Ch. 14

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

a

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

a

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

a

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

b

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

b

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

a

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

a

"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

b

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

b

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. high equity/low debt c. discounted earnings d. price/earnings ratio

c

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

c

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

c

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

c

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

b

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

a

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

b

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

a

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

a

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

a

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

a

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

b

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

c

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

d

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

b