ENT 396 CH. 14
__________ refers to conducting a thorough analysis of every facet of an existing business. a. Industry capitalization b. Due diligence c. Knowledge acquisition d. Risk assessment
Due diligence
T/F "Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.
False
T/F Emotional bias is NOT an underlying issue in valuing a business.
False
T/F Knowing a venture's pre-money valuation is not possible.
False
T/F The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.
False
T/F Adjusted tangible book value is a popular method of valuation.
True
T/F Buyers and sellers assign different values to a business.
True
T/F Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.
True
T/F 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. overcapitalization b. a lack of management depth c. insufficient controls d. internal conflict
a lack of management depth
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. property values are variable c. avoiding start-up costs has value d. the value of a founder's stock decreases over time
avoiding start-up costs has value
Specific factors of a venture being offered for sale that should be examined include a. profits, price, product. b. age, trends, and future. c. profits, sales, and operating ratios. d. employees, suppliers, and competitors
profits, sales, and operating ratios.
When considering physical facilities, the entrepreneur should be concerned about a. facility upkeep. b. which facilities are used for production. c. which facilities are owned versus leased. d. whether adequate capital is maintained
which facilities are owned versus leased.
If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used? a. discounted earnings b. price/earnings ratio c. adjusted tangible book value d. high equity/low debt
discounted earnings
The price/earnings ratio is determined by a. goodwill. b. deferred financing costs. c. patents. d. dividing market price of common stock by earnings per share.
dividing market price of common stock by earnings per share.
Traditional valuation methods includes all of the following EXCEPT: a. price/earnings ratio b. high equity/low debt c. discounted earnings d. adjusted tangible book value
high equity/low debt
Sales and earnings of a venture are projected from a. property values. b. data on start-ups. c. historical financials. d. historical projections.
historical financials.
Emotional bias is likely to have what effect on a seller's valuation of a business? a. decrease the valuation b. have no net effect on the valuation c. increase the valuation d. none of these
increase the valuation
Return on investment a. provides a replacement value. b. is net profit divided by investment. c. establishes a value for the business. d. is equal to the current prime rate.
is net profit divided by investment.
When considering management, the entrepreneur should be concerned about a. pension and profit sharing. b. employee benefits. c. ownership positions. d. total number of employees.
ownership positions.
What hidden costs are involved when establishing the value of a firm? a. travel expenses b. divergent expenses c. personal expenses d. insufficient controls and costs
personal expenses
T/F Business valuation is essential when attempting to buy out a partner.
True
T/F One of the most common reasons for acquiring a business is developing more growth-phase products.
True
The discounted earnings method of valuation establishes a. potential earning power. b. future profits. c. an appropriate rate for replacement. d. expectancy of the business expenses.
potential earning power.