Entrepreneurial Finance, 6th Edition Test Bank

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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Finance is any transaction where money is exchanged for goods and services.1)Answer:TrueFalse2)Finance is any transaction where money is exchanged for money or a money-like instrument.2)Answer:TrueFalse3)A dividend is an after tax payment that must be made by all stock companies to the stockholderseach year.3)Answer:TrueFalse4)The United States operates with a free enterprise system.4)Answer:TrueFalse5)A market economy is one where all goods and services are exchanged freely.5)Answer:TrueFalse6)Wheat, soybeans, oil, and gold are commodities.6)Answer:TrueFalse7)The mental and physical talents of human beings are entrepreneurial resources.7)Answer:TrueFalse8)The stocks and bonds issued by a corporation are the economic capital resources of the corporation.8)Answer:TrueFalse9)The stocks and bonds issued by a corporation are the financial capital resources of the corporation.9)Answer:TrueFalse10)In market transactions, when one party wins, the other usually feels as though he or she lost.10)Answer:TrueFalse11)The law of demand states that as the price of an item falls, the quantity demanded will decrease,ceteris paribus.11)Answer:TrueFalse12)As the price of an item increases, the quantity of the item provided to the marketplace will increase,ceteris paribus.12)Answer:TrueFalse13)First National Bank is the central bank of the United States.13)Answer:TrueFalse1

14)The Federal Reserve is the central bank of the United States.14)Answer:TrueFalse15)In order to increase the money supply, the Fed will sell government securities.15)Answer:TrueFalse16)A person making less than the cutoff rate for Social Security pays 6.2% of his income in SocialSecurity taxes.16)Answer:TrueFalse17)A person making $90,000 or less pays 6.2% of his salary in Social Security taxes.17)Answer:TrueFalse18)An athlete making $7,000,000 pays 6.2% on the full $7,000,000 in Social Security taxes.18)Answer:TrueFalse19)Social Security tax is regressive to the person making less than the cutoff rate.19)Answer:TrueFalse20)The Medicare tax of 1.45% is a proportionate tax for all.20)Answer:TrueFalseMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.21)Which of the following can be used to finance a small business?21)A)borrowing from other individualsB)using one's own savingsC)borrowing money from financial institutionsD)using cash generated from current salesE)all of the aboveAnswer:E22)Which of the following is NOT a viable source of financing for the small business?22)A)borrowing from other individualsB)using cash generated from current salesC)using one's own savingsD)borrowing money from financial institutionsE)issuing bonds to the general publicAnswer:E23)An organized effort where goods and services are freely exchanged is known as a23)A)market.B)business.C)religion.D)government.Answer:A24)Which of the following is NOT a primary participant in the financial marketplace?24)A)military unitsB)individual householdsC)businessesD)governmentsAnswer:A2

25)There are several markets in the United States. The market where property is exchanged is the25)A)commodity market.B)retail market.C)real estate market.D)financial market.E)none of the above.Answer:C26)There are several markets in the United States. The market where corn, wheat, soybeans, and oil areexchanged is the26)A)retail market.B)real estate market.C)financial market.D)commodity market.E)none of the above.Answer:D27)There are several markets in the United States. The market where stocks, bonds, and money areexchanged is the27)A)financial market.B)retail market.C)real estate market.D)commodity market.E)none of the above.Answer:A28)There are several markets in the United States. The market where television sets are exchanged isthe28)A)financial marketB)real estate market.C)retail market.D)commodity market.E)none of the above.Answer:C29)There are several markets in the United States. The market where final goods and services areexchanged is the29)A)real estate market.B)commodity market.C)financial market.D)retail market.E)none of the above.Answer:D30)The primary savers of funds in the United States are30)A)households.B)governments.C)businesses.D)all of the above.E)none of the above.Answer:A3

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31)The users of funds in the United States are31)A)households.B)governments.C)businesses.D)all of the above.E)none of the above.Answer:D32)Human beings have ________ wants and desires for goods and services. They also have ________financial means with which to pay for them.32)A)limited; unlimitedB)limited; limitedC)unlimited; unlimitedD)unlimited; limitedAnswer:D33)A tree in a forest is an example of a(n)33)A)capital resource.B)entrepreneurial resource.C)natural resource.D)human resource.Answer:C34)The classroom on a college campus is an example of a(n)34)A)capital resource.B)human resource.C)natural resource.D)entrepreneurial resource.Answer:A35)When Bill Gates developed MS-DOS and founded Microsoft to market this product, he was usinga(n)35)A)human resource.B)capital resource.C)natural resource.D)entrepreneurial resource.Answer:D36)When a college hires a professor, they are employing a(n)36)A)capital resource.B)natural resource.C)entrepreneurial resource.D)human resource.Answer:D37)Which of the following is NOT an example of economic capital?37)A)a bond issued by IBMB)an electric plant used by a local utility to generate electricityC)a desk in a classroomD)a delivery truck used by Federal ExpressE)all of the aboveAnswer:A38)

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39)Which of the following is an example of financial capital?39)A)a share of stock issued by IBMB)a delivery truck used by Federal ExpressC)an electric plant used by a local utility to generate electricityD)a desk in a classroomE)all of the aboveAnswer:A40)A local computer manufacturer hires an additional worker and pays $10.00 per hour for an 8-hourday. The worker is capable of assembling 3 computers an hour. The firm sells each computer for$1,500. What is the marginal physical product of this worker?40)A)$1,500 per unit producedB)3 computers per hourC)$80.00 per dayD)$10.00 per hourAnswer:B41)The highest value surrendered when a decision is made is41)A)capital cost.B)economic cost.C)marginal cost.D)absolute cost.E)opportunity cost.Answer:E42)The cost associated with hiring one more unit of labor is42)A)absolute cost.B)opportunity cost.C)marginal cost.D)capital cost.E)economic cost.Answer:C43)John's friend just gave him a pair of concert tickets to see his favorite rock group perform thisweekend. Each ticket sells for $25. John's boss asked him to work overtime the same weekend andat the same time as the concert. John currently makes $10.00 an hour and his overtime pay for thefour hours his boss asked him to work is double the hourly rate. If John decides to go to the concert,his opportunity cost is43)A)$50.00 because that is what his friend paid for the tickets.B)$80.00 in lost pay.C)$40.00 in lost pay.D)$50.00 for the two tickets.E)nothing because the concert tickets were free for John.Answer:B5

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44)Jane just graduated from college with a Bachelor of Science Degree in Computer InformationSystems. 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. Consultants-R-We at a starting salary of $32,000. Andrews Computer Vendors at astarting salary of $36,000. If she takes the job with Andrews Computer Vendors, her opportunitycost is44)A)$30,000.B)$32,000.C)$33,000.D)$35,000.E)nothing because she took the job with the highest salary.Answer:D45)Jane just graduated from college with a Bachelor of Science Degree in Computer Informationsystems. 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. Consultants-R-We at a starting salary of $32,000. Andrews Computer Vendors at astarting salary of $36,000. If she takes the job with Jones and Associates, her opportunity cost is45)A)$30,000.B)$32,000.C)$33,000.D)$35,000.E)$36,000.Answer:E46)Which of the following is included in Gross Income?46)A)interest earned on savings accountsB)wages and tipsC)profit made by an entrepreneurD)rental income on propertyE)all of the aboveAnswer:E47)Which of the following is NOT a form of taxes that governments use?47)A)proportional taxesB)proposed taxesC)regressive taxesD)progressive taxesE)all of the aboveAnswer:B48)John Gates made $25,000 last year and paid $2,500 in taxes on this income. Jane Smith made $30,000last year and paid $3,000 in taxes on this income. What type of tax is the government using?48)A)progressive taxesB)proposed taxesC)regressive taxesD)proportional taxesE)impossible to calculate with the information providedAnswer:D6

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49)John Gates made $25,000 last year and paid $1,500 in taxes on this income. Jane Smith made $30,000last year and paid $3,000 in taxes on this income. What type of tax is the government using?49)A)progressive taxesB)regressive taxesC)proportional taxesD)proposed taxesE)impossible to calculate with the information providedAnswer:A50)John Gates made $25,000 last year and paid $2,500 in taxes on this income. Jane Smith made $30,000last year and paid $2,700 in taxes on this income. What type of tax is the government using?50)A)progressive taxesB)proportional taxesC)regressive taxesD)proposed taxesE)impossible to calculate with the information providedAnswer:C51)John Gates made $25,000 last year and paid $2,500 in taxes. What percentage of his income did Johnpay in taxes?51)A)1%B)9%C)10%D)90%E)impossible to calculate with the information providedAnswer:C52)Jane Smith made $30,000 last year and paid $8,400 in taxes. What percentage of her income did Janepay in taxes?52)A)2.8%B)3.57%C)7.2%D)28%E)72%Answer:D53)Which of the following is an example of a regressive tax?53)A)flat taxB)sales taxC)property taxD)income taxE)All taxes are regressive taxes.Answer:B54)Which of the following is an example of a progressive tax?54)A)flat taxB)income taxC)property taxD)sales taxE)Both A and B above were noted in the text as progressive taxes.Answer:E7

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55)Which of the following is an example of a progressive tax?55)A)Social Security taxB)sales taxC)income taxD)property taxE)All taxes are progressive taxes.Answer:C56)The price paid for money is56)A)the interest rate charged by the lender.B)the principal and interest rate charged by the lender.C)the amount borrowed from the lender.D)the actual payment made by the borrower to the lender.E)There is no price paid for money as it is not for sale.Answer:A57)The supply of money saved includes all of the following EXCEPT57)A)stocks held for investors by brokerage houses.B)demand deposits in banks.C)savings accounts in banks.D)money market mutual funds in brokerage houses.E)all of the above.Answer:A58)A union has negotiated a contract that states the following: work up to 40 hours per week will bepaid at a base rate of $10 per hour. All work in excess of 40 hours, but less than 48 hours will bepaid at a rate equal to 112times the base rate. Any work in excess of 48 hours will be paid at doubletime. This pay scale agrees with58)A)the law of supply.B)the law of supply and demand.C)the law of demand.D)ceteris paribus.E)can't tell with the information provided.Answer:A59)Albert Jones went to his local department store to purchase a pair of Levi's®. He thought that thestyle of Levi's®that he wanted would sell for about $30 a pair. When he got to the store, he saw asign which said, Levi's®, all styles, $18 a pair. Albert bought three pairs of Levi's®. The behavior ofAlbert is consistent with59)A)the law of supply and demand.B)the law of demand.C)the law of supply.D)ceteris paribus.E)can't tell with the information provided.Answer:B8

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65)The four basic factors that affect the price paid (interest rate) for money are65)A)the supply of 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, andrisk.C)the supply of money saved, the supply for borrowed funds, Federal Reserve policy, and risk.D)the demand for money saved, the demand for borrowed funds, Federal Reserve policy, andrisk.Answer:A66)When the Federal Reserve increases the interest rate it charges banks to borrow reserves, it iscontrolling the money supply by using which of the following tools?66)A)reserve requirements ratioB)riskC)open market operationsD)discount rateE)unable to tell with the information providedAnswer:D67)When the Federal Reserve notifies banks that they must hold fifteen cents for every dollar that isdeposited, it is controlling the money supply by using which of the following tools?67)A)riskB)reserve requirements ratioC)open market operationsD)discount rateE)unable to tell with the information providedAnswer:B68)You read an article in the paper that stated the Federal Reserve Bank sold $500 million ofgovernment securities on Tuesday of last week. When the Fed did this they were controlling themoney supply by using which of the following tools?68)A)open market operationsB)reserve requirements ratioC)discount rateD)riskE)unable to tell with the information providedAnswer:A69)If the Fed sells $10,000 in government securities, it will have the effect of69)A)decreasing the money supply.B)changing the money supply, but the direction is not clear.C)increasing the money supply.D)having no effect on the money supply.E)unable to tell with the information provided.Answer:A10

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70)If the Fed purchases $10,000 in government securities it will have the effect of70)A)decreasing the money supply.B)changing the money supply, but the direction is not clear.C)increasing the money supply.D)having no effect on the money supply.E)unable to tell with the information provided.Answer:C71)The probability that the desired return on an investment will be different from the desired return isdefined as71)A)reserve requirements ratio.B)risk.C)open market operations.D)discount rate.E)unable to tell with the information provided.Answer:B72)Jerry Jones has a Visa®card with the Very Big Interstate Bank. He notices that the interest ratecharged on this card is 19.5% per annum. Jerry has been employed by the same company for 15years and has excellent credit. The company has a credit union that will issue Jerry a Visa®cardwith an interest rate of 14.6%. The credit union offered Jerry this reduced rate because72)A)all Visa®credit cards charge the same rate.B)the credit union manager likes Jerry.C)the unsystematic risk is lower for credit union members than it is for the general population.D)the systematic risk is lower for credit union members than it is for the general population.Answer:C11

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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)A plan that relates to a specific area of a business, such as marketing, is known as a strategic plan.1)Answer:TrueFalse2)A plan that relates to a specific area of a business, such as marketing, is known as a functional plan.2)Answer:TrueFalse3)A goal is a measurable objective that can be reached in a specified time frame.3)Answer:TrueFalse4)Public corporations have double taxation, unlimited liability for owners, and can raise largeamounts of cash by selling stocks or bonds.4)Answer:TrueFalse5)Public corporations have double taxation, limited liability for owners, and can raise large amountsof cash by selling stocks or bonds.5)Answer:TrueFalse6)Limited partnerships have limited liability for all of the partners.6)Answer:TrueFalse7)A Subchapter S corporation can sell its stock to any number of shareholders.7)Answer:TrueFalse8)Franchisers purchase the right to sell products or services of the franchisee.8)Answer:TrueFalse9)A franchiser sells the right to produce a product or service to the franchisee.9)Answer:TrueFalse10)The Service Core of Retired Executives (SCORE) is a group of retired government bureaucrats whoprovide help to small business owners.10)Answer:TrueFalse11)The Service Core of Retired Executives (SCORE) is a group of retired business owners andmanagers who provide help to small business owners.11)Answer:TrueFalse12)Prior to applying for a loan through an approved Small Business Administration lender, you mustestablish the form of business ownership.12)Answer:TrueFalse13)Partnerships have the same basic tax requirements as the sole proprietorship and are, therefore, themost popular form of business ownership.13)Answer:TrueFalse1

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