ENT 396- Ch 14

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

F

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

F

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

F

Adjusted tangible book value is a popular method of valuation. a. True b. False

T

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

a lack of management depth

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

potential earning power.

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

profits, sales, and operating ratios.

Buyers and sellers assign different values to a business. a. True b. False

T

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

dividing market price of common stock by earnings per share.

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

due diligence

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

high equity/low debt

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

historical financials.

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

increase the valuation

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

is net profit divided by investment.

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

ownership positions.

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

personal expenses

If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used? a. adjusted tangible book value b. discounted earnings c. high equity/low debt d. price/earnings ratio

discounted earnings

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

T

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

T

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

T

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

F

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

T

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

avoiding start-up costs has value

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

which facilities are owned versus leased.