A Solid Business Plan Is Marked by a Number of Characteristics

question 20

Multiple Choice

A solid business plan is marked by a number of characteristics including:

• A)broad,general market research on the overall industry and business environment.
• B)a description of the management team.
• C)a minimum of financial detail.
• D)an optimistic financial projection and understandable risk statement.

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Definitions:

Capital Structure

Capital structure refers to the mix of a company's long-term debt, specific short-term debt, common equity, and preferred equity, which is considered when financing its overall operations and growth.

Bankruptcy Risk

Bankruptcy risk refers to the likelihood that a company will be unable to meet its debt obligations and may be forced into bankruptcy.

Agency Costs

Expenses arising from the conflict of interest between a company's management or its shareholders and its creditors.

Financial Risk

The risk added by the use of debt financing. Debt financing increases the variability of earnings before taxes (but after interest); thus, along with business risk, it contributes to the uncertainty of net income and earnings per share. Business risk plus financial risk equals total corporate risk.