Page 454 - Business Principles and Management

C HAPTER 16 A SSESSMENT

DETERMINE THE BEST ANSWER

13. An example of equity capital is
a. personal savings of a current owner invested in the business
b. money contributed by a new partner
c. retained earnings
d. all of the above
14. An advantage an entrepreneur gains by forming a corporation to
raise capital is
a. it does not increase the number of owners
b. the entrepreneur’s personal assets have greater protection
c. the entrepreneur still retains all profits earned
d. none of the above
15. The number of shares of stock to be issued by a corporation is
determined by
a. common stockholders
b. preferred stockholders
c. company executives
d. the board of directors
16. The best policy regarding the use of profits for a corporation is to
a. avoid making a profit so no dividends have to be distributed
b. distribute all profits as dividends to increase stockholder
satisfaction
c. distribute some profits as dividends and keep some profits as
retained earnings
d. keep all profits as retained earnings to build the value of the
company quickly
17. A form of debt equity similar to an open line of credit is
a. venture capital
b. a business credit card
c. trade credit
d. a lease
18. Another name for investment bank is
a. underwriter
b. commercial bank
c. factor
d. venture capitalist

APPLY WHAT YOU KNOW

19. Based on the Reality Check scenario at the beginning of the chapter,
do you believe Eva Diaz should immediately expand her business?
Why or why not? If she does expand, what type of financing do you
believe would be best for her? Justify your answer.
20. Why might an individual with enough money to start a new business
consider forming a corporation rather than a sole proprietorship?

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