Chapter 16 Business Management Questions and Answers ( Graded A+)

Chapter 16 Business Management Questions and Answers ( Graded A+) Capital - ANS- The money required to start or expand a business Equity Capital (Owner capital) - ANS- Business owners' personal financial contributions to the business Retained Earnings - ANS- Profits that are not taken out of the business but instead are saved for use by the business Debt Capital (Creditor Capital) - ANS- Money that others loan to a business Common Stock - ANS- Ownership that gives holders the right to participate in managing the business through voting privileges and the right to share in any profits through dividends. Par value - ANS- A dollar value shown on a share of stock, which is an arbitrarily assigned amount that is used for bookkeeping purposes. Market Value - ANS- The price at which stock is actually bought and sold Preferred Stock - ANS- Stock that gives holders first claim on corporate dividends if a company earns a profit Book Value - ANS- Share of stock is calculated by dividing the corporation's net worth by the total number of shares outstanding Short-term debt - ANS- A loan that must be repaid with interest within a year Line of credit - ANS- Authorization to borrow up to a maximum amount for a specified period of time. Promissory note - ANS- Unconditional written promise to pay to the lender a certain sum of money at a particular time or on demand. Security (Security Collateral) - ANS- Something of value pledged as assurance of the fulfillment of an obligation Trade Credit - ANS- Obtained by buying goods and services that do not require immediate payment Factor - ANS- Firm that specializes in lending money to businesses based on the business's accounts receivable Sales Finance Company - ANS- Provides capital to a business based on installment sales contracts Long-term debt - ANS- Capital borrowed for longer than a year Term loan - ANS- Medium- or long-term financing used for operating funds or the purchase or improvement of fixed assets. Lease - ANS- A contract that allows the use of an asset for a fee paid on a schedule Bond - ANS- Long-term debt instrument sold by the business to investors Debentures - ANS- Unsecured bonds Mortgage bonds - ANS- bonds secured by specific long-term assets of the issuer Convertible bond - ANS- Permits a bondholder to exchange bonds for a prescribed number of shares of common stock Investment bank - ANS- An organization that helps a business raise large sums of capital through the sales of stocks and bonds Initial Public Offering (IPO) - ANS- First time that a company sells stock to the public Stock option - ANS- Right granted by a corporation that allows current stockholders to buy additional shares when issued at a fixed price for a specific period of time. Employee Stock Ownership Plan (ESOP) - ANS- Which is a plan that allows employees to become owners of the company they work for through the purchase of stock. Venture Capital - ANS- Financing obtained from an investor or investment group that lends large sums of money to promising new or expanding small companies