ 46 Current Liabilities $ 79 $ 87
Interest 7 8 Total Long-Term Debt 77 70
EBT $ 71 $ 38 Total Liabilities $ 156 $157
Taxes 18 10 Owner’s Equity 146 149
Net Profit $ 53 $ 28 Total Liabilities & OE $ 302 $ 306
Refer to Table 4-3.
The current ratio for Sam's in 2008 was approximately 
A. 1.19 
B. 1.24 
C. 1.28 
D. 1.94 


44) Multiple Choice 
Table 4-3
Income Statement and Balance Sheet for Sam's Appliances
Income Statement
Years Ending 12/31/07 & 12/31/08 $(000) Balance Sheet
As of 12/31/07 and 12/31/08 $(000) 
Years Years
ACCOUNT 2007 2008 CATEGORY 2007 2008
Net Sales $441 462 Current Assets $ 94 $ 111
Cost of Goods Sold 200 235 Fixed Assets 208 195
Gross Profit $241 $227 Total Assets $ 302 $ 306
Operating Expenses 163 181 Liabilities and Owner’s Equity.
EBIT $ 78 $ 46 Current Liabilities $ 79 $ 87
Interest 7 8 Total Long-Term Debt 77 70
EBT $ 71 $ 38 Total Liabilities $ 156 $157
Taxes 18 10 Owner’s Equity 146 149
Net Profit $ 53 $ 28 Total Liabilities & OE $ 302 $ 306
Refer to Table 4-3.
The Total Asset Turnover ratio for 2008 was approximately
A. 1.51 
B. 1.57 
C. 2.37 
D. 2.46 
E. 4.16 


45) Multiple Choice 
Table 4-3
Income Statement and Balance Sheet for Sam's Appliances
Income Statement
Years Ending 12/31/07 & 12/31/08$(000) Balance Sheet
As of 12/31/07 and 12/31/08$(000) 
Years Years
ACCOUNT 2007 2008 CATEGORY 2007 2008
Net Sales $441 462 Current Assets $ 94 $ 111
Cost of Goods Sold 200 235 Fixed Assets 208 195
Gross Profit $241 $227 Total Assets $ 302 $ 306
Operating Expenses 163 181 Liabilities and Owner’s Equity.
EBIT $ 78 $ 46 Current Liabilities $ 79 $ 87
Interest 7 8 Total Long-Term Debt 77 70
EBT $ 71 $ 38 Total Liabilities $ 156 $157
Taxes 18 10 Owner’s Equity 146 149
Net Profit $ 53 $ 28 Total Liabilities & OE $ 302 $ 306

Refer to Table 4-3.
The Debt to Equity ratio for 2008 was approximately
A. .51 
B. .95 
C. 1.05 
D. 1.95 
E. 2.05 


46) Multiple Choice 
Table 4-3
Income Statement and Balance Sheet for Sam's Appliances
Income Statement
Years Ending 12/31/07 & 12/31/08 $(000) Balance Sheet
As of 12/31/07 and 12/31/08$(000) 
Years Years
ACCOUNT 2007 2008 CATEGORY 2007 2008
Net Sales $441 462 Current Assets $ 94 $ 111
Cost of Goods Sold 200 235 Fixed Assets 208 195
Gross Profit $241 $227 Total Assets $ 302 $ 306
Operating Expenses 163 181 Liabilities and Owner’s Equity.
EBIT $ 78 $ 46 Current Liabilities $ 79 $ 87
Interest 7 8 Total Long-Term Debt 77 70
EBT $ 71 $ 38 Total Liabilities $ 156 $157
Taxes 18 10 Owner’s Equity 146 149
Net Profit $ 53 $ 28 Total Liabilities & OE $ 302 $ 306
Refer to Table 4-3.
The Debt to Total Assets ratio for 2008 was approximately
A. .36 
B. .51 
C. .71 
D. 1.95 


SAME IS ATTACHED IN WORD.

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