ENT 396 CH. 13, CH. 14, CH. 15

Unique managerial concerns of growing ventures encompass all of the following except: a. the one-man-band syndrome b. agency problems c. community pressures d. time-management issues

agency problems

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

False

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

False

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

False

T/F Lack of expertise has never been considered a reason for the lack of strategic planning in new ventures.

False

T/F Participation by subordinates in a strategic plan is never appropriate.

False

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

False

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Major changes in entrepreneurial strategy

Growth

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Transition from one-person leadership to team management leadership

Growth

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Attempts to acquire other firms

Innovation or Decline

Choose the appropriate stage of the venture life cycle in which the following activities would occur. New-product development

Innovation or Decline

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Accumulation of resources

New-venture Development

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Venture assessment

New-venture Development

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Consumer indifference to the entrepreneur's goods or services

Stabilization

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Increased competition

Stabilization

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Development of an effective entrepreneurial team

Start-up

Choose the appropriate stage of the venture life cycle in which the following activities would occur. Search for capital

Start-up

A harvest plan defines how and when the owners and investors will realize an actual cash return on their investment. (T/F)

True

An exit strategy is defined as that component of the business plan where an entrepreneur describes a method by which investors can realize a tangible return on their investment. (T/F)

True

Nonfamily members sometimes bring pressure on the owner-manager in an effort to protect their personal interests. (T/F)

True

T/F A "SWOT" analysis refers to analyzing strengths, weaknesses, opportunities, and threats.

True

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

True

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 During the growth stage of a venture, entrepreneurs shift into a managerial style.

True

T/F In administrative cultures, there is a need for clearly defined authority and responsibility.

True

T/F Many research studies suggest that strategic planning influences a venture's survival.

True

T/F Misunderstanding industry attractiveness can be a fatal flaw in strategic planning.

True

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

True

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

True

T/F Research has shown a distinct lack of planning on the part of new ventures.

True

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

True

T/F The "best" strategic plan will be influenced by the abilities of the entrepreneur, the complexity of the venture, and the nature of the industry.

True

T/F The entrepreneurial strategy matrix measures risk and innovation.

True

The forcing events that require an entrepreneur to step aside and let someone direct the operation are usually unforeseen and create major problems for the business. (T/F)

True

The harvest decision may come when the venture has grown to a stage where an IPO is a possibility. (T/F)

True

The liquidity event stands for positioning the venture for the realization of a cash return for the owners and investors. (T/F)

True

The steps in developing a succession strategy are understanding the contextual aspects, identifying successor qualities, and carrying out the succession plan. (T/F)

True

There are two types of succession pressures: family and nonfamily. (T/F)

True

Which of the following steps should be carried out third when deciding to sell a business? a. Finalize the prospective buyers. b. Value the business. c. Publicize the offer to sell. d. Time the sale appropriately.

Value the business.

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

a lack of management depth

One advantage of the delayed-entry strategy for the younger generation succeeding the older generation of a family business is that a. strong relationships are readily established. b. normal mistakes are viewed as incompetence. c. a successor's skills are judged with greater objectivity. d. knowledge of the environment is limited.

a successor's skills are judged with greater objectivity.

The price/earnings ratio is determined by a. goodwill. b. deferred financing costs. c. patents. d. dividing market price of common stock by earnings per share.

dividing market price of common stock by earnings per share.

A type of successor who is high in ingenuity, creativity, and drive would be considered a(n) a. entrepreneurial successor. b. all of these. c. opportunistic successor. d. managerial successor.

entrepreneurial successor.

What is the one-person-band syndrome? a. following a competitor's lead b. effective time management c. an invention d. failure to delegate

failure to delegate

Which is an influencing factor in succession? a. current economic conditions b. government regulation c. the competition d. family and business cultural issues

family and business cultural issues

All of the following are characteristic of entrepreneurial cultures except: a. episodic use of required resources b. action orientation c. multiple informal networks d. hierarchy

hierarchy

Traditional valuation methods includes all of the following EXCEPT: a. price/earnings ratio b. high equity/low debt c. discounted earnings d. adjusted tangible book value

high equity/low debt

Sales and earnings of a venture are projected from a. property values. b. data on start-ups. c. historical financials. d. historical projections.

historical financials.

Emotional bias is likely to have what effect on a seller's valuation of a business? a. decrease the valuation b. have no net effect on the valuation c. increase the valuation d. none of these

increase the valuation

Return on investment a. provides a replacement value. b. is net profit divided by investment. c. establishes a value for the business. d. is equal to the current prime rate.

is net profit divided by investment.

Which of the following is NOT a reason for the lack of planning in new ventures? a. time scarcity b. lack of knowledge c. lack of trust d. lack of dominance

lack of dominance

A reason for lack of strategic planning has been found to be a. lack of preference. b. lack of expertise. c. lack of dominance. d. time sharing.

lack of expertise.

Which of the following factors would NOT be considered a key dimension that shapes the strategic management activities of a growing firm? a. environmental uncertainty b. speed of decision making c. lack of knowledge d. internal political problems

lack of knowledge

A type of successor who is interested in efficiency, internal control, and effective use of resources would be considered a(n) a. entrepreneurial successor. b. opportunistic successor. c. managerial successor. d. family successor.

managerial successor.

Which of the following would be considered fatal mistakes in strategic planning, according to researcher Michael E. Porter? a. no real competitive advantage b. venture's strategy is too rigid c. compromising strategy for profits d. pursuing a solid competitive position

no real competitive advantage

Research on family firms demonstrates which of the following facts? a. only nine out of ten make it to a second generation b. only 16 percent make it to a third generation c. many family firms cease to exist after one month d. only 3 percent make it to the next generation

only 16 percent make it to a third generation

When considering management, the entrepreneur should be concerned about a. pension and profit sharing. b. employee benefits. c. ownership positions. d. total number of employees.

ownership positions.

What hidden costs are involved when establishing the value of a firm? a. travel expenses b. divergent expenses c. personal expenses d. insufficient controls and costs

personal expenses

The discounted earnings method of valuation establishes a. potential earning power. b. future profits. c. an appropriate rate for replacement. d. expectancy of the business expenses.

potential earning power.

In the context of buying a business, a known commodity may command a higher price for what reason? a. historical projections have intrinsic value b. property values are variable c. avoiding start-up costs has value d. the value of a founder's stock decreases over time

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? a. discounted earnings b. price/earnings ratio c. adjusted tangible book value d. high equity/low debt

discounted earnings

Small business owners are often guarded about their businesses, which leads to a. distrust of others when formulating a strategic plan. b. misunderstanding of the economic environment. c. lack of attention to the competition. d. a myopic viewpoint.

distrust of others when formulating a strategic plan.

A reason new venture managers lack knowledge in the strategic planning process is because a. they refuse to learn new things. b. they are overconfident. c. they have minimal exposure to the planning process. d. they attempt to implement actions too quickly.

they have minimal exposure to the planning process.

Stages in Venture Life Cycle

1. New venture development 2. Start up activities 3. Growth plan 4. Business stabilization 5. Innovation/ decline

The average life expectancy of a privately held firm is a. 24 years. b. and indefinite number of years. c. 10 years. d. 50 years.

24 years.

__________ refers to conducting a thorough analysis of every facet of an existing business. a. Industry capitalization b. Due diligence c. Knowledge acquisition d. Risk assessment

Due diligence

An entrepreneurial successor is someone who is interested in efficiency and the effective use of resources. (T/F)

False

Once the decision is made to harvest the business, the way forward is easy. (T/F)

False

The Oakland Scavenger case is profound to owners of family businesses in that a. conceivably, the owner can be sued for not giving equal treatment to a son as to a daughter. b. the owner can be fined for not declaring his or her first son the heir to the business. c. conceivably, the owner can be sued for not declaring a family member his or her successor. d. conceivably, the owner can be sued by an employee of a different ethnic origin based upon not being accorded the same treatment as a son or daughter.

conceivably, the owner can be sued by an employee of a different ethnic origin based upon not being accorded the same treatment as a son or daughter.

A typical example of a forcing event is a. a natural disaster. b. an IRS audit. c. a slow business year. d. death.

death.

A harvest plan a. is similar to a will. b. defines when and how business owners will realize a cash return on investment. c. leaves the business to the next generation. d. is simple to implement.

defines when and how business owners will realize a cash return on investment.

Which of the following is not an example of pressures or interests from within a firm that affect succession issues? a. rivalry among various branches of the family b. pressure on the owner/manager to designate an heir c. employee wanting a percentage of the business in the owner's will d. pressure from a family member to start his/her own business

pressure from a family member to start his/her own business

Specific factors of a venture being offered for sale that should be examined include a. profits, price, product. b. age, trends, and future. c. profits, sales, and operating ratios. d. employees, suppliers, and competitors

profits, sales, and operating ratios.

The entrepreneurial strategy matrix measures: a. risk and innovation. b. commitment and time. c. risk and security. d. opportunity and time.

risk and innovation.

One advantage of an early-entry strategy for the younger generation succeeding the older generation of a family business is a. successor's skills are judged with more objectivity. b. normal mistakes are viewed as incompetence. c. skills specifically required by the business are developed. d. perspective of the environment is broadened.

skills specifically required by the business are developed.

In the strategy matrix model, innovation is defined as a. an invention. b. something new and different. c. copying and improving on competitor's products. d. using practical milestones.

something new and different.

Analysis of a firm's external and internal environments provides the firm with the information to develop a. administrative experience. b. a degree of uncertainty. c. strategic intent and strategic mission. d. competitive strengths.

strategic intent and strategic mission.

Formation of long-range plans for effective management in light of a venture's strengths and weaknesses is referred to as a. strategic planning. b. tactical planning. c. operational planning. d. dimensional planning.

strategic planning.

A "SWOT" analysis refers to a. strength, weaknesses, opportunities, threats. b. sound warnings of takeovers. c. small, weak, ordinary, tact. d. none of these.

strength, weaknesses, opportunities, threats.

Which of the following is not a contextual aspect to be considered in an effective succession plan? a. time b. environmental factors c. type of venture d. technology

technology

"Harvest" does not mean a. that the firm continues to exist. b. family members agree about the business. c. that any profits will be reaped. d. the challenges and responsibilities of the entrepreneur are over.

the challenges and responsibilities of the entrepreneur are over.

Emerging ventures that are rapidly expanding with constantly increasing personnel size and market operations will need a. to evaluate company strengths and weaknesses. b. to establish a pattern of subordinate participation. c. to formalize planning because there is a great deal of complexity. d. less formal planning because of constant changes.

to formalize planning because there is a great deal of complexity.

Succession pressure inside the firm exists a. competition-is hurting the business. b. when the founder wants to give up authority. c. when family members want to keep and manage the business. d. nonfamily employees don't want the business.

when family members want to keep and manage the business.

When considering physical facilities, the entrepreneur should be concerned about a. facility upkeep. b. which facilities are used for production. c. which facilities are owned versus leased. d. whether adequate capital is maintained

which facilities are owned versus leased.