Entrepreneurial Finance
Final Exam Questions
Course Introduction
Entrepreneurial Finance explores the financial concepts, tools, and strategies essential for launching, managing, and growing innovative ventures. The course examines methods for raising capital, including angel investing, venture capital, crowdfunding, and bootstrap financing, with a focus on aligning funding sources with business models and growth strategies. Students analyze financial statements, project cash flows, and evaluate risk through real-world case studies and simulations. Emphasis is placed on valuation techniques, deal structuring, term sheets, and exit strategies, equipping aspiring entrepreneurs with the knowledge to make informed financial decisions and secure resources necessary for sustainable growth.
Recommended Textbook
Entrepreneurial Finance 5th Edition by J. Chris Leach
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16 Chapters
1061 Verified Questions
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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) You are considering investing in two independent projects "A" and "B".Project A requires an initial investment of $12,000.In one year,there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a $14,500 return.Project B requires an initial investment of $1,000.In one year,there is a 25% chance of a $950 return; a 25% chance of a $1,000 return; and a 50% chance of a $1,200 return.If you require a 7% return on your investment after one year,you should:
A)Accept A and reject B
B)Accept B and reject A
C)Accept both projects
D)Reject both projects
Answer: B
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Chapter 2: Developing the Business Idea
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Sample Questions
Q1) "Entrepreneurial ventures" are firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do.
A)True
B)False
Answer: False
Q2) A venture opportunity-screening guide,called the VOS Indicator,is used to determine potential attractiveness of venture opportunities as business opportunities.
A)True
B)False
Answer: True
Q3) Determine the dollar amount of total assets for a venture with the following financial information: revenues = $500,000; net profit = $70,000; and asset turnover = 2.00 times.
A)$100,000
B)$250,000
C)$375,000
D)$500,000
E)$650,000
Answer: B
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Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) The marginal tax rate for the first dollar of taxable income is higher for corporations than for individuals.
A)True
B)False
Answer: True
Q2) The cumulative dollar amount of income taxes paid by a corporation with taxable income of $75,000 would be:
A)$6,250
B)$7,500
C)$8,500
D)$13,750
E)$22,250
Answer: D
Q3) A work does not need to be registered to receive copyright protection; the work's creation is enough to provide copyright protection.
A)True
B)False
Answer: True
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Chapter 4: Preparing and Using Financial Statements
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Sample Questions
Q1) Find the "contribution profit margin" based on the following information:cash fixed costs = $60,000; variable costs = $70,000; and sales = $100,000.
A)70%
B)60%
C)30%
D)40%
E)100%
Q2) What is Acme's operating income?
A)$4,000
B)$2,000
C)$9,500
D)$6,000
E)$1,320
Q3) Total operating fixed costs (TOFC)equal:
A)cash operating fixed costs (excluding interest expenses)
B)noncash fixed costs (e.g.,depreciation)
C)interest expenses
D)a plus b
E)a plus b plus c
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Chapter 5: Evaluating Operating and Financial Performance
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Sample Questions
Q1) Average current assets minus average inventories when divided by average current liabilities is called which of the following ratios?
A)current ratio
B)quick ratio
C)net working capital ratio
D)current liabilities to total debt ratio
Q2) The interest coverage ratio for Runs and Goses is:
A)6.5 times
B)4.5 times
C)9.7 times
D)3.5 times
E)1.5 times
Q3) Net income divided by net sales is called which of the following ratios?
A)net operating profit after taxes margin
B)net profit margin'
C)operating profit margin
D)gross profit margin
Q4) Cross-sectional analysis is used to examine a venture's performance over time.
A)True
B)False
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Chapter 6: Managing Cash Flow
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Sample Questions
Q1) Calculate the inventory-to-sale conversion period based on the following information:average inventories = $120,000; average receivables = $90,000; average payables = $40,000; cost of goods sold = $182,500; and net sales = $365,000.
A)240.0 days
B)180.0 days
C)90.0 days
D)60.0 days
E)45.0 days
Q2) The cash conversion cycle refers to the time it takes to convert a sale into net income.
A)True
B)False
Q3) A firm is said to be an early stage venture when it is in which of the following except?
A)rapid growth stage
B)startup stage
C)development stage
D)survival stage
E)early-maturity stage
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) The cost of equity for a firm is 20%.If the real interest rate is 5%,the inflation premium is 3%,and the market risk premium is 2%,what is the investment risk premium for the firm?
A)10%
B)12%
C)13%
D)15%
Q2) The "prime rate" is the interest rate charged by banks to their highest default risk business customers.
A)True
B)False
Q3) The additional premium added to the real interest rate by lenders to compensate them for a debt instrument which cannot be converted to cash quickly at its existing value is called?
A)inflation premium
B)default risk premium
C)liquidity premium
D)maturity premium
E)investment risk premium
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) The trading of securities is regulated under the Securities and Exchange Act of 1954. A)True
B)False
Q2) The Securities Act of 1933 is the main body of federal law governing the creation and sale of securities in the U.S.
F 6.The Securities Exchange Act was passed in 1933 and the Securities Act was passed in 1934.
A)True
B)False
Q3) Rule 501 of Regulation D expands the categories of accredited investors.Which is not one of the categories?
A)any organization formed for the specific purpose of acquiring securities with assets in excess of $5 million
B)any director or executive officer of the issuer of securities being sold
C)any individual whose net worth exceeds$1 million
D)any partnership
E)any trust with total assets greater the $5 million
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Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) Which of the following is a forecasting method used to project financial statements?
A)percent-of-sales method
B)percent-of-expenses method
C)GNP-ratio method
D)a and b
E)a,b,and c
Q2) The rate at which a firm can grow sales based on the retention of business profits is known as sustainable sales growth rate.
A)True
B)False
Q3) During which round of financing is a venture typically most accurate in forecasting sales?
A)seasoned financing
B)mezzanine financing
C)first round financing
D)startup financing
E)seed financing
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Chapter 10: Valuing Early-Stage Ventures
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Sample Questions
Q1) The reversion value of a venture is the present value of the venture's terminal value.
A)True
B)False
Q2) When estimating the terminal value of a cash flow perpetuity,which one of the following is not a component?
A)the next period's cash flow
B)a constant discount rate
C)a constant growth rate
D)the payback period
Q3) Estimate a venture's constant growth rate (g)based on the following information:terminal value = $400,000; current year's net income = $20,000; next year's expected cash flow = $25,000; and a required rate of return of 20%.
A)2%
B)4%
C)6%
D)8%
E)10%
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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) 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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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) When screening prospective new ventures,venture capital firms consider their own funds' requirements.Which of the following is not one of the venture firm's requirements relating to its own funds?
A)investor control
B)rate of return
C)size of investment
D)probable stock listing exchange for the mature venture
E)financial provisions for investors
Q2) When evaluating the prospects of a new venture,venture capital firms consider the characteristics of the entrepreneur and its team.Which of the following is not part of the review of the entrepreneur/team?
A)its background and experience
B)its managerial capabilities
C)management's stake in the firm
D)the VC firms' ability to cash out
E)the capability to sustain an effort
Q3) SLOR stands for "standard letter of recognition."
A)True
B)False
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Page 14
Chapter 13: Other Financing Alternatives
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Sample Questions
Q1) Unlike traditional commercial banks,venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms.In return for providing additional debt financing,these venture banks receive in return all of the following except?
A)interest payments
B)repayment of principal
C)implementation of loan restrictions
D)tax breaks on the interest
E)right to buy equity at a specific price
Q2) In a factoring arrangement,the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables.
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
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Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) A call option is the obligation to purchase a specific asset at a pre-determined price.
A)True
B)False
Q2) A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share.
A)True
B)False
Q3) N(h)in the Black and Scholes model involves the use of
A)the number of shares issued
B)the next time that a venture capitalist will invest money
C)the normal distribution cumulative density function
D)the number of times that the venture will have to raise money
Q4) As the underlying stock price increases in value,a put option to sell it becomes more valuable.
A)True
B)False
Q5) A warrant is a type of call option.
A)True
B)False
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Chapter 15: Harvesting the Business Venture Investment
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Sample Questions
Q1) Based on the following information,estimate the percentage appreciation on stock bought by the venture investors:founders' purchase price $.50; venture investors' purchase price $2.00; current stock price $10.00; founders holding period = 5 years; venture investors holding period = 3 years.
A)100%
B)400%
C)600%
D)800%
Q2) An order to purchase stock that can be executed only at a specified price or better is called a:
A)market order
B)limit order
C)stop order
D)stock order
E)private order
Q3) IPO underpricing results in a direct loss to the venture's owners.
A)True
B)False
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) A venture may file for legal bankruptcy in order to attempt to reorganize under which one of the following chapters?
A)Chapter 1
B)Chapter 5
C)Chapter 7
D)Chapter 11
E)Chapter 13
Q2) Which of the following refers to when creditors reduce their contractual claims against the venture?
A)debt payment extensions
B)asset restructuring
C)financial restructuring
D)debt composition change
Q3) The rule governing hierarchical order in which claim payments must be made during a bankruptcy is known as the:
A)cram-down procedure
B)absolute priority rule
C)prepackaged bankruptcy rule
D)involuntary bankruptcy rule
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