A. PRACTICE EXAM 3

The shorter the time before a company goes public, given that profits and sales growth occur, the less percentage of equity the entrepreneur will have to give up per dollar invested.

FALSE

The valuation approach that gives the lowest value of the business is the earnings approach.

FALSE

The value-added chain is usually available only to large national firms.

FALSE

The future earnings capacity of the company is the most important factor in valuation.

TRUE

The inventory turnover ratio measures the efficiency of the venture in managing its inventory.

TRUE

There is more risk involved in financing a business' early operations: therefore, higher rates of return are expected.

TRUE

Time management is the process of improving an individual's productivity through more efficient use of time.

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

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

In the venture-capital process, ______ is(are) absolutely essential for preliminary screening.

a business plan

The due diligence phase of the venture-capital process includes:

a detailed review of the company's history.

Early stage financing is typically:

called seed or start-up capital.

The person offering the franchise is known as the:

franchisor

Funds obtained from ____ are the least expensive in terms of cost and control.

the entrepreneur's personal resources

In order for a joint venture to be successful:

the expectations of the results must be reasonable. there should be symmetry between the partners. the timing must be right. ALL OF THE ABOVE****

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

In 2010 the number of bankruptcy filings was around 4 million.

FALSE

In most leveraged buyouts, the equity usually exceeds the debt capital equity by 5:1.

FALSE

Most angel investors are individuals who accumulated their wealth through inheritance.

FALSE

Most life-style entrepreneurs eagerly pursue firm growth.

FALSE

Private offerings involve more time, expense, and paperwork than public offerings.

FALSE

Private venture capital firms use both state and federal grant money to invest in other businesses.

FALSE

The SBA's Microloan program is their primary business loan program.

FALSE

The most common type of franchise is the dealership.

FALSE

The most common type of joint venture is between two or more public sector companies.

FALSE

The principle of teamwork states that an entrepreneur spends too much time with employees and should try to become less accessible to them in order to increase their efficiency.

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 return on investment ratio measures the ability of the firm to repay long-term debt using current assets.

FALSE

Because it is so severe, Chapter 7 must always be voluntary.

FALSE

Developing standardized forms and procedures for recurring events would be an example of the principle of reanalysis.

FALSE

Equity financing requires collateral.

FALSE

Regulation D regulates private placements.

TRUE

Small Business Innovation Research grants are funded by federal agencies which provide a portion of their R&D funds to small businesses.

TRUE

In a factoring arrangement, the factor:

"buys" the accounts receivables of a firm.

During Phase II of an SBIR grant up to _______ can be awarded.

$750,000

All owners of ____ or more are required to personally guarantee an SBA loan.

20%

A business angel's investment time horizon is usually:

7-10 years.

In general the SBA usually guarantees ____ of loans up to $150,000 and ____ of loans up to $5,000,000.

85%; 95%

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:

Answer: Logical scenarios. can all be done by: Optimistic. Pessimistic. Probable scenarios.

A computer company buys a hard-drive manufacturer. This is an example of:

Backward integration

___________ refers to a diversification strategy that involves taking a step back (up) on the value chain toward the raw materials.

Backward integration

__________ financing involves using any possible methods for conserving cash.

Bootstrapping

______ are used to characterize potential customers based upon their income, education, age, sex, and so forth.

Demographics

_____ strategies involve selling a new product to a new market.

Diversification

The computerized system developed by the grocery and pharmaceutical industry to link chain members is:

Efficient Computer Response (ECR)

Which of the following is the most significant advantage of an acquisition according to the text?

Established image and track record

A venture capitalist would rather invest in a first-rate product and a second-rate management team than the reverse.

FALSE

About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan.

FALSE

About one third of all new start-ups fail in their first years.

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 owners, regardless of percentage of ownership, are required to personally guarantee SBA loans.

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

________ 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

Terminating a franchise results in more lawsuits than any other issue in franchising.

TRUE

The Small Business Investment Company Act of 1958 married the use of private capital with government funds to finance small businesses.

TRUE

The U.S. Department of Justice frequently issues guidelines for different types of mergers.

TRUE

The bankruptcy type that is most common is Chapter 7 bankruptcy.

TRUE

Which statement about capital requirements in franchising is not true?

Newsletters and other publications reflecting new ideas and developments are continuously sent to franchisees.

Which principle states that the most important issues should be attended to during the time of day that an entrepreneur is most efficient?

Principle of prioritized planning

Reviewing meetings to make sure they are being run effectively illustrates which of the following principles?

Principle of reanalysis

Which type of risk-capital market is available as a funding source only for high-potential ventures?

Public equity market

________ were authorized in 1958 to marry private capital and government funds for investment in small companies.

Small business investment companies (SBICs)

All ventures have some equity.

TRUE

An employee stock option plan establishes a new legal entity.

TRUE

Angel investors typically finance firms that are close to their homes.

TRUE

Angel investors usually expect to play an active role in the businesses they invest in.

TRUE

Bootstrap financing involves using any possible method, such as discounts for volume purchasing, to conserve cash

TRUE

Effective time management can increase an entrepreneur's job satisfaction.

TRUE

Entrepreneurs who possess both the necessary abilities to make the transition to a more professional management approach and the aspiration to grow their businesses are the most likely to achieve firm growth.

TRUE

External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.

TRUE

Growing a venture through franchising allows the venture to expand quickly using little capital.

TRUE

If employees are involved in the decision-making process, they are more motivated to implement the decided course of action.

TRUE

Installment loans are typically given for a period of 30-40 days.

TRUE

It is common for a buyer to purchase a business using notes based on future profits.

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

Passing the business to an employee ensures the new principal is familiar with the business and the market.

TRUE

Product development strategies use customers' experiences to develop new products for existing customers.

TRUE

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.

A two to three year plan to sell a business to employees is:

an ESOP.

The ____ is calculated by dividing accounts receivable by average daily sales.

average collection period

The most common type of joint venture is:

between two or more private sector companies.

Sales of stock within an individual state are regulated by:

blue sky examiners

Given the cultural climate of the U.S., business failure and bankruptcy:

do not have to be the end for the entrepreneur.

The least liquid current asset, _____, is eliminated when calculating the acid test ratio.

inventory

Obtaining funds from private investors:

is covered by Regulation D.

The integrative aspect of negotiation:

is more beneficial than a conflict resolution approach.

The disclosure document provided by the franchisor:

is required by the FTC.

In a horizontal diversification strategy, growth:

occurs at the same level of the value-added chain.

Which of the following is not a purpose of the Bankruptcy Act of 1978?

protect creditors from undue delay of money.

An increase in supplier prices may require:

raising the price of products/services.

Chapter 11 is the type of bankruptcy that results in:

reorganization

A market development strategy would not involve:

selling new products to consumer's purchasing the firm's existing products.

Conducting a(n) ____ on cash flow involves assigning a + or - probability to the estimated value.

sensitivity analysis

Joint ventures are sometimes called:

strategic alliances.