Applied Entrepreneurial Finance Exam
Bank
Course Introduction
Applied Entrepreneurial Finance explores key financial concepts and tools essential for launching, growing, and managing new ventures. Students will learn to analyze financial statements, create forecasts, assess funding needs, and evaluate financing options including venture capital, angel investment, and bootstrapping. The course emphasizes financial decision-making in fast-changing environments, the valuation of startups, and the management of cash flow under uncertainty. Through case studies and real-world applications, students develop practical skills to make informed strategic financial decisions in entrepreneurial contexts.
Recommended Textbook
Entrepreneurial Finance 5th Edition by
J. Chris Leach
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16 Chapters
1061 Verified Questions
1061 Flashcards
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Page 2
Chapter 1: Introduction to Finance for Entrepreneurs
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Sample Questions
Q1) Studies by Phillips and Kirchhoff,and by Headd,found that about 38%-40% of new firms survived six years of operation.
A)True
B)False
Answer: True
Q2) "E-commerce" refers to:
A)environmental commerce
B)electronic commerce
C)economic commerce
D)exploratory commerce
Answer: B
Q3) Which one of the following would not be considered a type of venture financing?
A)seed financing
B)startup financing
C)mezzanine financing
D)liquidity-stage financing
E)seasoned financing
Answer: E
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Chapter 2: Developing the Business Idea
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Sample Questions
Q1) A "venture opportunity screening" is the same thing as preparing a business plan.
A)True
B)False
Answer: False
Q2) The compound rate of return that equates the present value of the cash inflows with the initial investment outlay is called the internal rate of return (IRR).
A)True
B)False
Answer: True
Q3) Which one of the following is not a part of the VOS indicator?
A)industry/market considerations
B)pricing/profitability considerations
C)financial/harvest considerations
D)management team considerations
E)location/profitability considerations
Answer: E
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Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) "Certification marks" provide indications of quality.
A)True
B)False
Answer: True
Q2) The average tax rate for a single filer with taxable income of $35,350 would be:
A)10.0%
B)13.8%
C)15.0%
D)16.7%
E)20.0%
Answer: B
Q3) Intellectual property can be protected by all of the following except:
A)patents
B)trademarks
C)legal disclaimers
D)copyrights
E)trade secrets
Answer: C
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Chapter 4: Preparing and Using Financial Statements
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Sample Questions
Q1) "Variable expenses" are costs or expenses that vary directly with revenues.
A)True
B)False
Q2) Last year,Beth's Baked Goods exactly broke even with cash fixed costs of $63,000.If its breakeven survival revenue level was $94,000,what was its variable cost revenue ratio (VCRR)?
A).27
B).30
C).33
D).67
Q3) Expenses or costs that vary directly with revenues are said to be:
A)fixed expenses
B)semi-fixed expenses
C)semi-variable expenses
D)variable expenses
Q4) Cash or other assets that are expected to be converted into cash in less than one year are known as current liabilities.
A)True
B)False
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Chapter 5: Evaluating Operating and Financial Performance
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Sample Questions
Q1) Which of the following is used to compare a venture's performance against the average performance of other firms in the same industry?
A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis
Q2) During the development and startup stages of a venture's life cycle,important users of financial ratios and measures include the entrepreneur,business angels,and venture capitalists (VCs).
A)True
B)False
Q3) Net working capital is a dollar amount measure of the cushion between current assets and current liabilities.
A)True
B)False
Q4) Liquidity ratios indicate the venture's ability to pay short term assets from short-term liabilities.
A)True
B)False
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Chapter 6: Managing Cash Flow
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Sample Questions
Q1) Preparing monthly cash budgets for a full year allows the entrepreneur to determine whether there will be a cash need,the maximum size of the cash need,and whether the need can be repaid during the year.
A)True
B)False
Q2) First-round financing is generally associated with which one of the following life cycle stages:
A)development stage
B)startup stage
C)survival stage
D)rapid-growth stage
E)early-maturity stage
Q3) A venture's operating cycle is the same as its cash conversion cycle.
A)True
B)False
Q4) "First-round financing" usually occurs during a venture's rapid-growth life cycle stage.
A)True
B)False
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) What has been the approximate average annual rate of return on publicly traded small company stocks since the mid-1920s?
A)10%
B)16%
C)25%
D)30%
E)40%
Q2) Which of the following is not a component in determining the cost of debt?
A)inflation premium
B)default risk premium
C)liquidity premium
D)maturity premium
E)interest rate premium
Q3) Corporate bonds might involve which of the following types of "premiums."
A)inflation premium
B)default risk premium
C)liquidity premium
D)maturity premium
E)all of the above
F)none of the above
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) Regulation A,while technically considered an exemption from registration,is a public offering rather than a private placement.
A)True
B)False
Q2) The definition of an "accredited investor," initially defined in the Securities Act of 1933,was expanded in Rule 501 of Reg D.
A)True
B)False
Q3) Which of the following is not a condition of a Regulation D offering under Rule 502?
A)integration
B)offering
C)information
D)solicitation
E)resale
Q4) Blue-sky laws are federal laws designed to protect individuals from investing in fraudulent security offerings.
A)True
B)False
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Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) Long-term financial planning begins with a forecast of annual working capital needs.
A)True
B)False
Q2) Which of the following statements is incorrect?
A)forecasting sales is the first step in creating projected financial Statements
B)financial forecasting tends to be more accurate for mature ventures Than for early-stage ventures
C)forecasting is relatively unimportant for early-stage ventures with Little historical financial data
D)a and b
E)a and c
Q3) Sales forecasting accuracy is usually highest during a venture's startup stage in its life cycle.
A)True
B)False
Q4) The sustainable sales growth rate is equal to ROA times the retention ratio.
A)True B)False
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Chapter 10: Valuing Early-Stage Ventures
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Sample Questions
Q1) Which one of the following equity valuation methods records surplus cash on the balance sheet but assumes that the surplus cash is paid out over time for valuation purposes?
A)maximum dividend method
B)pseudo dividend method
C)sustainable growth method
D)return on equity method
Q2) The value of the venture at the end of the explicit forecast period is called the horizon value,or what?
A)going-concern value
B)present value
C)terminal value
D)reversion value
E)net present value
Q3) Applying the "maximum dividend method" (MDM)and the "pseudo dividend method" (PDM)result in different valuation estimates.
A)True
B)False
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12
Chapter 11: Venture Capital Valuation Methods
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Sample Questions
Q1) To obtain the percent ownership to be sold in order to expect to provide the venture investor's target return,one must consider the:
A)cash investment today and the cash return at exit multiplied by the venture investor's target return,thendivide today's cash investment by the venture's NPV
B)cash investment today and the cash return at exit discounted by the venture investor's target return,thendivide today's cash investment by the venture's NPV
C)cash investment today and the cash return at exit discounted by the venture investor's target return,thenmultiply today's cash investment by the venture's NPV
Q2) The utopia discount process allows the venture investors to value their investment using only the business plan's explicit forecasts,discounting it at a bank loan interest factor.
A)True
B)False
Q3) Staged financing is financing provided in sequences of rounds rather than all at one time.
A)True
B)False
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) "Carried interest" is the portion of profits paid to the professional venture capitalist as incentive compensation.
A)True
B)False
Q2) Term sheets may contain demands regarding the voting rights of shares issued to venture investors.
A)True
B)False
Q3) SLOR stands for "standard letter of rejection."
A)True
B)False
Q4) When the venture fund calls upon the investors to deliver their investment funds,it reflects the deal flow.
A)True
B)False
Q5) When a syndicate of VCs invests in a venture,the investor in charge of organizing the due diligence process is known as the "lead investor."
A)True
B)False
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Chapter 13: Other Financing Alternatives
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Sample Questions
Q1) Despite the high risk and costs of using a facilitator or up-front fee solicitor to obtain financing,many start-ups never-the-less seek them as a source of funds due to the length of time it takes to raise new funds.
A)True
B)False
Q2) Because of loan restrictions,obtaining funding from commercial lenders is prohibitive for entrepreneurs.
A)True
B)False
Q3) Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $35,000 to be used for general purposes.
A)True
B)False
Q4) Unlike traditional commercial banks,venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms.
A)True
B)False
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Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) For preferred noncumulative stock,all previously unpaid preferred dividends must be paid before any common stock dividend is paid.
A)True
B)False
Q2) Which of the following provides the option to transform preferred stock into common stock?
A)paid in kind preferred stock
B)cumulative preferred stock
C)participating preferred stock
D)convertible preferred stock
E)non-cumulative preferred stock
Q3) Which of the following requires that all previously unpaid preferred dividends must be paid prior to any common dividend?
A)paid in kind preferred stock
B)cumulative preferred stock
C)participating preferred stock
D)convertible preferred stock
E)non-cumulative preferred stock
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Chapter 15: Harvesting the Business Venture Investment
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Q1) Which of the following is not a disadvantage of a systematic liquidation?
A)the treatment and taxation of liquidation proceeds as ordinary income rather than capital gains
B)the commitment of the entrepreneur's resources and focus on a dying venture rather than on other more lucrative ventures
C)the harvesting of the investment gets spread out over a number of years
D)the acceleration of the venture's rate of decline as other industry participants respond to the reduction in investment
Q2) In determining a harvest value,non-monetary items such as culture,managerial succession,and employee retention are not factored in.
A)True
B)False
Q3) When an industry is in decline,systematic liquidation is typically the most attractive harvest strategy.
A)True
B)False
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) Nearly one-fourth of all businesses dissolve within two years of beginning operations,and over one-half of new ventures dissolve within four years.
A)True
B)False
Q2) Which of the following provides that all future interest and principal obligations on a loan become immediately due when default occurs?
A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure
Q3) The ways,individually or in combination,for resolving financial distress are:
A)operations restructuring
B)financial restructuring
C)asset restructuring
D)all of the above
E)none of the above
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Page 18