Chapter 14
Book value of a firm is also known as
balance sheet method.
When is the size of the labor force in Africa expected to top that of China?
by 2040
What does a post-money valuation include that a pre-money valuation does not?
venture capital investment
On what occasion is a business valuation not usually essential?
when hiring a new director of operations
__________ 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
The price/earnings ratio is determined by
dividing market price of common stock by earnings per share.
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?
excess earnings
One reason to keep projections in perspective is
fluctuating markets.
An adjusted tangible book value method includes
goodwill & patents
Sales and earnings of a venture are projected from
historical financials
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.
The primary advantage of the price/earnings approach to valuation is that
it is simple to use.
When Facebook went public in May of 2012, what was its starting valuation?
more the $100 billion but less than $150 billion
Price/earnings ratio is a method of valuation that is
most common with public corporations.
What hidden costs are involved when establishing the value of a firm?
personal expenses
The discounted earnings method of valuation establishes
potential earning power.
Specific factors of a venture being offered for sale that should be examined include
profits, sales, and operating ratios.
Which of the following are considered methods for valuation of a venture?
return on investment & multiple of earnings
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.
Besides the purchase price, what else should be considered when buying a business?
three months' operating expenses and sales tax & new inventory and living expenses
When considering employees, the entrepreneur should be concerned about
total number of employees by function.
Which of the following is not a shortcoming that many closely held ventures possess?
high equity and low debt
Traditional valuation methods includes all of the following except:
high equity/low debt
When considering management, the entrepreneur should be concerned about
ownership positions.
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
In the context of buying a business, a known commodity may command a higher price for what reason?
avoiding start-up costs has value
If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used?
discounted earnings
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.
