Chapter 14 HW

T/F Adjusted tangible book value is a popular method of valuation.

T

If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used?

a. discounted earnings

T/F Business valuation is essential when attempting to buy out a partner.

T

T/F Buyers and sellers assign different values to a business.

T

The discounted earnings method of valuation establishes

a. potential earning power.

__________ refers to conducting a thorough analysis of every facet of an existing business.

b. Due diligence

Closely held ventures usually suffer from which of the following shortcomings?

b. a lack of management depth

Traditional valuation methods includes all of the following EXCEPT:

b. high equity/low debt

Return on investment

b. is net profit divided by investment.

T/F Knowing a venture's pre-money valuation is not possible.

F

T/F One of the most common reasons for acquiring a business is developing more growth-phase products.

T

T/F Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.

T

T/F Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.

T

T/F The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.

F

Specific factors of a venture being offered for sale that should be examined include

c. profits, sales, and operating ratios.

T/F "Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.

F

T/F Emotional bias is NOT an underlying issue in valuing a business.

F

In the context of buying a business, a known commodity may command a higher price for what reason?

c. avoiding start-up costs has value

Sales and earnings of a venture are projected from

c. historical financials.

Emotional bias is likely to have what effect on a seller's valuation of a business?

c. increase the valuation

When considering management, the entrepreneur should be concerned about

c. ownership positions.

What hidden costs are involved when establishing the value of a firm?

c. personal expenses

When considering physical facilities, the entrepreneur should be concerned about

c. which facilities are owned versus leased.

The price/earnings ratio is determined by

d. dividing market price of common stock by earnings per share.