ch 14

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

b

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

a

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

a

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

a

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

a

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

a

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

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

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

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

b

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

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

b

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

b

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

d

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

d

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

d

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

d

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

c

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

d

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

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

a

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

b

If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used? a. price/earnings ratio b. high equity/low debt c. discounted earnings d. adjusted tangible book value

c