Entrepreneur Ch.14

When considering physical facilities, the entrepreneur should be concerned about

a. which facilities are owned versus leased.

Closely held ventures usually suffer from which of the following shortcomings?

c. a lack of management depth

Traditional valuation methods includes all of the following except:

c. high equity/low debt

Emotional bias is not an underlying issue in valuing a business.

False

Adjusted tangible book value is a popular method of valuation.

True

What hidden costs are involved when establishing the value of a firm?

b. personal expenses

Return on investment

c. is net profit divided by investment.

If cash flow is deemed the most important consideration in buying a business, which valuation method is likely to be used?

d. discounted earnings

Emotional bias is likely to have what effect on a seller's valuation of a business?

increase the valuation

Specific factors of a venture being offered for sale that should be examined include

profits, sales, and operating ratios

"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.

False

Knowing a venture's pre-money valuation is not possible.

False

The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.

False

Business valuation is essential when attempting to buy out a partner.

True

Buyers and sellers assign different values to a business.

True

One of the most common reasons for acquiring a business is developing more growth-phase products.

True

Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.

True

__________ refers to conducting a thorough analysis of every facet of an existing business.

a. Due diligence

Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.

a. True

In the context of buying a business, a known commodity may command a higher price for what reason?

a. avoiding start-up costs has value

The price/earnings ratio is determined by

a. dividing market price of common stock by earnings per share.

Sales and earnings of a venture are projected from

a. historical financials.

When considering management, the entrepreneur should be concerned about

b. ownership positions.

The discounted earnings method of valuation establishes

d. potential earning power.