Your friend, Shonta, started a graphic design firm about a year ago. The business has done well, but it needs a lot more equipment, computers, and employees to continue expanding. Shonta does not see any problem because she thinks she can easily get all the money she will need from her local bank. What advice might you give her?
A) She is right, the bank is likely to lend her as much as she needs because banks primarily focus on supporting small businesses.
B) She is crazy, banks do not lend money to small businesses but only to well- known, well-established organizations.
C) She should sell her business immediately before it fails because most small businesses fail during the first five years.
D) She should not accept any new clients so that she can end the need to add additional equipment and employees.
E) She should consider alternative sources of financing because banks provide only about one-fourth of the total capital to small businesses.
Question 2
Baxter Equipment earned 300,000 last year. Its owners' equity totaled 2,500,000. Based on these amounts, what is the firm's return on owners' equity?
A) 1.2 percent
B) 8.33 percent
C) 12 percent
D) 122 percent
E) It is impossible to calculate the return on owners' equity with this information.
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