Entrepreneurial Finance Exam Review
Course Introduction
Entrepreneurial Finance explores the financial challenges and opportunities faced by entrepreneurs throughout the lifecycle of a startup. The course examines key concepts such as venture capital, angel investing, bootstrapping, financial forecasting, valuation, and deal structuring. Students will analyze the financial decision-making processes in new ventures, studying sources of funding, managing cash flow, and exit strategies like mergers, acquisitions, and IPOs. Through case studies and real-world examples, the course emphasizes practical approaches to securing and managing capital in the dynamic environment of entrepreneurship.
Recommended Textbook
Entrepreneurial Finance 5th Edition by
J. Chris Leach
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16 Chapters
1061 Verified Questions
1061 Flashcards
Source URL: https://quizplus.com/study-set/3606
Page 2
Chapter 1: Introduction to Finance for Entrepreneurs
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) The Office of Advocacy of the U.S.Small Business Administration documents that "employer firm births" have exceeded 700,000 annually in recent years.
A)True
B)False
Answer: True
Q2) Early-stage ventures include firms in their development,startup,orsurvival live cycle stages.
A)True
B)False
Answer: True
Q3) Harry Dent documented major generation waves in the United States during the twentieth century in:
A)1972
B)1982
C)1993
D)2003
Answer: C
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Page 3
Chapter 2: Developing the Business Idea
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) A firm's option to abandon a venture is an example of a:
A)bootstrapping option
B)financial option
C)survival option
D)real option
Answer: D
Q2) U.S.small businesses are predominately:
A)salary-replacement or entrepreneurial firms
B)lifestyle or entrepreneurial firms
C)entrepreneurial ventures
D)salary-replacement or lifestyle firms
Answer: D
Q3) Developing new and delivering high-quality products or services that command higher prices and margins best describes strong
A)marketing practices
B)financial practices
C)operating practices
D)management practices
Answer: A
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Page 4
Chapter 3: Organizing and Financing a New Venture
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81 Verified Questions
81 Flashcards
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Sample Questions
Q1) Which of the following are not sources of seed and start-up financing?
A)family and friends
B)the entrepreneur's physical and financial assets
C)business angels
D)venture capitalists
E)stock and bond markets
Answer: E
Q2) Professional corporations (PCs)and service corporations (SCs)are corporate structures that "states" provide for professionals such as physicians,dentists,lawyers,and accountants.
A)True
B)False
Answer: True
Q3) Limited liability in the corporate business structure means creditors can seize only some of the corporation's assets.
A)True
B)False
Answer: False
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Chapter 4: Preparing and Using Financial Statements
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) A firm with constant variable costs has a survival revenue breakeven of $375,000.This year it had $250,000 in sales,$100,000 of which was a fixed cost.What are the firm's cash fixed costs?
A)$150,000
B)$225,000
C)$625,000
D)$937,500
Q2) "Net cash burn" occurs when the sum of which of the following items is negative?
A)cash flows from operations and financing
B)cash flows from investing and financing
C)cash flows from operations and investing
D)cash flows from net income and depreciation
E)cash flows from operations and net income
Q3) EBDAT is earnings before interest,taxes,depreciation,and amortization.
A)True
B)False
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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64 Verified Questions
64 Flashcards
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Sample Questions
Q1) Which of the following is not a profitability and efficiency ratio?
A)sales-to-total-assets
B)return on equity
C)return on assets
D)inventory-to-total assets
E)NOPAT profit margin
Q2) Investment bankers are users of financial ratios and measures of ventures primarily during the rapid-growth stage relative to the development and startup stages.
A)True
B)False
Q3) What is the net profit margin for Runs and Goses?
A)60.0%
B)22.7%
C)7.9%
D)18.4%
E)26.2%
Q4) Cross-sectional analysis is used to examine a venture's performance over time. A)True
B)False
7
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Chapter 6: Managing Cash Flow
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37 Verified Questions
37 Flashcards
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Sample Questions
Q1) A cash budget shows a venture's projected revenues and expenses over a forecast period.
A)True
B)False
Q2) The cash conversion cycle refers to the time it takes to convert a sale into net income.
A)True B)False
Q3) Cash shortages during the rapid growth stage frequently derive from the lack of operating profits to fund working capital and fixed asset investments needed to support sales growth.
A)True
B)False
Q4) 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
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Chapter 7: Types and Costs of Financial Capital
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) Venture investors generally use which one of the following target rates to discount the projected cash flows of ventures in the "startup" stage of their life cycles:
A)20%
B)25%
C)40%
D)50%
Q2) Traditional accounting does not focus on the implicit cost of equity that is the required capital gains to complement dividends.However,evaluation methods exist to determine this value by financial managers.
A)True
B)False
Q3) Which of the following components is not typically included in the rate on short-term U.S.treasuries?
A)liquidity premium
B)default risk premium
C)market risk premium
D)b and c
E)a,b,and c
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9
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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77 Verified Questions
77 Flashcards
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Sample Questions
Q1) In the Ninth Circuit Court of Appeals decision on SEC v.Murphy,all of the following were considerations in determining an offering to be a private placement except:
A)there must be an arm's length relationship between the issuer of the security and the prospective purchaser
B)the number of offerees must be limited
C)the size and the manner of the offering must not indicate widespread solicitation
D)the offerees must be sophisticated
E)some relationship between the offerees and the issuer must be present
Q2) Which one of the following is not an exemption method for making an offering exempt from SEC registration?
A)4(2)private offering
B)accredited investor
C)Regulation D
D)Regulation A
E)Regulation Z
Q3) The life of a proprietorship is determined by the owner.
A)True
B)False
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Chapter 9: Projecting Financial Statements
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61 Verified Questions
61 Flashcards
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Sample Questions
Q1) A venture's common equity was $50,000 at the end of last year.If the venture's common equity at the end of this year was $60,000,what was its sustainable sales growth rate?
A)5%
B)10%
C)15%
D)20%
E)25%
Q2) If a venture has a return on assets (ROA)= 12%,an equity multiplier based on beginning equity = 3.0 times,and a sustainable growth rate of 18%,the retention rate would be:
A)10%
B)20%
C)30%
D)40%
E)50%
Q3) Increases in accounts payable and notes payable are examples of spontaneously generated funds.
A)True
B)False
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Chapter 10: Valuing Early-Stage Ventures
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) When estimating the terminal value of a venture using an equity valuation method,a perpetuity growth equation is often applied that uses the capitalization rate for discounting purposes.This "cap" rate is measured as the:
A)equity discount rate minus the perpetuity growth rate
B)equity discount rate plus the perpetuity growth rate
C)risk-free rate plus the perpetuity growth rate
D)risk-free rate minus the perpetuity growth rate
Q2) The stepping stone year is the first year before the explicit forecast period.
A)True
B)False
Q3) Estimate a venture's equity valuation cash flow based on the following information: net income = $6,372; depreciation = $4,600; change in net operating working capital = $2,415; capital expenditures = $6,900; and new debt issues = $1,000.
A)$6,487
B)$5,487
C)$4,487
D)$3,787
E)$5,787
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Chapter 11: Venture Capital Valuation Methods
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55 Verified Questions
55 Flashcards
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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) Which of the following financing rounds dilutes the ownership founders?
A)first-round
B)second-round
C)incentive ownership round
D)a and b
E)a,b,and c
Q3) A price-earnings ratio is related to the level and growth of earnings.
A)True
B)False
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) The deal flow reflects the flow of business plans and term sheets involved in the venture capital investing process.
A)True
B)False
Q2) Which of the following is not one of the four likely outcomes of the venture firm's screening process?
A)seek the lead investor position
B)seek a non-lead investor position
C)close the capital fund
D)refer the venture to more appropriate financial market participants
E)issue a standard letter of rejection
Q3) SLOR stands for "standard letter of recognition."
A)True
B)False
Q4) Professional venture capital,as we know it today,did not exist before World War II.
A)True
B)False
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14
Chapter 13: Other Financing Alternatives
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Sample Questions
Q1) Concerning factoring,all of the following are true except:
A)factors prefer business over consumer accounts
B)factoring is done at a discount to the third party purchaser
C)factoring discounts are often a function of the riskiness of the receivables
D)factoring speeds the inflow of cash to the seller of the receivables
E)receivable lending is the process of factoring
Q2) The SBA's venture capital credit program works through Community Development Financial Institutions (CDFIs).
A)True
B)False
Q3) Receivables lending is the use of receivables as collateral for an equity issue.
A)True
B)False
Q4) The returns to venture bank lenders are generated solely from interest payments made by borrowers plus the return of the loan principal.
A)True
B)False
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15
Chapter 14: Security Structures and Determining Enterprise
Values
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58 Verified Questions
58 Flashcards
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Sample Questions
Q1) An option that can be exercised at any time until its expiration is called a:
A)forward contract
B)lookback option
C)American-style option
D)European-style option
E)Bermuda-style option
Q2) The concept of an enterprise value is that it is the combined value of all of venture's financing,typically equity plus all of the debt.
A)True
B)False
Q3) If a share of preferred stock has a $10 par value,and the stock has a 2:1 conversion ratio,then the conversion price would be $5.
A)True
B)False
Q4) An option is a right to buy or sell additional shares of stock.
A)True
B)False
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Chapter 15: Harvesting the Business Venture Investment
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68 Verified Questions
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Sample Questions
Q1) Which of the following describes when a syndicate's offering price is less than the market price immediately following the offering?
A)IPO underpricing
B)due diligence
C)firm commitment
D)best efforts
E)underwriting spread
Q2) A special type of harvesting process where the firm's top management continues to run the firm and has a substantial equity position in the reorganized firm is known as a leveraged buyout.
A)True
B)False
Q3) When an industry is in decline,systematic liquidation is typically the most attractive harvest strategy.
A)True
B)False
Q4) ESOP stands for "employee stock ownership plan."
A)True
B)False
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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67 Verified Questions
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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) A "cross default provision" and an "acceleration provision" both cause principal obligations on a loan to become immediately due.
A)True
B)False
Q3) The transfer of title to the venture's assets to a third-party trustee is called assignment.
A)True
B)False
Q4) Foreclosure is the legal process used by creditors to try to collect amounts owed on loans in default
A)True
B)False
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