Ch.13 Planning for the Harvest
Harvesting is simply selling and leaving a business.
False. Correct. Harvesting encompasses more than merely selling and leaving a business and involves capturing value (cash flows), reducing risk, and creating future options.
Unfortunately, there is no formula for determining the price of a private company.
True. Correct. Business valuation is part science and part art, so there is no precise formula for determining the price of a private company.
Conflicts are more likely to occur if an entrepreneur remains with the company after the sale. a. True b. False
True. Correct. Conflicts occur to varying degrees whenever an entrepreneur remains with the company after the sale.
Which of these is the rate of return that could be earned on an investment of similar risk?
opportunity cost of funds
A leveraged buyout involving the purchase of a company with the intent of selling off its assets is called
bust-up LBO.
A leveraged buyout depends on adequate future _____ and entails a high level of _____.
cash flow; debt
Value is created when a firm's return on invested capital is _____ the investors' opportunity cost of funds.
greater than
A(n) _____ is a financial acquisition involving a very high level of debt financing, where the future cash flows of the target company are expected to be sufficient to meet debt repayments.
leveraged buyout
The four basic ways to harvest an investment in a privately owned company are all of these EXCEPT:(distributing the cash flows generated by the business to its owners instead of reinvesting the cash.offering stock to the public through an initial public offering.undertaking a private equity recapitalization.
buying another firm.
In a harvest strategy, financial questions associated with the sale of a firm include how to value the firm and how will this affect the firm's stock.
False. Correct. In any harvest strategy, the financial questions associated with the sale of a firm include how to value the firm and how to structure the payment for the business.
Fortunately, an entrepreneur can cash out immediately after the completion of the IPO.
False. Correct. Perhaps the greatest misconception among entrepreneurs is that an IPO is the end of the line, but the fact is that the entrepreneur will not be able to cash out for some time after the completion of the IPO.
When harvesting a firm, getting professional advice is helpful but not vital to the process.
False. Correct. Professional advice is vital, but entrepreneurs stress the importance of talking to other entrepreneurs who have sold a firm or taken it public.
What is it called when a private firm sells its stock for the first time to the general public?
IPO
Which of the following would most CEOs state as being the primary motivation for going public with stock?
Raise capital for growth
In a transfer of ownership there must be a trade-off among all of the following important goals EXCEPT:(cash for the selling family members.continued financing for the company's future growth.the younger generation to maintain control of the firm.)
continued control over parts of the firm.
Business brokers do all of the following EXCEPT:(assist in buying and selling of a business.find possible buyers.help facilitate negotiations.)
decide whether to accept or deny offers.
All of the following are basic types of sales transactions when an entrepreneur is harvesting an investment EXCEPT:
environmental acquisition.
Harvesting encompasses all of the following EXCEPT:
expanding.
ABC Financing provides a combination of debt and equity to the business that allows the entrepreneur to cash out part of his or her investment in the company. This refers to a
private equity recapitalization.
A more recent development in acquisitions is the _____ which involves pulling together a group of smaller firms to create a larger enterprise that might eventually be sold or taken public via an initial public offering.
build-up LBO