Ch. 14
. the stated net income of a private company may not truly reflect its actual earning power.
A drawback to the price/earnings ratio method is that Select one: a. it distorts profits earned. b. the stock of a private company is publicly traded. c. it is relatively easy to find a truly comparable publicly held company, even in the same industry. d. the stated net income of a private company may not truly reflect its actual earning power.
True
Adjusted tangible book value is a popular method of valuation. Select one: True False
False
An entrepreneur does not need to know how to calculate the value of a competitor's operation. Select one: True False
True
Avoiding start-up costs is a factor to consider when valuing a business. Select one: True False
A lack of management depth
Closely held ventures usually suffer from which of the following shortcomings? Select one: a. internal conflict b. a lack of management depth c. overcapitalization d. insufficient controls
Increase the valuation
Emotional bias is likely to have which of the following effects on a seller's valuation of a business? Select one: a. decrease the valuation b. no net effect on the valuation c. an easier time negotiating d. increase the valuation
false
Emotional bias is not an underlying issue in valuing a business. Select one: True False
Hidden costs
Goodwill, family members on the payroll, and planned losses are examples of Select one: a. analyzing a business. b. hidden costs. c. emotional bias. d. underlying issues.
The adjusted tangible book value
Goodwill, patents, deferred financing costs, and other intangible assets are considered when computing Select one: a. capitalized earnings. b. the fixed price value. c. the adjusted tangible book value. d. inventory value.
$50 billion
How much revenue did Facebook raise with its initial public offering (IPO) in 2012? Select one: a. $10 billion b. $150 billion c. $50 billion d. $16 billion
True
One of the most common reasons for acquiring a business is developing more growth-phase products. Select one: True False
Discounted earnings
Potential earning power, which determines the true value of the firm, is best calculated using the _____ method. Select one: a. adjusted tangible book value b. discounted earnings c. price/earnings ratio d. multiple of earnings
true
Question text Increasing market share by acquiring a firm in the company's industry is one reason for the acquisition. Select one: True False
Net profit divided by investment
Return on investment Select one: a. is net profit divided by investment. b. provides a replacement value. c. is equal to the current prime rate. d. establishes a value for the business.
True
Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation. Select one: True False
false
The "timing" of projected income or cash flows is not a critical factor in establishing the value of a firm. Select one: True False
False
Vesting on founders' stock refers to holders of preferred stock having the right to purchase additional shares when issued by the company. Select one: True False
False
When a company is liquidated, preferred stockholders receive a certain fixed amount after assets are distributed to common stockholders. Select one: True False
Fluctuating markets
Which of the following is a reason for buyers to keep projections in perspective? Select one: a. certain environments b. fluctuating markets c. start-up costs d. vague histories
. Avoiding start-up costs has value.
In the context of buying a business, a known commodity may command a higher price for which of the following reasons? Select one: a. Avoiding start-up costs has value. b. Property values are variable. c. The value of a founder's stock decreases over time. d. Historical projections have intrinsic value
False
Insufficient controls are a strength for a small business and should be considered when the business is being valued. Select one: True False
Historical financials
Sales and earnings of a venture are projected from Select one: a. property values. b. data on start-ups. c. historical projections. d. historical financials.
Potential earning power
The discounted earnings method of valuation establishes Select one: a. an appropriate rate for replacement. b. future profits. c. potential earning power. d. expectancy of the business expenses.
true
The price/earnings ratio is determined by Select one dividing market price of common stock by earnings per share.
the amount of risk involved in an acquisition
Which of the following is not an underlying issue when determining proper valuation of the venture set to be acquired? Select one: a. the amount of risk involved in an acquisition b. the reasons for the acquisition c. the differing goals of a buyer and seller d. the emotional bias of the seller
Determined the adjusted tangible net worth
Which of the following is the first step in the traditional pricing formula? Select one: a. Determine the average annual net earnings. b. Determine the adjusted tangible net worth. c. Estimate potential annual earnings of the buyer. d. Discount future earnings.
Marley value
Which of the following methods of valuation was developed by the U.S. Treasury to determine a firm's intangible assets? Select one: a. multiple of earnings b. replacement value c. excess earnings d. market value
Start up costs
Some buyers are willing to pay more for a business than what valuation methods determine its worth to be to avoid Select one: a. previous profits. b. start-up costs. c. legal fees. d. earlier losses.
Is simple to use
The primary advantage of the price/earnings approach to valuation is that it Select one: a. is simple to use. b. reflects "top value" of the firm. c. pays off assets and sells liabilities. d. assumes business begins operations.
False
"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business. Select one: True False
