BUSMHR 2500 Chapter 15

Which of the following is a requirement for keeping a new venture afloat? Multiple choice question. Increase initial capitalization. Create good marketing plans with clear objectives. Avoid responding to changes in the marketplace. Promote excess optimism when the business appears to be successful.

Create good marketing plans with clear objectives.

__ __ refers to a petition of bankruptcy filed by creditors without consent of entrepreneur.

involuntary bankruptcy

When an entrepreneur notices any of the warning signs of bankruptcy in his or her venture, he or she should immediately _____. Multiple choice question. look for advice from a CPA or an attorney increase discounts to customers to enhance payments increase inventory stocks freeze payment of salaries to key employees

look for advice from a CPA or an attorney

Which of the following is a true statement about the process in Chapter 11 bankruptcy? Multiple choice question. Only a major creditor or a single party who has an interest in the business will usually present the case to the court. A plan for reorganization is prepared to show how the business will be turned around. The turnaround plan combines the debt and ownership interests. Chapter 11 bankruptcies are not handled by the U.S. Bankruptcy Court.

A plan for reorganization is prepared to show how the business will be turned around.

_____ provides the option to an entrepreneur to reorganize and make a venture more solvent. Multiple choice question. Chapter 11 bankruptcy Chapter 9 bankruptcy Chapter 13 bankruptcy Chapter 7 bankruptcy

Chapter 11 bankruptcy

The most common type of business bankruptcy is _____, which accounted for about two-thirds of the total in 2014. Multiple choice question. Chapter 11 Chapter 13 Chapter 9 Chapter 7

Chapter 7

_____ is the most extreme case of bankruptcy and is in the best interests of the entrepreneur if there is no hope of recovery. Multiple choice question. Chapter 7 bankruptcy Chapter 11 bankruptcy Chapter 9 bankruptcy Chapter 13 bankruptcy

Chapter 7 bankruptcy

Identify a true statement about management buyout of a venture. Multiple choice question. Use of equity stock as a method of business transfer by managers is not a feasible option. A cash sale is likely if the value of the business is substantial. Financing the sale of the venture can be achieved through a bank, or the entrepreneur could also agree to carry the note. Sale of the venture to key employees can only be for cash.

Financing the sale of the venture can be achieved through a bank, or the entrepreneur could also agree to carry the note.

Identify the factors that can reduce the risk of business failure. (Check all that apply.) Multiple select question. Identify stress points that can cause the business to be in danger. Ensure relatively accurate cash projections are made. Avoid having a single marketing plan with specific objectives. Ensure there is excess optimism among the employees.

Identify stress points that can cause the business to be in danger. Ensure relatively accurate cash projections are made.

Identify a feature of an effective succession plan for a business. Multiple choice question. It should avoid mention of any possible successors. It should be communicated specifically to a few key employees. It should be clearly communicated to all employees. It should estimate a firm's value based on the investment made by venture capitalists.

It should be clearly communicated to all employees.

True or false: Management buyouts usually involve an indirect sale of the venture for a bid price. True false question.

Reason: This is false. Management buyouts usually involve a direct sale of the venture for some predetermined price.

True or false: When deciding to sell his or her business, an entrepreneur should project the business as having a smaller share in a large market than a larger share in a small market niche.

Reason: This is false. A business can be more valuable if it is focused on a narrow, well-defined segment. In other words, a larger share in a small market niche can be more valuable than a smaller share in a large market.

True or false: Entrepreneurs should plan an exit strategy at the expansion stage of their venture.

Reason: This is false. Entrepreneurs should have an exit strategy or plan in place at the start-up stage, instead of waiting until it may be too late to effectively implement a desirable option.

Identify a true statement about Chapter 11 bankruptcy. Multiple choice question. The entrepreneur in this situation feels that the business cannot meet its debt requirements. This is the most severe alternative to bankruptcy. The courts try to give the venture in this situation time to pay its debts. This situation begins before creditors pressure the firm with lawsuits.

The courts try to give the venture in this situation time to pay its debts.

Identify a true statement about the third and the last step, or principle, in a business turnaround process. Multiple choice question. The step involves aggressive corrective action. The step involves communication with creditors. The step involves identifying the warning signs of bankruptcy. The step involves consulting a CPA or an attorney.

The step involves aggressive corrective action.

The first principle in any successful business turnaround is _____. Multiple choice question. putting the turnaround process in action creation of a turnaround plan aggressive hands-on management consulting a CPA or an attorney

aggressive hands-on management

The final consideration when an entrepreneur is faced by the prospect of failure of a venture is to _____. Multiple choice question. seek outside assistance from professionals, friends, and business associates seek mergers with competitors avoid setting a time frame for a turnaround avoid hanging on to a venture that will continually drain resources

avoid hanging on to a venture that will continually drain resources

_____ involve an initial public offering, private sale of stock, succession by a family member or a nonfamily member, merger with another company, or liquidation of a company. Multiple choice question. Marketing strategies Exit strategies Workplace strategies Virtual strategies

Exit strategies

Identify the suggestions that an entrepreneur should follow for surviving bankruptcy. (Check all that apply.) Multiple select question. File for Chapter 11 protection even if the venture has no legitimate chance of recovery. Have a clear understanding of how the protection against creditors works and what is necessary to keep it in place. Avoid transferring any existing litigation to the bankruptcy court. Be ready to have creditors examine all financial transactions for the last 12 months.

Have a clear understanding of how the protection against creditors works and what is necessary to keep it in place. Be ready to have creditors examine all financial transactions for the last 12 months.

Identify the warning signs of bankruptcy in a venture. (Check all that apply.) Multiple select question. Contracts are accepted at high amounts to generate cash. Materials to meet supply orders are scarce. Suppliers demand payment in credit. Customers are given huge discounts to improve payments because of poor cash flow.

Materials to meet supply orders are scarce. Customers are given huge discounts to improve payments because of poor cash flow.

Which of the following are critical factors to be considered for an effective succession plan for a business when family members are involved? (Check all that apply.) Multiple select question. Expectations of the family members of employees Role of the owner in the transition stage Income for working family members and shareholders Ratio of the number of family members to the number of employees

Role of the owner in the transition stage Income for working family members and shareholders

In the context of succession planning in nonfamily business situations, which of the following issues should be considered in a succession plan when there are only a small number of shareholders? (Check all that apply.) Multiple select question. The succession process needs to be a closed one. Senior management of the company must be committed to any succession plan. All employees should be welcomed to participate in the transition process. It is important to have undefined job descriptions and ambiguous job roles.

Senior management of the company must be committed to any succession plan. All employees should be welcomed to participate in the transition process.

Identify a feature of the succession process in nonfamily business situations. Multiple choice question. The successors should be considered only from external sources. The process usually requires double the transition time as compared to succession in family business situations. The process may be precisely defined in a partnership agreement and could involve a predetermined choice. The successors should be considered only from internal sources.

The process may be precisely defined in a partnership agreement and could involve a predetermined choice.

Identify the true statements about the reforms in the Bankruptcy Code that were signed into law in April 2005. (Check all that apply.) Multiple select question. The reforms made it more challenging to walk away from all debt by filing for Chapter 7 bankruptcy. Under the law, individuals have to necessarily obtain credit counseling within six months of filing. The reforms are based on the argument that a person should not be obligated to repay his or her debt. Under the law, the income statement is required to ascertain if an entrepreneur is eligible for either Chapter 7 or Chapter 13 bankruptcy.

The reforms made it more challenging to walk away from all debt by filing for Chapter 7 bankruptcy. Under the law, individuals have to necessarily obtain credit counseling within six months of filing.

Identify a true statement about employee stock option plans. Multiple choice question. They usually result in significant losses for employees. They do not have an obligation to repay the loan plus interest out of the cash flow of the business. They are a way to award employees and clarify the succession process. They do not establish any new legal entity.

They are a way to award employees and clarify the succession process.

Identify a true statement about employee stock option plans. Multiple choice question. They usually result in significant losses for employees. They do not have an obligation to repay the loan plus interest out of the cash flow of the business. They do not establish any new legal entity. They are a way to award employees and clarify the succession process.

They are a way to award employees and clarify the succession process.

When faced with the prospect of failure, the entrepreneur should first _____. Multiple choice question. seek support from venture capitalists consult with his or her family seek assistance from professionals, friends, and business associates hang on to the venture even if that will continually drain resources

consult with his or her family

A(n) _____ refers to a two- to three-year plan to sell the business to employees. Multiple choice question. initial public offer venture capital plan seasoned equity offer employee stock option plan

employee stock option plan

According to the reforms in the Bankruptcy Code that were signed into law in April 2005, the means test used to ascertain eligibility for Chapter 7 or Chapter 13 states that individuals may not file for Chapter 7 bankruptcy if _____. Multiple choice question. a financial transaction has been carried out in the last two months their income is at or above the state income median level a litigation is in existence their number of employees is at or above the state median

their income is at or above the state income median level

During the reorganization period, the entrepreneur can speed up the process by _____. Multiple choice question. selling the plan to nonaccredited investors releasing an initial public offer taking the initiative in creating a plan writing checks that cannot be covered

taking the initiative in creating a plan

Identify the strategies that an entrepreneur should follow when he or she has decided to sell the business but does not need to sell immediately. (Check all that apply.) Multiple select question. Avoid assessing the condition of capital equipment during the financial assessment for the sale Ensure all financial statements are in order, including budgets and cash flow projections Focus on ensuring lower margins and profits Get nondisclosures from important employees

Ensure all financial statements are in order, including budgets and cash flow projections Get nondisclosures from important employees

Which of the following are suggestions that can be followed for survival from bankruptcy? (Check all that apply.) Multiple select question. Ensure creditors examine financial transactions for only the last three months. File before the venture exhausts cash or has no incoming revenue. Focus efforts on developing a reasonable financial reorganization plan. Avoid using bankruptcy as a bargaining chip to restructure and reorganize a venture.

File before the venture exhausts cash or has no incoming revenue. Focus efforts on developing a reasonable financial reorganization plan.

The key to enhancing the bankruptcy process is _____. Multiple choice question. avoiding transfer of cases to the bankruptcy court meeting face to face with groups of creditors seeking support from venture capitalists keeping creditors informed of how the business is doing

keeping creditors informed of how the business is doing