MGMT 340 Chapter 14

Adjusted tangible book value is a popular method of valuation. Select one: True False

True

Avoiding start-up costs is a factor to consider when valuing a business. T/F

True

Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation. Select one: True False

True

When comparing and contrasting major competitors along core competitive dimensions, you should include Select one: a. employees, suppliers, and competitors. b. product, technology, and distribution. c. profits, price, and product. d. profits, sales, and operating ratios.

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 considering management, the entrepreneur should be concerned about Select one: a. employee benefits. b. ownership positions. c. the total number of employees. d. pension and profit sharing.

B

When considering physical facilities, the entrepreneur should be concerned about Select one: a. which facilities are used for production. b. which facilities are owned versus leased. c. facility upkeep. d. whether adequate capital is maintained.

B

Which of the following provides an absolute bottom line value of a firm? Select one: a. price/earnings ratio b. liquidation value c. return on investment d. market value

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. Property values are variable. b. Avoiding start-up costs has value. c. The value of a founder's stock decreases over time. d. Historical projections have intrinsic value.

B

A business valuation is not usually essential when Select one: a. hiring a new director of operations. b. going public. c. selling a business division. d. giving a gift of stock.

A

The price/earnings ratio is determined by Select one: a. multiplying market price of common stock by earnings per share. b. dividing market price of bonds by earnings per share. c. dividing market price of common stock by earnings per share. d. dividing the average product price by overall earnings.

C

When considering sales and distribution, the entrepreneur should be concerned about Select one: a. how sales vary with social demographics. b. how many distributors are necessary. c. whether any sales are made on consignment. d. how many sales are internal.

C

Which of the following is a reason for buyers to keep projections in perspective? Select one: a. start-up costs b. vague histories c. fluctuating markets d. certain environments

C

Which of the following is the first step in the traditional pricing formula? Select one: a. Determine the average annual net earnings. b. Estimate potential annual earnings of the buyer. c. Determine the adjusted tangible net worth. d. Discount future earnings.

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. earlier losses. b. legal fees. c. previous profits. d. start-up costs.

D

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

False

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

False

The "timing" of projected income or cash flows is not a critical factor in establishing the value of a firm. Select one: True False

False

The price/earnings ratio is determined by dividing the market price of common stock by retained earnings. T/F

False

Buyers and sellers assign different values to a business. Select one: True False

True

Entrepreneurs should try to be as objective as possible in determining the fair market value of their enterprise. Select one: True False

True

The real value of any venture is its potential earning power. Select one: True False

True

Which of the followings venture valuation methods is the most effective if the business being valued needs to generate a return greater than investment? Select one: a. replacement value b. adjusted tangible assets c. discounted future earnings d. price/earnings

C

_____ refers to conducting a thorough analysis of every facet of an existing business. Select one: a. Knowledge acquisition b. Industry capitalization c. Due diligence d. Risk assessment

C

A drawback to the price/earnings ratio method is that Select one: a. the stated net income of a private company may not truly reflect its actual earning power. b. the stock of a private company is publicly traded. c. it is relatively easy to find a truly comparable publicly held company, even in the same industry. d. it distorts profits earned.

A

Closely held ventures usually suffer from which of the following shortcomings? Select one: a. a lack of management depth b. insufficient controls c. overcapitalization d. internal conflict

A

Goodwill, family members on the payroll, and planned losses are examples of Select one: a. hidden costs. b. analyzing a business. c. underlying issues. d. emotional bias.

A

How much revenue did Facebook raise with its initial public offering (IPO) in 2012? Select one: a. $50 billion b. $150 billion c. $10 billion d. $16 billion

A

Which of the following is not an underlying issue when determining proper valuation of the venture set to be acquired? Select one: a. the amount of risk involved in an acquisition b. the emotional bias of the seller c. the differing goals of a buyer and seller d. the reasons for the acquisition

A

_____ gives investors some protection against founders selling their interest to a third party. Select one: a. A co-sale right b. A voting right c. Right of first refusal d. A registration right

A