ENT 396 Ch 14
28. An adjusted tangible book value method includes a. goodwill. b. patents. c. common price. d. both a and b.
D
11. Weaknesses in small closely held businesses call for careful analysis of the business being valued.
T
7. Entrepreneurs should try to be as objective as possible in determining the fair market value for their enterprise.
T
8. Increasing market share by acquiring a firm in the company's industry is one reason for the acquisition.
T
9. One of the most common reasons for acquiring a business is developing more growth-phase products.
T
20. Knowing a venture's pre-money valuation is not possible.
F
Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.
T
14. The real value of any venture is its potential earning power.
T
11. When considering sales and distribution, the entrepreneur should be concerned about a. whether any sales are made on consignment. b. how many sales are internal. c. how sales vary with social demographics. d. how many distributors are necessary.
A
13. When considering physical facilities, the entrepreneur should be concerned about a. which facilities are owned versus leased. b. which facilities are used for production. c. whether adequate capital is maintained. d. facility upkeep.
A
14. When considering management, the entrepreneur should be concerned about a. ownership positions. b. pension and profit sharing. c. total number of employees. d. employee benefits.
A
6. Closely held ventures usually suffer from which of the following shortcomings? a. a lack of management depth b. overcapitalization c. insufficient controls d. internal conflict
A
23. If you agree that the real value of a business venture is its potential earning power, which valuation method, more than the others, would best determine its true value? a. adjusted tangible book value b. price/earnings ration c. discounted earnings method d. either a or b
C
13. The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.
F
15. The timing of projected income or cash flows is not a critical factor in establishing the value of a firm.
F
10. Insufficient controls signify strength when analyzing the business being valued.
F
15. 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
18. Price/earnings ratio is a method of valuation that is a. most common with public corporations. b. not affected by market conditions. c. not sensitive to market conditions. d. not affected by competitors.
A
25. Book value of a firm is also known as a. balance sheet method. b. income statement method. c. capitalized earnings approach. d. fixed price method.
A
32. Some buyers are willing to pay more for a business than what valuation methods determine its worth to be. What are these buyers attempting to avoid? a. start-up costs. b. earlier losses. c. previous profits. d. all of the above.
A
4. What is a rollup? a. the acquisition and merging of small companies in the same market b. of a dissolution of a partnership c. a product-line acquisition d. the amount of risk involved in an acquisition
A
17. The discounted earnings method of valuation establishes a. potential earning power. b. an appropriate rate for replacement. c. expectancy of the business expenses. d. future profits.
A
12. Adjusted tangible book value is a popular method of valuation.
T
16. Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.
T
17. Avoiding start-up costs is a factor to consider when valuing a business.
T
18. Brazil's human, mineral, and agricultural resources are on par with those of the United States.
T
4. Business valuation is essential when attempting to buy out a partner.
T
5. Buyers and sellers assign different values to a business.
T
5. __________ refers to conducting a thorough analysis of every facet of an existing business. a. Due diligence b. Industry capitalization c. Knowledge acquisition d. Risk assessment
A
31. One reason to keep projections in perspective is a. long histories. b. fluctuating markets. c. certain environments. d. both a and b.
B
33. Sales and earnings of a venture are projected from a. historical projections b. historical financials c. data on start-ups d. property values
B
11. When considering sales and distribution, the entrepreneur should be concerned about a. whether any sales are made on consignment. b. how many sales are internal. c. how sales vary with social demographics. d. how many distributors are necessary.
C
22. Goodwill, family members on the payroll, and planned losses are examples of a. analyzing the business. b. underlying issues. c. emotional bias. d. establishing the value of a firm.
D
24. Which of the following are considered methods for valuation of a venture? a. return on investment b. stock market method c. multiple of earnings d. a and c are correct
D
27. What does a post-money valuation include that a pre-money valuation does not? a. market value b. replacement value c. excess earnings d. venture capital investment
D
35. When is the size of the labor force in Africa expected to top that of China? a. by 2015 b. by 2020 c. by 2030 d. by 2040
D
7. Besides the purchase price, what else should be considered when buying a business? a. new inventory and living expenses b. three months' operating expenses and sales tax c. none of the above d. all of the above
D
"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.
F
19. When a company is liquidated, preferred stockholders received a certain fixed amount after assets are distributed to common stockholders.
F
3. An entrepreneur does not need to know how to calculate the value of a competitor's operation.
F
6. Emotional bias is not an underlying issue in valuing a business.
F
21. What hidden costs are involved when establishing the value of a firm? a. insufficient controls and costs b. divergent expenses c. personal expenses d. travel expenses
C
26. Which of the following methods of valuation was developed by the U.S. Treasury to determine a firm's intangible assets? a. market value b. replacement value c. excess earnings d. multiple of earnings
C
30. Potential earning power, which determines the true value of the firm, is best calculated using a. the price/earnings ratio method. b. the adjusted tangible book value method. c. the discounted earnings method. d. the adjusted tangible book value method.
C
9. Traditional valuation methods includes all of the following except: a. adjusted tangible book value b. price/earnings ratio c. high equity/low debt d. discounted earnings
C
29. The price/earnings ratio is determined by a. patents. b. dividing market price of common stock by earnings per share. c. goodwill. d. deferred financing costs.
B
`3. Emotional bias is likely to have what effect on a seller's valuation of a business? a. increase the valuation b. decrease the valuation c. have no net effect on the valuation d. none of the above
A
2. Specific factors of a venture being offered for sale that should be examined include a. age, trends, and future. b. profits, sales, and operating ratios. c. employees, suppliers, and competitors. d. profits, price, product.
B
20. A drawback to the price/earnings ratio method is that a. the stock of a private company is publicly traded. b. the stated net income of a private company may not truly reflect its actual earning power. c. it is relatively easy to find a truly comparable publicly held company, even in the same industry. d. it distorts profits earned.
B
34. In the context of buying a business, a known commodity may command a higher price for what reason? a. historical projections have intrinsic value b. avoiding start-up costs has value c. property values are variable d. the value of a founder's stock decreases over time
B
19. When Facebook went public in May of 2012, what was its starting valuation? a. more than $10 billion but less than $50 billion b. more than $50 billion but less than $100 billion c. more the $100 billion but less than $150 billion d. more than $150 billion
C
8. Which of the following is not a shortcoming that many closely held ventures possess? a. insufficient controls b. lack of management depth c. high equity and low debt d. divergent goals
C
1. On what occasion is a business valuation not usually essential? a. when giving a gift of stock b. when going public c. when selling a business division d. when hiring a new director of operations
D
10. If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used? a. adjusted tangible book value b. price/earnings ratio c. high equity/low debt d. discounted earnings
D
16. The primary advantage of the price/earnings approach to valuation is that a. it reflects "top value" of the firm. b. it pays off assets and sells liabilities. c. it assumes business begins operations. d. it is simple to use.
D
