ENT 396 CH.14
Market value
B.is valuable only as a reference point.
In establishing the value of the firm, part of the process is
A.Estimations
FALSE
"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business
The discounted earnings method establishes
A.potential earning power.
Underlying issues to consider when valuating a firm include
A.the goals of the buyer and seller.
TRUE
Adjusted tangible book value is a popular method of valuation
One reason to keep projections in perspective is
B.fluctuating markets.
Which of the following are considered methods for valuation of a venture?
D. a and c are correct (A.RETURN ON INVESTMENT & C.MULTIPLE OF EARNINGS)
TRUE
One of the most common reasons for acquiring a business is developing more growth-phase products.
TRUE
The real value of any venture is its potential earning power.
FALSE
The timing of projected income or cash flows is not a critical factor in establishing the value of a firm.
FALSE
An entrepreneur does not need to know how to calculate the value of a competitor's operation.
An adjusted tangible book value method includes
D. both a and b (A.GOODWILL & B.PATENTS)
Which factors listed below influence the final valuation of the venture?
A.Avoiding start-up costs
Closely held ventures suffer from which of the following shortcomings?
A.a lack of management depth
Book value of a firm is also known as
A.balance sheet method.
Business valuation is important for the entrepreneur because a person needs to know when to
A.buy or sell a business, division, or major asset.
Return on investment
A.is net profit divided by investment.
Price/earnings ratio is
A.most common with public corporations.
When considering management, the entrepreneur should be concerned about
A.ownership positions.
When valuating a business, the reason an entrepreneur's business is being acquired is
A.to develop more growth phase products by acquiring a firm that has developed new products in the company's industry..
Some buyers are willing to pay more for a business than what the valuation methods illustrate its worth do be. This is because buyers are often
A.trying to avoid start-up costs.
When considering sales and distribution, the entrepreneur should be concerned about
A.whether any sales are made on consignment.
When considering physical facilities, the entrepreneur should be concerned about
A.which facilities are owned versus leased.
TRUE
Avoiding start-up costs is a factor to consider when valuating a business.
Sales and earnings of a venture are projected from
B.Historical financials
The price/earnings ratio is determined by
B.dividing market price of common stock by earnings per share.
Knowing the value of a business is important in case
B.of a dissolution of a partnership.
Specific factors of a venture being offered for sale that should be examined include
B.profits, sales, and operating ratios.
A drawback to the price/earnings ratio method is that
B.the stated net income of a private company may not truly reflect its actual earning power.
TRUE
Business valuation is essential when attempting to buy out a partner.
TRUE
Buyers and sellers assign different values to a business.
Which of the following methods of valuation was developed by the United States Treasury to determine a firm's intangible assets?
C.Excess earnings
Which of the following is a key question to ask when analyzing a business venture?
C.What are the conditions of the lease?
When considering market and compensation, the entrepreneur should be concerned about
C.the sales literature on products.
When considering employees, the entrepreneur should be concerned about
C.total number of employees by function.
Goodwill, family members on the payroll, and planned losses are examples of
D.establishing the value of a firm.
The primary advantage of the price/earnings approach is that
D.it is simple to use.
The seller will attempt to establish the highest possible value for his business. He will not consider which of the following factors?
D.the transportation
FALSE
Emotional bias is not an underlying issue in valuating a business.
TRUE
Entrepreneurs should try to be as objective as possible in determining the fair market value for their enterprise.
TRUE
Increasing market share by acquiring a firm in the company's industry is one reason for the acquisition.
FALSE
Insufficient controls signify strength when analyzing the business being valuated.
TRUE
Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.
TRUE
Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.
FALSE
The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.
TRUE
Weaknesses in small businesses call for careful analysis of the business being valuated.
Which of the following is not an underlying issue in the value of a business?
C.attempting to buy out a partner
Which of the following is not a shortcoming that many closely held ventures possess?
C.high equity and low debt
What hidden costs are involved when establishing the value of a firm?
C.personal expenses
Potential earning power, which determines the true value of the firm, is
C.the discounted earnings method.
When buying a business one should
C.have the former owner sign a noncompete clause.
