A. PRACTICE EXAM 3
The shorter the time before a company goes public, given that profits and sales growth occur, the less percentage of equity the entrepreneur will have to give up per dollar invested.
FALSE
The valuation approach that gives the lowest value of the business is the earnings approach.
FALSE
The value-added chain is usually available only to large national firms.
FALSE
The future earnings capacity of the company is the most important factor in valuation.
TRUE
The inventory turnover ratio measures the efficiency of the venture in managing its inventory.
TRUE
There is more risk involved in financing a business' early operations: therefore, higher rates of return are expected.
TRUE
Time management is the process of improving an individual's productivity through more efficient use of time.
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
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
In the venture-capital process, ______ is(are) absolutely essential for preliminary screening.
a business plan
The due diligence phase of the venture-capital process includes:
a detailed review of the company's history.
Early stage financing is typically:
called seed or start-up capital.
The person offering the franchise is known as the:
franchisor
Funds obtained from ____ are the least expensive in terms of cost and control.
the entrepreneur's personal resources
In order for a joint venture to be successful:
the expectations of the results must be reasonable. there should be symmetry between the partners. the timing must be right. ALL OF THE ABOVE****
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
In 2010 the number of bankruptcy filings was around 4 million.
FALSE
In most leveraged buyouts, the equity usually exceeds the debt capital equity by 5:1.
FALSE
Most angel investors are individuals who accumulated their wealth through inheritance.
FALSE
Most life-style entrepreneurs eagerly pursue firm growth.
FALSE
Private offerings involve more time, expense, and paperwork than public offerings.
FALSE
Private venture capital firms use both state and federal grant money to invest in other businesses.
FALSE
The SBA's Microloan program is their primary business loan program.
FALSE
The most common type of franchise is the dealership.
FALSE
The most common type of joint venture is between two or more public sector companies.
FALSE
The principle of teamwork states that an entrepreneur spends too much time with employees and should try to become less accessible to them in order to increase their efficiency.
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 return on investment ratio measures the ability of the firm to repay long-term debt using current assets.
FALSE
Because it is so severe, Chapter 7 must always be voluntary.
FALSE
Developing standardized forms and procedures for recurring events would be an example of the principle of reanalysis.
FALSE
Equity financing requires collateral.
FALSE
Regulation D regulates private placements.
TRUE
Small Business Innovation Research grants are funded by federal agencies which provide a portion of their R&D funds to small businesses.
TRUE
In a factoring arrangement, the factor:
"buys" the accounts receivables of a firm.
During Phase II of an SBIR grant up to _______ can be awarded.
$750,000
All owners of ____ or more are required to personally guarantee an SBA loan.
20%
A business angel's investment time horizon is usually:
7-10 years.
In general the SBA usually guarantees ____ of loans up to $150,000 and ____ of loans up to $5,000,000.
85%; 95%
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:
Answer: Logical scenarios. can all be done by: Optimistic. Pessimistic. Probable scenarios.
A computer company buys a hard-drive manufacturer. This is an example of:
Backward integration
___________ refers to a diversification strategy that involves taking a step back (up) on the value chain toward the raw materials.
Backward integration
__________ financing involves using any possible methods for conserving cash.
Bootstrapping
______ are used to characterize potential customers based upon their income, education, age, sex, and so forth.
Demographics
_____ strategies involve selling a new product to a new market.
Diversification
The computerized system developed by the grocery and pharmaceutical industry to link chain members is:
Efficient Computer Response (ECR)
Which of the following is the most significant advantage of an acquisition according to the text?
Established image and track record
A venture capitalist would rather invest in a first-rate product and a second-rate management team than the reverse.
FALSE
About 90 percent of the value of finished goods inventory can be used as collateral for a commercial bank loan.
FALSE
About one third of all new start-ups fail in their first years.
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 owners, regardless of percentage of ownership, are required to personally guarantee SBA loans.
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
________ 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
Terminating a franchise results in more lawsuits than any other issue in franchising.
TRUE
The Small Business Investment Company Act of 1958 married the use of private capital with government funds to finance small businesses.
TRUE
The U.S. Department of Justice frequently issues guidelines for different types of mergers.
TRUE
The bankruptcy type that is most common is Chapter 7 bankruptcy.
TRUE
Which statement about capital requirements in franchising is not true?
Newsletters and other publications reflecting new ideas and developments are continuously sent to franchisees.
Which principle states that the most important issues should be attended to during the time of day that an entrepreneur is most efficient?
Principle of prioritized planning
Reviewing meetings to make sure they are being run effectively illustrates which of the following principles?
Principle of reanalysis
Which type of risk-capital market is available as a funding source only for high-potential ventures?
Public equity market
________ were authorized in 1958 to marry private capital and government funds for investment in small companies.
Small business investment companies (SBICs)
All ventures have some equity.
TRUE
An employee stock option plan establishes a new legal entity.
TRUE
Angel investors typically finance firms that are close to their homes.
TRUE
Angel investors usually expect to play an active role in the businesses they invest in.
TRUE
Bootstrap financing involves using any possible method, such as discounts for volume purchasing, to conserve cash
TRUE
Effective time management can increase an entrepreneur's job satisfaction.
TRUE
Entrepreneurs who possess both the necessary abilities to make the transition to a more professional management approach and the aspiration to grow their businesses are the most likely to achieve firm growth.
TRUE
External investors generally require the entrepreneur to commit a large percentage of his or her personal assets.
TRUE
Growing a venture through franchising allows the venture to expand quickly using little capital.
TRUE
If employees are involved in the decision-making process, they are more motivated to implement the decided course of action.
TRUE
Installment loans are typically given for a period of 30-40 days.
TRUE
It is common for a buyer to purchase a business using notes based on future profits.
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
Passing the business to an employee ensures the new principal is familiar with the business and the market.
TRUE
Product development strategies use customers' experiences to develop new products for existing customers.
TRUE
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.
A two to three year plan to sell a business to employees is:
an ESOP.
The ____ is calculated by dividing accounts receivable by average daily sales.
average collection period
The most common type of joint venture is:
between two or more private sector companies.
Sales of stock within an individual state are regulated by:
blue sky examiners
Given the cultural climate of the U.S., business failure and bankruptcy:
do not have to be the end for the entrepreneur.
The least liquid current asset, _____, is eliminated when calculating the acid test ratio.
inventory
Obtaining funds from private investors:
is covered by Regulation D.
The integrative aspect of negotiation:
is more beneficial than a conflict resolution approach.
The disclosure document provided by the franchisor:
is required by the FTC.
In a horizontal diversification strategy, growth:
occurs at the same level of the value-added chain.
Which of the following is not a purpose of the Bankruptcy Act of 1978?
protect creditors from undue delay of money.
An increase in supplier prices may require:
raising the price of products/services.
Chapter 11 is the type of bankruptcy that results in:
reorganization
A market development strategy would not involve:
selling new products to consumer's purchasing the firm's existing products.
Conducting a(n) ____ on cash flow involves assigning a + or - probability to the estimated value.
sensitivity analysis
Joint ventures are sometimes called:
strategic alliances.