MGMT 4252 Exam 3

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The __________ is the range of outcomes between the entrepreneur's reservation price and the reservation price of the other party

bargaining zone

The most common type of joint venture is

between two or more private sector companies

The most common type of joint venture is:

between two or more private sector companies

Which of the following is not one of the five C's of lending?

caution

About 70% of the bankruptcy filings in 2011 were of this variety:

chapter 7

The most frequently used source of short-term funds when collateral is available is:

commercial bank loans

When the debt is prorated to the creditors as a settlement in Chapter 11 this is called:

composition settlement

From the chapter on the characteristics of an entrepreneur, we know that after the failure of a business entrepreneurs are likely to:

continuing starting new ventures

The ____ is used to measure the short-term solvency of a venture.

current ratio

The ______ frequently issues guidelines for mergers.

department of justice

The most common method of harvesting a venture is through

direct sale of the business

_____ strategies involve selling a new product to a new market.

diversification

Which of the methods of valuation of a company provides the potential investor with the best estimate of the probable return on investment?

earnings approach

motivates employees because they realize they are working for themselves

employee stock option plan (ESOP)

Which of the following is not an important part of a succession plan?

evaluate potential successors based on how similar they are to you

The largest percentage of venture capital funding is invested in:

expansion funds

About 75 percent of family firms successfully make the transition to the third generation.

false

About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan

false

After the completion of the preliminary preparation, the first public offering normally requires three to six months to prepare, print, and file the registration statement with the SEC.

false

All bankruptcies are handled by the U.S. Supreme Court.

false

An effective succession plan should be communicated only to top management and not all employees.

false

An entrepreneur contributing his or her own capital would be an example of internally generated funds.

false

Bankruptcy protects entrepreneurs from creditors and competitors

false

Bootstrap financing decreases the company's flexibility and drive for sales.

false

ESOPs account for about 20% of the nation's 10 million employees.

false

Financial reporting to shareholders, bankers, and other investors give the marketing cost for each product and highlight the performance of managers in controlling costs.

false

For a company to go public, larger underwriting firms have more stringent criteria, such as sales as high as $50 million to $100 million, and a 40 to 70 percent annual growth rate

false

For the franchisor, the capital required to expand a venture quickly is more than it would be without franchising

false

If a franchise looks good as an investment, the entrepreneur may request a franchise package from the franchisor at no cost, which usually contains a draft franchise agreement or contract.

false

In a factoring arrangement, the bank lends the business money using inventory as collateral

false

In a leveraged buyout, the entrepreneur uses equity funds to purchase an existing venture for cash.

false

International joint ventures are decreasing in popularity

false

Long-term debt financing is normally used to provide working capital to finance inventory, accounts receivable, and operation of the business.

false

Most life-style entrepreneurs eagerly pursue firm growth.

false

Most new ventures need a human resource department from the first day of operations.

false

Most ventures that are up for sale have good to very-successful profit records.

false

One important advantage of buying a franchise is that the entrepreneur incurs no risk.

false

One of the most successful diversification strategies is to diversify into unrelated products or unrelated markets to spread the risk.

false

Private venture capital firms use both state and federal grant money to invest in other businesses.

false

The Bankruptcy Act of 1978 was designed to protect creditors from receiving nothing in bankruptcy.

false

The best management style for a manager undertaking a business turnaround is a bunker mentality

false

The debt ratio is calculated by dividing total liabilities by total inventory.

false

The detailed review of a potential venture capital deal is called diligent research.

false

The five C's of credit are character, capacity, collateral, capital and competence.

false

The informal investment market contains the smallest pool of risk capital in the U.S.

false

The majority of bankruptcies are mid-size businesses.

false

The most popular means of obtaining capital is from friends and family.

false

The principle of reanalysis requires the entrepreneur to focus on the most important issues, even when under pressure.

false

The quiet period is a 90-day period in going public when company information that will help increase stock price should and can be released.

false

The value-added chain is usually available only to large national firms.

false

Under Rule 504 of Regulation D, a company can sell up to $1,000,000 of securities to any number of investors, regardless of their sophistication, in any 12-month period.

false

Venture capitalists view going public a highly disadvantageous step since the level of risks involved substantially increase.

false

When a manufacturer buys a chain of retail stores that carry its products, it is an example of backward integration.

false

When an entrepreneur bootstraps the purchase of a company, the entrepreneur usually puts down 10-20% in cash and then financing the remainder of the price with long-term debt paid back through the company's earnings.

false

When negotiating, the entrepreneur should make only one offer and stick to it.

false

About one third of all new start-ups fail in their first years.

false (one half fail)

Because it is so severe, Chapter 7 must always be voluntary.

false (voluntary or involuntary)

Which of the following are not factors in the success of joint ventures according to the text?

finance and education

________ is an arrangement whereby the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for their payment of royalties and conformance to standardized operating procedures.

franchising

The person offering the franchise is known as the:

franchisor

In a private venture capital firm, the _______ manages the fund in exchange for a management fee and a percentage of profits.

general partner

Venture capital firms prefer to invest in:

high-potential ventures

Outside financing:

increases the venture's impulse to spend

The majority of bankruptcies are:

individual

The least liquid current asset, _____, is eliminated when calculating the acid test ratio.

inventory

Obtaining funds from private investors:

is covered by regulation D

All of the following are benefits of an ESOP except:

it is relatively simple to establish

A(n) ________ occurs when an entrepreneur or an employee group uses borrowed funds to purchase an existing venture for cash

leveraged buyout

The debt to capital ratio for most _____ usually exceeds the equity by a factor of 5:1.

leveraged buyouts

The valuation approach that gives the lowest value of the business is:

liquidation value

A common procedure to determine the value of a merger candidate is to estimate the present value of discounted cash flows and the expected after-tax earnings attributable to the merger. This can be done on all of the following levels except:

logical scenarios

Product innovation, diversification, protection against market encroachment are some of the reasons why a company would opt for this

merger

In most of the significant public offerings, the company technically sells the shares to the underwriters, who then resell the shares to the public investors.

true

In private venture capital firms, limited partners provide the funding and the general partner manages the fund.

true

Installment loans are typically given for a period of 30-40 days.

true

It is best for the entrepreneur to have any litigation in existence transferred to the bankruptcy court.

true

Making long-term decisions can be difficult in publicly traded companies where sales and profit evaluations indicate the capability of management via stock values.

true

Many entrepreneurs find that as they grow they need to change their management style.

true

Most R&D limited partnerships are not successful.

true

One advantage of an ESOP is that the company can obtain a tax benefit by deducting ESOP contributions.

true

Only 60% of businesses have a succession plan in place

true

Passing the business to an employee ensures the new principal is familiar with the business and the market

true

Popular reasons to merge include protection, diversification and survival.

true

Presently there are about 11,500 ESOP companies in the United States.

true

Quantitative methods of analyzing the fairness of an LBO's asking price include price-earnings ratios, present value of future earnings and book value.

true

Replacement value is used only by insurance companies and in very unique circumstances

true

Research and development limited partnerships provide small businesses funds from investors looking for tax shelters.

true

Rule 506 goes one step further than Rule 505 by allowing an issuing company to sell an unlimited number of securities to 35 investors and an unlimited number of accredited investors and relatives of issuers.

true

Terminating a franchise results in more lawsuits than any other issue in franchising.

true

The Federal Trade Commission requires franchisors to make full presale disclosure of about 20 separate aspects of a franchise offering.

true

The U.S. Commerce Department indicates that about 70 percent of successful ventures never make it to the second generation of ownership.

true

The U.S. Department of Justice frequently issues guidelines for different types of mergers.

true

The earnings approach is the most widely used method of valuing a company.

true

The integration task phase of negotiation explores mutual benefits for the parties.

true

The principle of prioritized planning requires the entrepreneur to categorize his or her tasks by their degree of importance and then to allocate time to tasks based on this categorization.

true

The three main advantages of going public are obtaining new capital, realizing an enhanced valuation, and enhancing the company's ability to obtain future funds.

true

To attract venture capital funding, an investment must have significant capital appreciation potential.

true

To implement participative management the entrepreneur should have open communication with employees.

true

To improve the chances of being approved for a bank loan, the entrepreneur should prepare a "mini" business plan for the loan committee.

true

Transport mode selection can be important in inventory management.

true

Two major disadvantages of going public are the increased reporting requirements and potential loss of control.

true

Under Chapter 13, the key to enhancing the bankruptcy process is by stressing the significance of the creditors' support during the process.

true

Under the Small Business Technology Transfer (STTR) program, federal agencies with budgets over $1 billion are required to set aside 0.3 percent for small businesses.

true

When a bank grants a line of credit, a "commitment fee" is assessed at the start of the loan.

true

When new equipment is being purchased or presently owned equipment is used as collateral, usually 50 to 80 percent of the value of the equipment can be financed depending on its salability.

true

When using private placement funding the entrepreneur must disclose all information as accurately as possible.

true

With the enactment of the Sarbanes-Oxley Act in 2002, the expense and administrative responsibilities of being a public company, as well as the liability risks of officers and directors, are significantly greater.

true

The _________ captures the steps it takes to develop raw materials into a product and get it into the hands of customers

value chain

A common reason why companies do not come out successfully from a Chapter 11 bankruptcy is because they ____

wait too long to file for protection

Business angels typically invest what amount in the businesses they finance?

$100,000-$500,000

The maximum amount that can be borrowed under an SBA 7(a) loan is:

$5,000,000

During Phase II of an SBIR grant up to _______ can be awarded.

$750,000

Around ____ of businesses make it to the third generation.

12%

All owners of ____ or more are required to personally guarantee an SBA loan.

20%

According to the Small Business Administration, the failure rate of new businesses within the first few years is

50%

The U.S. Commerce Department indicates that about ___ percent of successful ventures never make it to the second generation of ownership

70

__________ financing involves using any possible methods for conserving cash.

Bootstrapping

The computerized system developed by the grocery and pharmaceutical industry to link chain members is:

Efficient Computer Response (ECR)

Entrepreneurs who have the necessary abilities for the transition to more professional management practices and the aspiration to grow their business:

are the most likely to achieve growth

The ____ is calculated by dividing accounts receivable by average daily sales.

average collection period

Under the ____________ program, federal agencies with budgets over $1 billion are required to set aside 0.3 percent for small businesses

Small Business Technology Transfer

___________ refers to a diversification strategy that involves taking a step back (up) on the value chain toward the raw materials.

backward integration

When the bank advances a large percentage of the invoice price of goods and is paid on a pro-rata basis when inventory is sold this is called:

a trust receipt

Franchising opportunities have often evolved from changes in the environment as well as important social trends. This is not one of the factors responsible:

acceptance of different cultures

Using a time sheet to record usage of time is part of the principle of:

analysis

The informal risk-capital market is made up of:

angels

The strategy for growth in which the entrepreneur encourages existing customers to buy more of the firm's current product is a

penetration strategy

Which principle requires the entrepreneur to focus on the most important issues, even when under pressure?

principle of effectiveness

Acknowledgment that only a small amount of time is actually under one's control and that most of one's time is taken up by others is known as the

principle of teamwork

_______ strategies involve developing and selling new products to people who are already purchasing the firm's existing products.

product development

Using a large proportion of part-time workers:

provides the firm with flexibility

Mortgage financing is another term for:

real-estate asset-based financing

The penetration growth strategy:

relies on taking market share from competitors

Chapter 11 is the type of bankruptcy that results in:

reorganization

The __________ is the price at which the entrepreneur is indifferent about whether to accept the agreement or choose an alternative

reservation price

Dividing net profit by total assets shows a firm's:

return on investment

helps qualified small businesses obtain financing when they cannot obtain it through regular lending channels

small business 7a guaranty program

________ were authorized in 1958 to marry private capital and government funds for investment in small companies.

small business investment companies (SBICs)

The top area of venture capital investment in 2011 was in:

software

Joint ventures are sometimes called:

strategic alliances

The concept that "the whole is greater than the sum of its parts" is known as

synergy

________ is the process of improving an individual's productivity through more efficient use of time.

time management

The most often used method of transporting goods is:

truck and rail transport

A cash sensitivity analysis is used to provide a pessimistic and an optimistic cash estimate

true

A cash sensitivity analysis is used to provide a pessimistic and an optimistic cash estimate.

true

A common procedure for determining a merger's value is to estimate the present value of discounted cash flows and the expected after-tax earnings attributable to the merger.

true

A recognition of the need to change personal attitudes and habits regarding the allocation of time is known as the principle of desire.

true

All ventures have some equity.

true

Angel investors have a longer investment horizon than venture capitalists do.

true

Angel investors usually expect to play an active role in the businesses they invest in.

true

Bankruptcy should be a last resort for the entrepreneur.

true

Bootstrap financing helps avoid some of the problems of external capital like decreases in flexibility and increased impulse to spend.

true

Bootstrap financing involves using any possible method, such as discounts for volume purchasing, to conserve cash.

true

By understanding more about the other party, the entrepreneur has a greater opportunity to achieve integration in negotiation

true

Cultural differences between international joint venture partners can create management difficulties.

true

Debt financing requires the entrepreneur to repay the amount borrowed plus interest.

true

Effective time management can increase an entrepreneur's job satisfaction.

true

Endowment and pension funds can be part of venture capital equity pools.

true

Even if there is a belief that the pursuit of growth will improve firm performance and enhance personal wealth, some entrepreneurs will still avoid growing their business.

true

Extending payments to suppliers is an example of generating funds internally.

true

External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.

true

Financial ratios are control mechanisms to test the financial strengths of a new venture

true

For the venture capitalist, the executive summary is an important part of the business plan.

true

Franchising involves payment of royalties in exchange for exclusive distribution rights.

true

If an entrepreneur recognizes the warning signs of bankruptcy early, he or she may be able to prevent it from occurring

true

If there is a significant disparity between the offering price of the shares and the price paid for shares by officers, directors, or founding stockholders, a dilution section is necessary in the prospectus.

true

In an R&D limited partnership the liability for losses incurred is borne by the limited partners.

true

In evaluating an LBO's asking price an entrepreneur can use qualitative measures such as evaluating the abilities of key personnel.

true


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