ch 14

Book value of a firm is also known as

balance sheet method.

Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.

true

The real value of any venture is its potential earning power.

true

Weaknesses in small closely held businesses call for careful analysis of the business being valued.

true

What does a post-money valuation include that a pre-money valuation does not? market value replacement value excess earnings venture capital investment

venture capital investment

On what occasion is a business valuation not usually essential?

when hiring a new director of operations

In the context of buying a business, a known commodity may command a higher price for what reason?

avoiding start-up costs has value

Goodwill, family members on the payroll, and planned losses are examples of

establishing the value of a firm.

Which of the following methods of valuation was developed by the U.S. Treasury to determine a firm's intangible assets? market value replacement value excess earnings multiple of earnings

excess earnings

Emotional bias is not an underlying issue in valuing a business.

false

If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used?

discounted earnings

If you agree that the real value of a business venture is its potential earning power, which valuation method, more than the others, would best determine its true value?

discounted earnings method

The price/earnings ratio is determined by

dividing market price of common stock by earnings per share.

"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.

false

An entrepreneur does not need to know how to calculate the value of a competitor's operation.

false

Insufficient controls signify strength when analyzing the business being valued.

false

Knowing a venture's pre-money valuation is not possible.

false

Emotional bias is likely to have what effect on a seller's valuation of a business?

increase the valuation

Return on investment

is net profit divided by investment.

Which of the following is not a shortcoming that many closely held ventures possess? insufficient controls lack of management depth high equity and low debt divergent goals

high equity and low debt

Sales and earnings of a venture are projected from

historical financials

The primary advantage of the price/earnings approach to valuation is that

it is simple to use.

Price/earnings ratio is a method of valuation that is

most common with public corporations.

Specific factors of a venture being offered for sale that should be examined include

profits, sales, and operating ratios.

Some buyers are willing to pay more for a business than what valuation methods determine its worth to be. What are these buyers attempting to avoid?

start-up costs.

What is a rollup?

the acquisition and merging of small companies in the same market

Potential earning power, which determines the true value of the firm, is best calculated using

the discounted earnings method.

A drawback to the price/earnings ratio method is that

the stated net income of a private company may not truly reflect its actual earning power.

When considering employees, the entrepreneur should be concerned about

total number of employees by function.

Adjusted tangible book value is a popular method of valuation.

true

Avoiding start-up costs is a factor to consider when valuing a business.

true

Brazil's human, mineral, and agricultural resources are on par with those of the United States.

true

Business valuation is essential when attempting to buy out a partner.

true

Buyers and sellers assign different values to a business.

true

Entrepreneurs should try to be as objective as possible in determining the fair market value for their enterprise.

true

Increasing market share by acquiring a firm in the company's industry is one reason for the acquisition.

true

One of the most common reasons for acquiring a business is developing more growth-phase products.

true

Which of the following are considered methods for valuation of a venture? return on investment stock market method multiple of earnings a and c are correct

a and c are correct

The timing of projected income or cash flows is not a critical factor in establishing the value of a firm.

false

Traditional valuation methods includes all of the following except: adjusted tangible book value price/earnings ratio high equity/low debt discounted earnings

high equity/low debt

The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.

false

When a company is liquidated, preferred stockholders received a certain fixed amount after assets are distributed to common stockholders.

false

One reason to keep projections in perspective is

fluctuating markets.

An adjusted tangible book value method includes

goodwill. patents.

__________ refers to conducting a thorough analysis of every facet of an existing business.

Due diligence

Closely held ventures usually suffer from which of the following shortcomings? a lack of management depth overcapitalization insufficient controls internal conflict

a lack of management depth

When considering sales and distribution, the entrepreneur should be concerned about

whether any sales are made on consignment.

When considering physical facilities, the entrepreneur should be concerned about

which facilities are owned versus leased.

Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.

true

When is the size of the labor force in Africa expected to top that of China?

by 2040

When Facebook went public in May of 2012, what was its starting valuation?

more the $100 billion but less than $150 billion

Besides the purchase price, what else should be considered when buying a business?

new inventory and living expenses three months' operating expenses and sales tax none of the above

When considering management, the entrepreneur should be concerned about

ownership positions.

What hidden costs are involved when establishing the value of a firm?

personal expenses

The discounted earnings method of valuation establishes

potential earning power.