ch 14
Book value of a firm is also known as
balance sheet method.
Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.
true
The real value of any venture is its potential earning power.
true
Weaknesses in small closely held businesses call for careful analysis of the business being valued.
true
What does a post-money valuation include that a pre-money valuation does not? market value replacement value excess earnings venture capital investment
venture capital investment
On what occasion is a business valuation not usually essential?
when hiring a new director of operations
In the context of buying a business, a known commodity may command a higher price for what reason?
avoiding start-up costs has value
Goodwill, family members on the payroll, and planned losses are examples of
establishing the value of a firm.
Which of the following methods of valuation was developed by the U.S. Treasury to determine a firm's intangible assets? market value replacement value excess earnings multiple of earnings
excess earnings
Emotional bias is not an underlying issue in valuing a business.
false
If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used?
discounted earnings
If you agree that the real value of a business venture is its potential earning power, which valuation method, more than the others, would best determine its true value?
discounted earnings method
The price/earnings ratio is determined by
dividing market price of common stock by earnings per share.
"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.
false
An entrepreneur does not need to know how to calculate the value of a competitor's operation.
false
Insufficient controls signify strength when analyzing the business being valued.
false
Knowing a venture's pre-money valuation is not possible.
false
Emotional bias is likely to have what effect on a seller's valuation of a business?
increase the valuation
Return on investment
is net profit divided by investment.
Which of the following is not a shortcoming that many closely held ventures possess? insufficient controls lack of management depth high equity and low debt divergent goals
high equity and low debt
Sales and earnings of a venture are projected from
historical financials
The primary advantage of the price/earnings approach to valuation is that
it is simple to use.
Price/earnings ratio is a method of valuation that is
most common with public corporations.
Specific factors of a venture being offered for sale that should be examined include
profits, sales, and operating ratios.
Some buyers are willing to pay more for a business than what valuation methods determine its worth to be. What are these buyers attempting to avoid?
start-up costs.
What is a rollup?
the acquisition and merging of small companies in the same market
Potential earning power, which determines the true value of the firm, is best calculated using
the discounted earnings method.
A drawback to the price/earnings ratio method is that
the stated net income of a private company may not truly reflect its actual earning power.
When considering employees, the entrepreneur should be concerned about
total number of employees by function.
Adjusted tangible book value is a popular method of valuation.
true
Avoiding start-up costs is a factor to consider when valuing a business.
true
Brazil's human, mineral, and agricultural resources are on par with those of the United States.
true
Business valuation is essential when attempting to buy out a partner.
true
Buyers and sellers assign different values to 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.
true
One of the most common reasons for acquiring a business is developing more growth-phase products.
true
Which of the following are considered methods for valuation of a venture? return on investment stock market method multiple of earnings a and c are correct
a and c are correct
The timing of projected income or cash flows is not a critical factor in establishing the value of a firm.
false
Traditional valuation methods includes all of the following except: adjusted tangible book value price/earnings ratio high equity/low debt discounted earnings
high equity/low debt
The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.
false
When a company is liquidated, preferred stockholders received a certain fixed amount after assets are distributed to common stockholders.
false
One reason to keep projections in perspective is
fluctuating markets.
An adjusted tangible book value method includes
goodwill. patents.
__________ refers to conducting a thorough analysis of every facet of an existing business.
Due diligence
Closely held ventures usually suffer from which of the following shortcomings? a lack of management depth overcapitalization insufficient controls internal conflict
a lack of management depth
When considering sales and distribution, the entrepreneur should be concerned about
whether any sales are made on consignment.
When considering physical facilities, the entrepreneur should be concerned about
which facilities are owned versus leased.
Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.
true
When is the size of the labor force in Africa expected to top that of China?
by 2040
When Facebook went public in May of 2012, what was its starting valuation?
more the $100 billion but less than $150 billion
Besides the purchase price, what else should be considered when buying a business?
new inventory and living expenses three months' operating expenses and sales tax none of the above
When considering management, the entrepreneur should be concerned about
ownership positions.
What hidden costs are involved when establishing the value of a firm?
personal expenses
The discounted earnings method of valuation establishes
potential earning power.