EBD CHP 14

Which of the following refers to the conducting of a thorough analysis of every facet of an existing business?

Due diligence

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

False

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

False

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

False

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

False

Adjusted tangible book value is a popular method of valuation.

True

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

True

Buyers and sellers assign different values to a business.

True

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

True

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

a lack of management depth

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

a. the industry growth rate. b. strength of competitive forces. c. weaknesses, opportunities, and threats.

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

avoiding start-up costs has value

When considering physical facilities, the entrepreneur should be concerned about

which facilities are owned versus leased.

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

True

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

True

In which of the following situations is it essential to have a business evaluation?

a. attempting to buy out a partner b. going public with the company c. establishing an employee stock option plan (ESOP)

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

discounted earnings

The price/earnings ratio is determined by

dividing market price of common stock by earnings per share.

Traditional valuation methods includes all of the following except:

high equity/low debt

Sales and earnings of a venture are projected from

historical financials

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.

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.