MGMT 164 Final Practice Questions

Accrual income is a better predictor of future cash flows than current cash flows.

True

Which one of the following possible conflicts of interest increases in divergence at venture gets close to bankruptcy? a. owner-manager conflict b. owner-employee conflict c. manager-employee conflict d. manager-debtholder conflict

D

Economic income measures change in: A. asset value. B. liability value. C. shareholder value. D. net cash flows.

C

Which one of the following possible conflicts of interest is usually minimized through the use of equity incentives? a. owner-manager conflicts b. owner-employee conflicts c. manager-employee conflicts d. manager-debtholder conflicts

A

At which stage of the venture's life cycle stage is best characterized by the period when revenues start to grow and when cash flows from operations begin covering cash outflows? a. survival stage b. startup stage c. rapid growth stage d. early-maturity stage

A

Beginning accounts receivable are $76,000. Sales for the period total $384,000, of which $40,000 was directly for cash. $418,000 was collected from making sales and collecting accounts receivable. What is the ending balance for accounts receivable? A. $42,000 B. $2,000 C. $82,000 D. $68,000

A

Financial markets where customized contracts or securities are negotiated, created, and held with restrictions on how they can be transferred are called: a. private financial markets b. public financial markets c. domestic financial markets d. international financial markets e. all of the above

A

For a going concern, company value can be expressed by: A. dividing permanent income by the cost of capital. B. multiplying permanent income by the cost of capital. C. dividing permanent income by the market value per share. D. multiplying permanent income by the market value per share.

A

The time value of money concept is associated with which one of the following principles of entrepreneurial finance: a. real, human, and financial capital must be rented from owners b. risk and expected reward go hand in hand c. while accounting is the language of business, cash is the currency d. it is dangerous to assume that people act against their own self-interests

A

The type of financing that occurs during the development stage of a venture's life cycle is typically referred to as: a. seed financing b. startup financing c. first round financing d. second round financing e. mezzanine financing

A

The value at which an asset is carried on a balance sheet (the cost of the item) A. book value B. burn rate C. outstanding stock D. subordinated debt

A

When preparing a direct materials budget, the required purchases of raw materials in units equals: A) raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials. B) raw materials needed to meet the production schedule − desired ending inventory of raw materials − beginning inventory of raw materials. C) raw materials needed to meet the production schedule − desired ending inventory of raw materials + beginning inventory of raw materials. D) raw materials needed to meet the production schedule + desired ending inventory of raw materials + beginning inventory of raw materials.

A

Which of the following is considered to be an "agency" conflict? a. owner-manager conflict b. stockholder-manager conflict c. stockholder-debtholder conflict d. manager-debtholder conflict

A

Which of the following statements is NOT correct concerning the Cash Budget? A) It is not necessary to prepare any other budgets before preparing the Cash Budget. B) The Cash Budget should be prepared before the Budgeted Income Statement. C) The Cash Budget should be prepared before the Budgeted Balance Sheet. D) The Cash Budget builds on earlier budgets and schedules as well as additional data.

A

Briefly discuss the likely importance of an entrepreneur's character and reputation on the success of a venture. What role does social responsibility plan in the operation of an entrepreneurial venture?

A survey of successful entrepreneurs is by Timmons and Stevenson indicated that a majority felt that having high ethical standards was the most important factor in the long-term success of their ventures. Taking the time and money to invest in the venture's character will help ensure that it is an asset rather than a liability. Many entrepreneurial ventures provide great societal benefit through their introduction of new products and services. They also foster competition in existing markets providing more economically attractive prices for existing products and services. In many cases an entrepreneurial venture's social contribution is reflected in its commercial success. The two need not be mutually exclusive.

"E-commerce" refers to: a. environmental commerce b. electronic commerce c. economic commerce d. exploratory commerce

B

About one-half of all newly created businesses in the U.S. are dissolved or cease operations within how many years after being started? a. two years b. four years c. six years d. eight years

B

Break-even analysis assumes that: A) Total revenue is constant. B) Unit variable expense is constant. C) Unit fixed expense is constant. D) Selling prices must fall in order to generate more revenue.

B

Founder and venture investor shares are sold to the public after the initial offering to the public is called? a. secondary market transaction b. secondary stock offering c. venture offering d. bridge loan

B

One study of successful entrepreneurs indicated that a majority felt that the most important factor in the long-term success of their ventures was: a. being greedy b. having high ethical standards c. working hard d. taking frequent vacations

B

The last stage in a successful venture's life cycle is called the: a. rapid growth stage b. early-maturity stage c. development stage d. survival stage e. startup stage

B

Which is not a major source of start-up financing for a venture's startup stage? a. entrepreneur's assets b. business operations c. family and friends d. business angels e. venture capitalists

B

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product? A) As fixed expenses decrease, the contribution margin ratio increases. B) The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. C) The contribution margin ratio will decline as unit sales decline. D) The contribution margin ratio equals the selling price per unit less the variable expense ratio.

B

Which of the following would be considered a use of cash? A. depreciation B. an increase in working capital C. sale of bonds D. an increase in wages payable

B

Which of these statements is correct? a. The development stage occurs between the startup and survival stages of a venture's life cycle b. The early-maturity stage is the final stage of a new venture's lifecycle c. Firms typically begin to cover all expenses with internally-generated funds during the survival stage d. During the startup stage, revenues grow much more rapidly than cash expenditures e. None of the above

B

You are considering investing in two independent projects "A" and "B". Project A requires an initial investment of $12,000. In one year, there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a $14,500 return. Project B requires an initial investment of $1,000. In one year, there is a 25% chance of a $950 return; a 25% chance of a $1,000 return; and a 50% chance of a $1,200 return. If you require a 7% return on your investment after one year, you should: a. Accept A and reject B b. Accept B and reject A c. Accept both projects d. Reject both projects

B

10-K reports are: A. the quarterly reports to stockholders. B. quarterly filings made by a company with the SEC. C. annual filings made by a company with SEC. D. filings made by a company with SEC when a company changes auditors.

C

A $2.00 increase in a product's variable expense per unit accompanied by a $2.00 increase in its selling price per unit will: A) decrease the degree of operating leverage. B) decrease the contribution margin. C) have no effect on the break-even volume. D) have no effect on the contribution margin ratio.

C

An asset is considered to be liquid if: A. it is readily converted into a current asset. B. it is an intangible asset. C. it is readily converted into cash. D. it is part of retained earnings.

C

As a general rule, revenue is normally recognized when it is: A. measurable and earned. B. measurable and received. C. realizable and earned. D. realizable.

C

Assume that you can sell a new product at $5.00 per unit. Your variable costs are $3.00 per unit and you fixed costs are $20,000. What is your breakeven point in sales units? a. 5,000 b. 7,500 c. 10,000 d. 12,500 e. 15,000

C

During a venture's rapid growth stage, funds for plant expansion, marketing expenditures, working capital, and product or service improvements is obtained through? a. seed financing b. second round financing c. mezzanine financing d. seasoned financing e. liquidity stage financing

C

If the contribution margin is not sufficient to cover fixed expenses: A) total profit equals total expenses. B) contribution margin is negative. C) a loss occurs. D) variable expenses equal contribution margin.

C

The last three stages of a successful venture's life cycle occur in the following order: a. startup, development, rapid growth b. startup, survival, rapid growth c. survival, rapid growth, early-maturity d. development, startup, survival

C

The type of financing that occurs during the survival stage of a venture's life cycle is typically referred to as the: a. seed financing b. startup financing c. first round financing d. second round financing e. mezzanine financing

C

There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget? A) It details the required direct labor hours. B) It details the required raw materials purchases. C) It is calculated based on the sales budget and the desired ending inventory. D) It summarizes the costs of producing units for the budget period.

C

Under the accrual basis of accounting, which of the following statements is true? I. Reported net income provides a measure of operating performance II. Revenue is recognized when cash is received, and expenses are recognized when payment is made III. Cash inflows are recognized when they are received, and cash outflows are recognized when they are made A. I only B. III only C. I and III D. I, II and III

C

Which of the following does not describe activity during the venture's life cycle startup stage? a. venture's organization b. venture's development c. operating cash flows are generated d. initial revenue model is put in place

C

Which of the following is incorrect? When using the 10-Q, the analyst should be aware that the usefulness of the quarterly financial statements might be affected by: A. seasonality. B. adjustments made in the final quarter of the year. C. the use of cash accounting. D. the increased use of estimates.

C

Which of the following ratios would be considered useful in assessing operating profitability? A. Debt/Equity ratio B. Acid test ratio C. Gross profit margin D. Return on equity

C

Which of the following statements about accruals and cash flows is true? A. All cash flows are value relevant. B. Cash flows cannot be manipulated. C. Cash flows are more reliable than accruals. D. All accrual accounting adjustments are value irrelevant.

C

Which stage in the venture life cycle is characterized by creating and building value, obtaining additional financing, and examining opportunities? a. survival stage b. startup stage c. rapid growth stage d. early-maturity stage

C

While determining the most profitable company from the given number of companies, which of the following would be the best indicator of relative profitability? A. Highest net income B. Highest retained earnings C. Highest return on equity D. Highest operating margin

C

While one must be careful to avoid too many generalizations about entrepreneurial traits or characteristics, which one of the following characteristics would not normally be associated with successful entrepreneurs? a. being able to see and seize a commercial opportunity b. planning for the venture's future c. only being able to see an opportunity after it ceases to be one d. being optimistic about the venture's success

C

A bakery that borrows funds at 7% interest rate to buy an oven, which generates a 9% return on the purchase price typically has: A. Greater default risk B. Favorable financial leverage C. Higher return on equity D. All of the above E. None of the above

D

Assume that you can sell a new product at $5.00 per unit. Your variable costs are $3.00 per unit and you fixed costs are $20,000. What will be your profit before taxes if you sell 12,000 units next year? a. $0 b. $1,000 c. $2,000 d. $4,000 e. $8,000

D

Indicate the number of principles of entrepreneurial finance that are emphasized in this textbook: a. one b. three c. five d. seven e. nine

D

Mezzanine financing is associated with which one of the following life cycle stages: a. development stage b. startup stage c. survival stage d. rapid growth stage e. early-maturity stage

D

Obtaining bank loan, issuing bonds, and issuing stock is characteristic of which type of financing during the venture's life cycle? a. seed financing b. second round financing c. mezzanine financing d. seasoned financing e. liquidity stage financing

D

The goal of the entrepreneurial process is to: a. develop opportunities b. gather resources c. manage and build operations d. create value

D

Which of the following advise and assist corporations on the type, timing, and costs of issuing new debt and equity securities and facilitate the sale of firms? a. brokerage firms b. venture law firms c. specialist firms d. investment banking firms

D

Which of the following is not a life cycle stage of a successful venture? a. development stage b. startup stage c. survival stage d. cash cow stage e. early-maturity stage

D

Which of the following statements about accruals and cash flows is false? A. Company value can be determined by using accrual accounting numbers. B. Accrual accounting numbers are subject to accounting distortions. C. Cash flows are more reliable than accruals. D. Cash flows cannot be manipulated.

D

Which of the following would affect the comparison of financial statements across two different firms? I. Different accounting principles II. Different sizes of the companies III. Different reporting periods IV. Different industries A. I, III and IV B. I and IV C. I and II D. I, II, III and IV

D

During the maturity stage of a venture's life cycle, the primary source of funds is in the form of: a. mezzanine financing b. seed financing c. startup financing d. first round financing e. seasoned financing

E

Maximizing the value of the venture to its owners is the common financial goal of which of the following? a. the entrepreneur b. the debtholders c. the venture equity investors d. both a and b e. both a and c

E

On 12/31/18, Jenna Corp. prepays $1,200 for its 2019 insurance. At the moment of payment, it has increased: A. Assets B. Owners Equity C. Expenses D. All of the above E. None of the above

E

Successful entrepreneurs exhibit which of the following traits? a. recognize and seize commercial opportunities b. economic pessimism c. tend to be doggedly optimistic d. both a and b e. both a and c

E

The first three stages of a successful venture's life cycle occur in the following order: a. development, rapid growth, survival b. startup, development, rapid growth c. startup, survival, rapid growth d. survival, rapid growth, early-maturity e. development, startup, survival

E

The stage that precedes the middle stage in a successful venture's life cycle is called the: a. rapid growth stage b. early-maturity stage c. development stage d. survival stage e. startup stage

E

Which one of the following would not be considered a type of venture financing? a. seed financing b. startup financing c. mezzanine financing d. liquidity-stage financing e. seasoned financing

E

What is entrepreneurial finance and what are the responsibilities of the financial manager of an entrepreneurial venture?

Entrepreneurial finance is the application and adaptation of financial tools and techniques to the planning, funding, operations, and valuation of an entrepreneurial venture. The practice of financial management in entrepreneurial finance involves record keeping, financial planning, the management of operations and assets, and the acquiring of new assets and the financing of those assets necessary to grow the venture over its lifetime.

Entrepreneurial finance is the application and adaptation of financial tools and techniques to an entrepreneurial venture. Entrepreneurial finance involves: a. planning b. funding c. operations d. valuation e. a and d above f. all of the above

F

While entrepreneurial opportunities come from an almost unlimited number of sources, this textbook focuses on: a. societal changes b. demographic changes c. technological changes d. crises and bubbles e. emerging economies and global changes f. all of the above

F

An increase in the number of units sold will decrease a company's break-even point.

False

One disadvantage of budgeting is that budgeting makes it more difficult to coordinate the activities of the entire organization.

False

The cash budget is the starting point in preparing the master budget.

False

The production budget is typically prepared prior to the sales budget.

False

Under GAAP accounting, a company has the choice of using cash or accrual accounting in preparing its financial statements.

False

Under accrual accounting, a company will recognize expenses as they are paid.

False

Under cash accounting, a company must recognize revenues in financial statements when the revenues are earned or realized.

False

How do public and private financial markets differ?

Public financial markets are markets where standardized contracts or securities are traded on organized securities exchanges. Private financial markets are markets where customized contracts or securities are negotiated, created, and held with restrictions on how they can be transferred.

What is the financial goal of the entrepreneurial venture? What are the major components for estimating value?

The venture's financial goal is to maximize the value of the venture to its owner(s). The major components of estimating value are projected free cash flow (cash generated in a specified time period that exceeds funds needed to operate, pay creditors, and invest in the assets needed to grow the venture) and its risk (including the timing and realized amount).

A benefit from budgeting is that it forces managers to think about and plan for the future.

True

A continuous or perpetual budget is a 12-month budget that rolls forward one month (or quarter) as the current month (or quarter) is completed.

True

Cash collections in a schedule of cash collections typically consist of collections on sales made to customers in prior periods plus collections on sales made in the current budget period.

True

The budgeted income statement is typically prepared before the budgeted balance sheet.

True

The direct labor budget begins with the required production in units from the production budget.

True

When expressed on a per unit basis, fixed costs can mislead decision makers into thinking of them as variable costs.

True