Business Planning and Financing
Question Bank
Course Introduction
Business Planning and Financing is a comprehensive course designed to equip students with the knowledge and skills necessary to develop, evaluate, and implement effective business plans within a variety of organizational contexts. The course covers the critical components of crafting a business plan, including market analysis, competitive strategy, operational planning, and financial forecasting. Students explore the various sources of business financing, such as venture capital, angel investment, bank loans, and crowdfunding, and learn to assess the financial viability and risk of business ventures. Through case studies, simulations, and hands-on projects, students gain practical experience in negotiating with investors, creating financial statements, and pitching business ideas, preparing them for roles as entrepreneurs, business developers, or financial planners.
Recommended Textbook
Entrepreneurial Finance 4th Edition by J.
Chris Leach
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15 Chapters
1018 Verified Questions
1018 Flashcards
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Page 2
Chapter 1: Introduction and Overview
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86 Flashcards
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Sample Questions
Q1) Which one of the following possible conflicts of interest increases in divergence at venture gets close to bankruptcy?
A)owner-manager conflict
B)owner-employee conflict
C)manager-employee conflict
D)manager-debtholder conflict
Answer: D
Q2) "Fads" are large societal,demographic,or technological trends or changes that are slow in forming but once in place continue for many years.
A)True
B)False
Answer: False
Q3) Small businesses,those with less than 500 employees,represent over 99 percent of all employers,and account for about one-half of the gross domestic product in the United States.
A)True
B)False
Answer: True
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3
Chapter 2: From the Idea to the Business Plan
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Sample Questions
Q1) A sound business model includes a plan to:
A)generate revenues,make profits
B)make profits,produce free cash flows
C)produce free cash flows for the owners of the venture
D)generate revenues,make profits,and produce free cash flows
Answer: D
Q2) SWOT analysis should at the very least consider which of the following areas:
A)experience/expertise
B)reputation value
C)first mover
D)a and b
E)a,b,and c
Answer: E
Q3) The VOS Indicator provides both qualitative and quantitative information about a venture's commercial potential.
A)True
B)False
Answer: True
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4
Chapter 3: Organizing and Financing a New Venture
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79 Flashcards
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Sample Questions
Q1) Which of the following is not a "type" of mark?
A)Trademark
B)Service mark
C)Collective mark
D)Certification mark
E)Design mark
Answer: E
Q2) Which of the following is not a right or a duty of general partners?
A)participation in profits and losses
B)some liability for partnership obligations
C)veto right on new partners
D)eventual return of capital
E)access to partnership books
Answer: B
Q3) A trademark must be novel in order to receive protection.
A)True
B)False
Answer: False
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) Net cash burn occurs when the sum of cash flows from operations and investing is positive.
A)True
B)False
Q2) During the startup stage in a new venture's life cycle,the income statement typically shows no sales but expenses including the production and market of products or services.
A)True
B)False
Q3) Which of the following is not a category on the statement of cash flows?
A)cash flow from operating activities
B)cash flow from equity activities
C)cash flow from investing activities
D)cash flow from financing activities
Q4) During the development stage in a new venture's life cycle,the balance sheet reflects the acquisition of initial assets and the obtaining of seed financing.
A)True
B)False
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Chapter 5: Evaluating Financial Performance
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Sample Questions
Q1) The extent to which a venture is in debt and in its ability to repay its debt obligations is indicated by leverage ratios.
A)True
B)False
Q2) The sum of the inventory-to-sale conversion period and the purchase-to-payment conversion period minus the sale-to-cash conversion period is called the cash conversion cycle.
A)True
B)False
Q3) Which of the following measures the average time it takes a firm to complete its operating cycle after deducting the days supported by trade credit and delayed payroll financing?
A)sale-to-cash conversion period
B)inventory-to-sale conversion period
C)purchase-to-payment conversion period
D)cash conversion cycle
Q4) "Net working capital" is calculated as fixed assets minus current liabilities.
A)True
B)False
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Chapter 6: Financial Planning:short Term and Long Term
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Sample Questions
Q1) Your firm recorded sales for the most recent year of $10 million generated from an asset base of $7 million,producing a $500,000 net income.Sales are projected to grow at 20%,causing spontaneous liabilities to increase by $200,000.In the most recent year,$200,000 was paid out as dividends,and the current payout ratio will continue in the upcoming years.What is your firm's AFN?
A)$200,000
B)$600,000
C)$840,000
D)$960,000
E)$1,400,000
Q2) Sales forecasting accuracy is usually lowest during a venture's development stage in its life cycle.
A)True
B)False
Q3) Increases in accounts receivable and accounts payable that accompany sales increases are called "spontaneously generated funds".
A)True
B)False
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8
Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) Commercial banks provide liquidity-stage financing for ventures in the rapid-growth stage of their life cycles.
A)True B)False
Q2) The weighted average cost of capital is simply the blended,or weighted cost of raising equity and debt capital.
A)True B)False
Q3) A nominal interest rate is an observed or stated interest rate.
A)True
B)False
Q4) Calculate the weighted average cost of capital (WACC)based on the following information:the equity multiplier is1.66;the interest rate on debt is 13%;the required return to equity holders is 22%;and the tax rate is 35%.
A)11.5%
B)13.9%
C)15.0%
D)16.6%
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) Rule 504 of Regulation D limits the total number of investors to:
A)35
B)100
C)35 unaccredited investors and any number of accredited investors
D)there is no limit on the number of accredited or unaccredited Investors
Q2) An offering that raises $2,500,000 over a 12-month period,involving 35 unaccredited investors and 5 accredited investors,might be exempt from registration under:
A)Section 4(6)
B)Regulation D: Rule 504
C)Regulation D: Rule 505
D)none of the above
Q3) Rule 503 dictates that for all Reg D exemptions,a Form D should be filed within how many days after the first sale of securities?
A)1 day
B)15 days
C)30 days
D)six months
E)one year
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Chapter 9: Valuing Early-Stage Ventures
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Sample Questions
Q1) The purpose of the stepping stone year is?
A)to assure that there is sufficient required cash
B)to assure that future dividends are constant
C)to assure that investment flows are consistent with terminal growth rates
D)to allow for a final year of higher-than-sustainable growth
Q2) 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
Q3) The "maximum dividend method" assumes that all surplus cash will be paid out as dividends.
A)True
B)False
Q4) The capitalization or "cap" rate is the spread between the discount rate and the growth rate of cash flow in the terminal value period.
A)True
B)False
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Chapter 10: Venture Capital Valuation Methods
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Sample Questions
Q1) For early stage ventures,which of the following is a strong reason for having an equity component in employee compensation?
A)the expected deferred and tax-preferred compensation allows the venture to pay a lower current compensation to employees
B)as a way to motivate employees to strive for the same goal of high equity value
C)because any dividends received as part of the equity compensation reduces taxable income
D)both a and b
E)all of the above
Q2) When a firm has growth that only meets,rather than exceeds,the cost of capital,we would expect its price-earnings multiple to be approximately equal to:
A)the reciprocal of its required return on equity
B)its earnings per share
C)its book-to-market ratio
D)its debt-to-value ratio
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12
Chapter 11: Professional Venture Capital
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Sample Questions
Q1) The phrase "two and twenty shops" refers to investment management firms having a contract that gives them two percent carried interest and 20 percent of assets annual management fee.
A)True
B)False
Q2) The term "carried interest" refers to:
A)interest not currently paid but which must be paid in the future by a professional venture capitalist
B)interest transported directly to a bank
C)interest owed on a loan in default
D)the portion of profits paid to the professional venture capitalist as incentive compensation
Q3) Created by the Small Business Administration,Small Business Investment Companies possess important tax advantages and were eligible to borrow amounts up to four times their equity base from the government.
A)True
B)False
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Chapter 12: Other Financing Alternatives
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Sample Questions
Q1) Which is not a duty of the Small Business Administration?
A)provide capital and credit to entrepreneurial start-ups
B)guaranteeing general business loans
C)provide equity financing for start-ups
D)help create new jobs in small businesses
E)help small firms obtain Federal contracts
Q2) When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The guarantees,or additional forms of security (such as assets),the entrepreneur can provide the lender is known as:
A)capacity
B)capital
C)collateral
D)conditions
E)character
Q3) The SBA's role in its microloan credit program is to approve the loans and guarantee up to 85% of the loan value.
A)True
B)False
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14
Chapter 13: Security Structures and Determining Enterprise Values
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Sample Questions
Q1) If a call option can be bought for $12 and the stock's market value is $12,it's said to be "at the money".
A)True
B)False
Q2) Which of the following is an example of a put option which is out of the money?
A)The option to sell at $11,the stock is worth $12.
B)The option to buy at $13,the stock is worth $12.
C)The option to buy at $12,the stock is worth $12.
D)The option to sell at $13,the stock is worth $12.
E)The option to buy at $11,the stock is worth $12.
Q3) Which of the following is an example of a put option which is at the money?
A)The option to sell at $11,the stock is worth $12.
B)The option to buy at $13,the stock is worth $12.
C)The option to sell at $12,the stock is worth $12.
D)The option to sell at $13,the stock is worth $12.
E)The option to buy at $11,the stock is worth $12
Q4) The unadjusted Black and Scholes model is a model for determining the value of a warrant to buy a new share.
A)True B)False
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Chapter 14: Harvesting the Business Venture Investment
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Sample Questions
Q1) Which of the following is the premium that would be applied to venture valuation due to an investor's majority ownership of a venture?
A)proxy premium
B)control premium
C)influence premium
D)liquidity premium
E)illiquidity premium
Q2) An agreement with an investment bank that involves the purchase and distribution of new securities is known as:
A)IPO underpricing
B)due diligence
C)firm commitment
D)best efforts
E)underwriting spread
Q3) While not a direct loss to a venture,underpricing can represent a significant opportunity cost to the venture's owners.
A)True
B)False
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Chapter 15: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) The Federal Bankruptcy Reform Act was implemented between:
A)1776-1778
B)1830-1833
C)1978-1979
D)2006-2007
Q2) When a venture has a negative equity or net worth position and/or when its cash flow is insufficient to meet current debt obligations refers to which of the following?
A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure
Q3) "Asset restructuring" involves:
A)improving the working-capital-to-sales relationship
B)growing revenues relative to costs
C)changing the contractual terms of existing debt obligations
D)cutting costs relative to the venture's revenues
E)a and c above
F)b and d above
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