mgmt 340 chapter 14
Closely held ventures usually suffer from which of the following shortcomings? Select one: a. a lack of management depth b. internal conflict c. insufficient controls d. overcapitalization
A
When considering physical facilities, the entrepreneur should be concerned about Select one: a. which facilities are owned versus leased. b. which facilities are used for production. c. whether adequate capital is maintained. d. facility upkeep.
A
One of the advantages of public offerings is Select one: a. disclosure. b. image. c. requirements. d. cost.
B
Which of the following is a reason for buyers to keep projections in perspective? Select one: a. start-up costs b. fluctuating markets c. vague histories d. certain environments
B
Venture capital in the United States has been highest in which of the following? Select one: a. data mining b. food services c. health care d. nanotechnology
C
When securing a bank loan, which of the following is not a question an entrepreneur should be prepared to answer? Select one: a. What do you need it for? b. How do you need it? c. What is the price of your product? d. When do you need it?
C
The primary advantage of the price/earnings approach to valuation is that it Select one: a. pays off assets and sells liabilities. b. reflects "top value" of the firm. c. assumes business begins operations. d. is simple to use
D
Which of the following does a post-money valuation include that a pre-money valuation does not? Select one: a. replacement value b. market value c. excess earnings d. venture capital investment
D
Which of the followings venture valuation methods is the most effective if the business being valued needs to generate a return greater than investment? a. adjusted tangible assets Incorrect b. replacement value c. price/earnings d. discounted future earnings
D
Common stock is the least basic form of ownership.
F
Corporate venture capital can offer strategic and tactical advice, an operating budget, and credibility but started to decline in 2017, and this trend is expected to continue.
F
Knowing a venture's pre-money valuation is not possible.
F
An entrepreneur does not need to know how to calculate the value of a competitor's operation.
False
Emotional bias is not an underlying issue in valuing a business.
False
Insufficient controls are a strength for a small business and should be considered when the business is being valued.
False
Vesting on founders' stock refers to holders of preferred stock having the right to purchase additional shares when issued by the company.
False
Weaknesses in small, closely held businesses do not call for careful analysis of the business being valued.
False
A good idea is important, but a good management team is even more important.
T
A method of raising capital is through the private placement of securities.
T
Avoiding start-up costs is a factor to consider when valuing a business.
T
Frugality is deemed a bootstrapping technique.
T
Increasing market share by acquiring a firm in the company's industry is one reason for the acquisition.
T
Which of the following methods of valuation was developed by the U.S. Treasury to determine a firm's intangible assets? Select one: a. replacement value b. excess earnings c. multiple of earnings d. market value
d
The "timing" of projected income or cash flows is not a critical factor in establishing the value of a firm.
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
Entrepreneurs should try to be as objective as possible in determining the fair market value of their enterprise.
true
One of the most common reasons for acquiring a business is developing more growth-phase products.
true
Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.
true
_____ is one of the disadvantages of going public. Select one: a. Value b. Form 8-K c. Shareholder pressure d. Liquidity
C
Replacement value of a business is based upon the value of each asset if it had to be replaced at current cost.
T
Sophisticated investors are wealthy individuals who invest more or less regularly in new or early- and late-stage ventures.
T
Sources of debt financing include trade credit, accounts receivable financing, factoring, and finance companies.
T
Emotional bias is likely to have which of the following effects on a seller's valuation of a business? Select one: a. an easier time negotiating b. increase the valuation c. no net effect on the valuation d. decrease the valuation
B
Approximately how many commercial banks are there in this country? Select one: a. about 40,000 b. about 20,000 c. about 5,500 d. about 17,000
C
The real value of any venture is its potential earning power.
T
Goodwill, family members on the payroll, and planned losses are examples of Select one: a. analyzing a business. b. emotional bias. c. hidden costs d. underlying issues.
C
If cash flow is deemed to be the most important consideration in buying a business, which of the following valuation methods is likely to be used? Select one: a. adjusted tangible assets b. high equity/low debt c. discounted future earnings d. price/earnings
C
The price/earnings ratio is a method of valuation that is mostly used Select one: a. for sensitive market conditions. b. when competition is high. c. with publicly held corporations. d. for small corporations.
c
Advantages of debt financing include all of the following except Select one: a. regular interest payments. b. potential greater return on equity. c. low interest rates that justify the opportunity cost. d. no relinquishment of ownership.
A
Goodwill, patents, deferred financing costs, and other intangible assets are considered when computing a. the adjusted tangible book value. b. inventory value. c. capitalized earnings. d. the fixed price value.
A
The adjusted tangible book value includes all of the following except Select one: a. common price. b. patents. c. deferred financing costs. d. goodwill.
A
When considering employees, the entrepreneur should be concerned about Select one: a. the total number of employees by function. b. employee productivity. c. the total number of female employees. d. the total number of single employees.
A
Which of the following is a reason for buyers to keep projections in perspective? Select one: a. fluctuating markets b. certain environments c. start-up costs d. vague histories
A
Which of the following is the first step in the traditional pricing formula? Select one: a. Determine the adjusted tangible net worth. b. Determine the average annual net earnings. c. Estimate potential annual earnings of the buyer. d. Discount future earnings.
A
Which of the following provides an absolute bottom line value of a firm? Select one: a. liquidation value b. market value c. return on investment Incorrect d. price/earnings ratio
A
Many closely held ventures are undercapitalized, which often indicates a. lack of management depth. b. a high level of debt. c. insufficient controls. d. divergent goals.
B
Sales and earnings of a venture are projected from a. data on start-ups. b. historical financials. c. property values. d. historical projections.
B
Venture capitalists are experienced professionals who provide a full range of services for new ventures including Select one: a. R&D knowledge. b. management consulting. c. market research and strategy for pricing. d. supplying labor for start-up.
B
When calculating the total amount needed to buy a business venture, which of the following would not be included? Select one: a. new inventory b. employee retention c. three months' operating expenses d. professional services
B
When considering employees, the entrepreneur should be concerned about Select one: a. the total number of female employees. b. the total number of employees by function. c. employee productivity. d. the total number of single employees.
B
When going public with public offerings an advantage might be the Select one: a. product price. b. size of the company's capital amount. c. company's market share. d. company's size.
B
When starting a business, which of the following sources of financing is least likely to be used? Select one: a. factors b. insurance companies c. trade credit d. leasing companies
B
A drawback to the price/earnings ratio method is that Select one: a. it is relatively easy to find a truly comparable publicly held company, even in the same industry. b. the stock of a private company is publicly traded. c. the stated net income of a private company may not truly reflect its actual earning power. d. it distorts profits earned.
C
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. price/earnings ratio c. discounted earnings d. multiple of earnings
C
Which of the following is an important question for the entrepreneur to ask when evaluating the venture capitalist? Select one: a. Is the person wealthy? b. Is the person a close relative? c. How many deals has the firm actually made in this field? d. Does person have a degree?
C
Which of the following is not an underlying issue when determining proper valuation of the venture set to be acquired? a. the reasons for the acquisition b. the differing goals of a buyer and seller c. the amount of risk involved in an acquisition d. the emotional bias of the seller
C
Which of the following is the first step in the traditional pricing formula? Select one: a. Estimate potential annual earnings of the buyer. b. Discount future earnings. c. Determine the adjusted tangible net worth. d. Determine the average annual net earnings.
C
Which of the following statements about raising capital is true? Select one: a. Capital is easy to get. b. All capital is raised through formal sources. c. It often takes a great deal of time to raise capital. d. All capital is raised through debt sources.
C
According to the text, which of the following could be considered a "deal killer" by a venture capitalist? Select one: a. the humility of the management team b. the entrepreneur's travel expenses c. the entrepreneur's education d. the excessive founder salaries
D
Equity capital is Select one: a. paid back after five years. b. paid back within one year. c. a loan from family. d. not a loan but a form of stock.
D
Financial equity instruments, which give investors a share of the ownership, may include Select one: a. option sales. b. loans without warrants. c. donations. d. preferred stock.
D
Financing includes all of the following except Select one: a. seed capital. b. angels. c. the owner's money. d. equitable payback.
D
When considering management, the entrepreneur should be concerned about Select one: a. the total number of employees. b. employee benefits. c. pension and profit sharing. d. ownership positions.
D
Which of the following is not one of the most common questions typically required to be answered by entrepreneurs seeking funding? Select one: a. What do you plan to do with the money? b. When do you need the money? c. How much money do you need? d. What exact date will you repay the money?
D
Entrepreneurs with new ventures often use debt financing out of choice, not necessity.
F
Equity financing is money invested in the venture with legal obligations to repay the principal amount or pay interest on it.
F
Only a small number of informal risk capitalists are in the market today.
F
Regulation D augments the regulations for reports and statements required for selling stock to private parties, friends, employees, customers, relatives, and local professionals.
F
The price/earnings ratio is determined by dividing the market price of common stock by retained earnings.
F
Venture capitalists, surprisingly, require little information before they make an investment.
F
When a company is liquidated, preferred stockholders receive a certain fixed amount after assets are distributed to common stockholders.
F
"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.
False
Informal risk capitalists are often referred to as business angels.
T
Innovation has become more global and is no longer the exclusive domain of Silicon Valley and Route 128 in Boston.
T
Trade credit is given by suppliers who sell goods on account.
T
When using P2P lending, one potential danger may be an uncertain regulatory environment.
T
Return on investment Select one: a. provides a replacement value. b. establishes a value for the business. c. is net profit divided by investment. d. is equal to the current prime rate.
c
Some buyers are willing to pay more for a business than what valuation methods determine its worth to be to avoid Select one: a. legal fees. b. earlier losses. c. start-up costs. d. previous profits.
c
A business valuation is not usually essential when Select one: a. selling a business division. b. giving a gift of stock. c. going public. d. hiring a new director of operations
d
When considering sales and distribution, the entrepreneur should be concerned about Select one: a. how sales vary with social demographics. b. how many sales are internal. c. how many distributors are necessary. d. whether any sales are made on consignment.
d
Which of the following is not one of the eight critical factors that venture capitalists use in the evaluation of new ventures? Select one: a. scope b. timing of entry c. lead time d. managerial structure
D
The discounted earnings method of valuation establishes Select one: a. potential earning power. b. expectancy of the business expenses. c. future profits. d. an appropriate rate for replacement.
a
_____ gives investors some protection against founders selling their interest to a third party. Select one: a. A co-sale right b. A registration right c. A voting right d. Right of first refusal
a
Which of the following hidden costs are involved when establishing the value of a firm? Select one: a. divergent expenses b. personal expenses c. insufficient controls and costs d. travel expenses
b
In the context of buying a business, a known commodity may command a higher price for which of the following reasons? Select one: a. The value of a founder's stock decreases over time. b. Historical projections have intrinsic value. c. Avoiding start-up costs has value. d. Property values are variable.
c
Which of the following would be most commonly used for long-term financing? Select one: a. insurance companies b. leasing companies c. trade credit d. finance companies
A
_____ bank loans are made on a discounted value of the receivables pledged. Select one: a. Accounts receivable financing b. Trade lending c. Convertible stock d. Peer-to-peer
A
Short-term debt is paid back Select one: a. over an indefinite period of time. b. in six months. c. after sales. d. in one year.
D
Regulation D defines separate exemptions that are based on the amount of money being raised. Which of the following is not a rule that accompanies these exemptions? Select one: a. Rule 505 b. Rule 506 c. Rule 504 d. Rule 503
D
Which of the following does not represent a category of angel investors? Select one: a. micromanagement angels b. technology angels c. entrepreneurial angels d. corporate angels
B
Which of the following was a significant contributor to job growth, with the creation of 263,950 new jobs in the United States in 2016? Select one: a. crowdfunding b. factoring c. angel investments d. venture capital
C
Which of the following would be most commonly used for short-term financing? Select one: a. finance companies b. insurance companies c. trade credit d. leasing companies
C
The Regulation D exemptions include all of the following except Select one: a. Rule 504-placements up to $1 million. b. Rule 506-placements in excess of $5 million. c. Rule 505-placements of up to $5 million. d. Rule 503-placements of less than $500,000.
D
The price/earnings ratio is determined by Select one: a. dividing market price of bonds by earnings per share. b. multiplying market price of common stock by earnings per share. c. dividing the average product price by overall earnings. d. dividing market price of common stock by earnings per share
D
When comparing and contrasting major competitors along core competitive dimensions, you should include Select one: a. profits, price, and product. b. employees, suppliers, and competitors. c. profits, sales, and operating ratios. d. product, technology, and distribution.
d
_____ refers to conducting a thorough analysis of every facet of an existing business. Select one: a. Due diligence b. Risk assessment c. Knowledge acquisition d. Industry capitalization
A
How much revenue did Facebook raise with its initial public offering (IPO) in 2012? Select one: a. $16 billion b. $150 billion c. $10 billion d. $50 billion
D