MGMT 4252 Exam 3
The __________ is the range of outcomes between the entrepreneur's reservation price and the reservation price of the other party
bargaining zone
The most common type of joint venture is
between two or more private sector companies
The most common type of joint venture is:
between two or more private sector companies
Which of the following is not one of the five C's of lending?
caution
About 70% of the bankruptcy filings in 2011 were of this variety:
chapter 7
The most frequently used source of short-term funds when collateral is available is:
commercial bank loans
When the debt is prorated to the creditors as a settlement in Chapter 11 this is called:
composition settlement
From the chapter on the characteristics of an entrepreneur, we know that after the failure of a business entrepreneurs are likely to:
continuing starting new ventures
The ____ is used to measure the short-term solvency of a venture.
current ratio
The ______ frequently issues guidelines for mergers.
department of justice
The most common method of harvesting a venture is through
direct sale of the business
_____ strategies involve selling a new product to a new market.
diversification
Which of the methods of valuation of a company provides the potential investor with the best estimate of the probable return on investment?
earnings approach
motivates employees because they realize they are working for themselves
employee stock option plan (ESOP)
Which of the following is not an important part of a succession plan?
evaluate potential successors based on how similar they are to you
The largest percentage of venture capital funding is invested in:
expansion funds
About 75 percent of family firms successfully make the transition to the third generation.
false
About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan
false
After the completion of the preliminary preparation, the first public offering normally requires three to six months to prepare, print, and file the registration statement with the SEC.
false
All bankruptcies are handled by the U.S. Supreme Court.
false
An effective succession plan should be communicated only to top management and not all employees.
false
An entrepreneur contributing his or her own capital would be an example of internally generated funds.
false
Bankruptcy protects entrepreneurs from creditors and competitors
false
Bootstrap financing decreases the company's flexibility and drive for sales.
false
ESOPs account for about 20% of the nation's 10 million employees.
false
Financial reporting to shareholders, bankers, and other investors give the marketing cost for each product and highlight the performance of managers in controlling costs.
false
For a company to go public, larger underwriting firms have more stringent criteria, such as sales as high as $50 million to $100 million, and a 40 to 70 percent annual growth rate
false
For the franchisor, the capital required to expand a venture quickly is more than it would be without franchising
false
If a franchise looks good as an investment, the entrepreneur may request a franchise package from the franchisor at no cost, which usually contains a draft franchise agreement or contract.
false
In a factoring arrangement, the bank lends the business money using inventory as collateral
false
In a leveraged buyout, the entrepreneur uses equity funds to purchase an existing venture for cash.
false
International joint ventures are decreasing in popularity
false
Long-term debt financing is normally used to provide working capital to finance inventory, accounts receivable, and operation of the business.
false
Most life-style entrepreneurs eagerly pursue firm growth.
false
Most new ventures need a human resource department from the first day of operations.
false
Most ventures that are up for sale have good to very-successful profit records.
false
One important advantage of buying a franchise is that the entrepreneur incurs no risk.
false
One of the most successful diversification strategies is to diversify into unrelated products or unrelated markets to spread the risk.
false
Private venture capital firms use both state and federal grant money to invest in other businesses.
false
The Bankruptcy Act of 1978 was designed to protect creditors from receiving nothing in bankruptcy.
false
The best management style for a manager undertaking a business turnaround is a bunker mentality
false
The debt ratio is calculated by dividing total liabilities by total inventory.
false
The detailed review of a potential venture capital deal is called diligent research.
false
The five C's of credit are character, capacity, collateral, capital and competence.
false
The informal investment market contains the smallest pool of risk capital in the U.S.
false
The majority of bankruptcies are mid-size businesses.
false
The most popular means of obtaining capital is from friends and family.
false
The principle of reanalysis requires the entrepreneur to focus on the most important issues, even when under pressure.
false
The quiet period is a 90-day period in going public when company information that will help increase stock price should and can be released.
false
The value-added chain is usually available only to large national firms.
false
Under Rule 504 of Regulation D, a company can sell up to $1,000,000 of securities to any number of investors, regardless of their sophistication, in any 12-month period.
false
Venture capitalists view going public a highly disadvantageous step since the level of risks involved substantially increase.
false
When a manufacturer buys a chain of retail stores that carry its products, it is an example of backward integration.
false
When an entrepreneur bootstraps the purchase of a company, the entrepreneur usually puts down 10-20% in cash and then financing the remainder of the price with long-term debt paid back through the company's earnings.
false
When negotiating, the entrepreneur should make only one offer and stick to it.
false
About one third of all new start-ups fail in their first years.
false (one half fail)
Because it is so severe, Chapter 7 must always be voluntary.
false (voluntary or involuntary)
Which of the following are not factors in the success of joint ventures according to the text?
finance and education
________ is an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.
franchising
The person offering the franchise is known as the:
franchisor
In a private venture capital firm, the _______ manages the fund in exchange for a management fee and a percentage of profits.
general partner
Venture capital firms prefer to invest in:
high-potential ventures
Outside financing:
increases the venture's impulse to spend
The majority of bankruptcies are:
individual
The least liquid current asset, _____, is eliminated when calculating the acid test ratio.
inventory
Obtaining funds from private investors:
is covered by regulation D
All of the following are benefits of an ESOP except:
it is relatively simple to establish
A(n) ________ occurs when an entrepreneur or an employee group uses borrowed funds to purchase an existing venture for cash
leveraged buyout
The debt to capital ratio for most _____ usually exceeds the equity by a factor of 5:1.
leveraged buyouts
The valuation approach that gives the lowest value of the business is:
liquidation value
A common procedure to determine the value of a merger candidate is to estimate the present value of discounted cash flows and the expected after-tax earnings attributable to the merger. This can be done on all of the following levels except:
logical scenarios
Product innovation, diversification, protection against market encroachment are some of the reasons why a company would opt for this
merger
In most of the significant public offerings, the company technically sells the shares to the underwriters, who then resell the shares to the public investors.
true
In private venture capital firms, limited partners provide the funding and the general partner manages the fund.
true
Installment loans are typically given for a period of 30-40 days.
true
It is best for the entrepreneur to have any litigation in existence transferred to the bankruptcy court.
true
Making long-term decisions can be difficult in publicly traded companies where sales and profit evaluations indicate the capability of management via stock values.
true
Many entrepreneurs find that as they grow they need to change their management style.
true
Most R&D limited partnerships are not successful.
true
One advantage of an ESOP is that the company can obtain a tax benefit by deducting ESOP contributions.
true
Only 60% of businesses have a succession plan in place
true
Passing the business to an employee ensures the new principal is familiar with the business and the market
true
Popular reasons to merge include protection, diversification and survival.
true
Presently there are about 11,500 ESOP companies in the United States.
true
Quantitative methods of analyzing the fairness of an LBO's asking price include price-earnings ratios, present value of future earnings and book value.
true
Replacement value is used only by insurance companies and in very unique circumstances
true
Research and development limited partnerships provide small businesses funds from investors looking for tax shelters.
true
Rule 506 goes one step further than Rule 505 by allowing an issuing company to sell an unlimited number of securities to 35 investors and an unlimited number of accredited investors and relatives of issuers.
true
Terminating a franchise results in more lawsuits than any other issue in franchising.
true
The Federal Trade Commission requires franchisors to make full presale disclosure of about 20 separate aspects of a franchise offering.
true
The U.S. Commerce Department indicates that about 70 percent of successful ventures never make it to the second generation of ownership.
true
The U.S. Department of Justice frequently issues guidelines for different types of mergers.
true
The earnings approach is the most widely used method of valuing a company.
true
The integration task phase of negotiation explores mutual benefits for the parties.
true
The principle of prioritized planning requires the entrepreneur to categorize his or her tasks by their degree of importance and then to allocate time to tasks based on this categorization.
true
The three main advantages of going public are obtaining new capital, realizing an enhanced valuation, and enhancing the company's ability to obtain future funds.
true
To attract venture capital funding, an investment must have significant capital appreciation potential.
true
To implement participative management the entrepreneur should have open communication with employees.
true
To improve the chances of being approved for a bank loan, the entrepreneur should prepare a "mini" business plan for the loan committee.
true
Transport mode selection can be important in inventory management.
true
Two major disadvantages of going public are the increased reporting requirements and potential loss of control.
true
Under Chapter 13, the key to enhancing the bankruptcy process is by stressing the significance of the creditors' support during the process.
true
Under the Small Business Technology Transfer (STTR) program, federal agencies with budgets over $1 billion are required to set aside 0.3 percent for small businesses.
true
When a bank grants a line of credit, a "commitment fee" is assessed at the start of the loan.
true
When new equipment is being purchased or presently owned equipment is used as collateral, usually 50 to 80 percent of the value of the equipment can be financed depending on its salability.
true
When using private placement funding the entrepreneur must disclose all information as accurately as possible.
true
With the enactment of the Sarbanes-Oxley Act in 2002, the expense and administrative responsibilities of being a public company, as well as the liability risks of officers and directors, are significantly greater.
true
The _________ captures the steps it takes to develop raw materials into a product and get it into the hands of customers
value chain
A common reason why companies do not come out successfully from a Chapter 11 bankruptcy is because they ____
wait too long to file for protection
Business angels typically invest what amount in the businesses they finance?
$100,000-$500,000
The maximum amount that can be borrowed under an SBA 7(a) loan is:
$5,000,000
During Phase II of an SBIR grant up to _______ can be awarded.
$750,000
Around ____ of businesses make it to the third generation.
12%
All owners of ____ or more are required to personally guarantee an SBA loan.
20%
According to the Small Business Administration, the failure rate of new businesses within the first few years is
50%
The U.S. Commerce Department indicates that about ___ percent of successful ventures never make it to the second generation of ownership
70
__________ financing involves using any possible methods for conserving cash.
Bootstrapping
The computerized system developed by the grocery and pharmaceutical industry to link chain members is:
Efficient Computer Response (ECR)
Entrepreneurs who have the necessary abilities for the transition to more professional management practices and the aspiration to grow their business:
are the most likely to achieve growth
The ____ is calculated by dividing accounts receivable by average daily sales.
average collection period
Under the ____________ program, federal agencies with budgets over $1 billion are required to set aside 0.3 percent for small businesses
Small Business Technology Transfer
___________ refers to a diversification strategy that involves taking a step back (up) on the value chain toward the raw materials.
backward integration
When the bank advances a large percentage of the invoice price of goods and is paid on a pro-rata basis when inventory is sold this is called:
a trust receipt
Franchising opportunities have often evolved from changes in the environment as well as important social trends. This is not one of the factors responsible:
acceptance of different cultures
Using a time sheet to record usage of time is part of the principle of:
analysis
The informal risk-capital market is made up of:
angels
The strategy for growth in which the entrepreneur encourages existing customers to buy more of the firm's current product is a
penetration strategy
Which principle requires the entrepreneur to focus on the most important issues, even when under pressure?
principle of effectiveness
Acknowledgment that only a small amount of time is actually under one's control and that most of one's time is taken up by others is known as the
principle of teamwork
_______ strategies involve developing and selling new products to people who are already purchasing the firm's existing products.
product development
Using a large proportion of part-time workers:
provides the firm with flexibility
Mortgage financing is another term for:
real-estate asset-based financing
The penetration growth strategy:
relies on taking market share from competitors
Chapter 11 is the type of bankruptcy that results in:
reorganization
The __________ is the price at which the entrepreneur is indifferent about whether to accept the agreement or choose an alternative
reservation price
Dividing net profit by total assets shows a firm's:
return on investment
helps qualified small businesses obtain financing when they cannot obtain it through regular lending channels
small business 7a guaranty program
________ were authorized in 1958 to marry private capital and government funds for investment in small companies.
small business investment companies (SBICs)
The top area of venture capital investment in 2011 was in:
software
Joint ventures are sometimes called:
strategic alliances
The concept that "the whole is greater than the sum of its parts" is known as
synergy
________ is the process of improving an individual's productivity through more efficient use of time.
time management
The most often used method of transporting goods is:
truck and rail transport
A cash sensitivity analysis is used to provide a pessimistic and an optimistic cash estimate
true
A cash sensitivity analysis is used to provide a pessimistic and an optimistic cash estimate.
true
A common procedure for determining a merger's value is to estimate the present value of discounted cash flows and the expected after-tax earnings attributable to the merger.
true
A recognition of the need to change personal attitudes and habits regarding the allocation of time is known as the principle of desire.
true
All ventures have some equity.
true
Angel investors have a longer investment horizon than venture capitalists do.
true
Angel investors usually expect to play an active role in the businesses they invest in.
true
Bankruptcy should be a last resort for the entrepreneur.
true
Bootstrap financing helps avoid some of the problems of external capital like decreases in flexibility and increased impulse to spend.
true
Bootstrap financing involves using any possible method, such as discounts for volume purchasing, to conserve cash.
true
By understanding more about the other party, the entrepreneur has a greater opportunity to achieve integration in negotiation
true
Cultural differences between international joint venture partners can create management difficulties.
true
Debt financing requires the entrepreneur to repay the amount borrowed plus interest.
true
Effective time management can increase an entrepreneur's job satisfaction.
true
Endowment and pension funds can be part of venture capital equity pools.
true
Even if there is a belief that the pursuit of growth will improve firm performance and enhance personal wealth, some entrepreneurs will still avoid growing their business.
true
Extending payments to suppliers is an example of generating funds internally.
true
External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.
true
Financial ratios are control mechanisms to test the financial strengths of a new venture
true
For the venture capitalist, the executive summary is an important part of the business plan.
true
Franchising involves payment of royalties in exchange for exclusive distribution rights.
true
If an entrepreneur recognizes the warning signs of bankruptcy early, he or she may be able to prevent it from occurring
true
If there is a significant disparity between the offering price of the shares and the price paid for shares by officers, directors, or founding stockholders, a dilution section is necessary in the prospectus.
true
In an R&D limited partnership the liability for losses incurred is borne by the limited partners.
true
In evaluating an LBO's asking price an entrepreneur can use qualitative measures such as evaluating the abilities of key personnel.
true
