Ch. 14- kuratko quiz

T/F: Adjusted tangible book value is a popular method of valuation.

True

T/F: Entrepreneurs should try to be as objective as possible in determining the fair market value of their enterprise.

True

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

True

In the context of buying a business, a known commodity may command a higher price for which of the following reasons?

avoiding start up costs has value

Which of the following does a post-money valuation include that a pre-money valuation does not?

venture capital investment

A business valuation is not usually essential when

when hiring a new director of operations

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

whether sales are made on consignment

When considering physical facilities, the entrepreneur should be concerned about

which facilities are owned verses leased

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

due diligence

When calculating the total amount needed to buy a business venture, which of the following would not be included?

employee retention

_____ gives investors some protection against founders selling their interest to a third party.

A co-sale right

T/F: Vesting on founders' stock refers to holders of preferred stock having the right to purchase additional shares when issued by the company.

False

The adjusted tangible book value includes all of the following except

common price

Which of the following is the first step in the traditional pricing formula?

determine the adjusted tangible net worth

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

discounted earnings

The price/earnings ratio is determined by

dividing the market price of commons stock by earnings per share

T/F: Knowing a venture's pre-money valuation is not possible.

false

Emotional bias is likely to have which of the following effects on a seller's valuation of a business?

increase the valuation

When considering employees, the entrepreneur should be concerned about

the total number of employees by function

T/F: Business valuation is essential when attempting to buy out a partner.

true

T/F: Buyers and sellers assign different values to a business.

true

T/F: Increasing market share by acquiring a firm in the company's industry is one reason for the acquisition.

true

T/F: Replacement value of a business is based upon the value of each asset if it had to be replaced at current cost.

true

T/F: The real value of any venture is its potential earning power.

true

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

hidden costs

Return on investment

is net profit divided by investment

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

Which of the following provides an absolute bottom line value of a firm?

liquidation value

When comparing and contrasting major competitors along core competitive dimensions, you should include

product, technology, and distribution

Some buyers are willing to pay more for a business than what valuation methods determine its worth to be to avoid

start-up costs

Goodwill, patents, deferred financing costs, and other intangible assets are considered when computing

the adjusted tangible book value

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

T/F: Avoiding start-up costs is a factor to consider when valuing a business.

true

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

false

Which of the following is a reason for buyers to keep projections in perspective?

fluctuating markets

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

discounted future earnings

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

false

T/F: Emotional bias is not an underlying issue in valuing a business.

false

T/F: Insufficient controls are a strength for a small business and should be considered when the business is being valued.

false

T/F: The "timing" of projected income or cash flows is not a critical factor in establishing the value of a firm

false

T/F: The price/earnings ratio is determined by dividing the market price of common stock by retained earnings.

false

T/F: Weaknesses in small, closely held businesses do not call for careful analysis of the business being valued.

false

T/F: When a company is liquidated, preferred stockholders receive a certain fixed amount after assets are distributed to common stockholders.

false

Which of the following methods of valuation was developed by the U.S. Treasury to determine a firm's intangible assets?

market value

The price/earnings ratio is a method of valuation that is mostly used

with publicly held corporations

Which of the following is not an underlying issue when determining proper valuation of the venture set to be acquired?

The amount of risk involved in an acquisition

Many closely held ventures are undercapitalized, which often indicates

a high level of debt

Closely held ventures usually suffer from which of the following shortcomings?

a lack of management depth

The discounted earnings method of valuation establishes

a potential earning power

Which of the followings venture valuation methods is the most effective if the business being valued needs to generate a return greater than investment?

discounted future earning

How much revenue did Facebook raise with its initial public offering (IPO) in 2012?

$50 billion

When considering management, the entrepreneur should be concerned about

ownership positions

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

personal expenses

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

true