Entrepreneurial Finance
Final Test Solutions
Course Introduction
Entrepreneurial Finance explores the financial strategies and challenges encountered by new and growing ventures. The course examines how entrepreneurs raise and manage capital, evaluate financial risks, and make investment decisions in environments characterized by uncertainty and rapid change. Topics include venture capital, angel investing, bootstrapping, crowdfunding, financial forecasting, valuation, exit strategies, and the legal and regulatory environment. Through case studies and practical assignments, students gain hands-on experience in structuring deals, negotiating with investors, and understanding the unique financial lifecycle of entrepreneurial enterprises.
Recommended Textbook Mergers Acquisitions and Corporate Restructurings 6th Edition by Patrick A. Gaughan
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Chapter 1: Introduction
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Sample Questions
Q1) Under a typical Lehman formula dealmakers may earn 5% of the first $1 million of the takeover price.
A)True
B)False
Answer: True
Q2) Private equity firms are frequent LBO dealmakers.
A)True
B)False
Answer: True
Q3) Targets can use an asset sell-off to avoid legitimate liabilities.
A)True
B)False
Answer: False
Q4) Pursuant to Basic v Levinson:
A)Targets must immediately announce all overtures from potential bidders
B)Bidders must announce all overtures to targets
C)Targets may not release false information on deal progress
D)None of the above
Answer: C
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Chapter 2: History of Mergers
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Q1) Antitakeover defense became increasingly sophisticated during the following merger waves:
A)First
B)Second
C)Third
D)Fourth Answer: C
Q2) The Inco-ESB deal was the first hostile takeover in the United States.
A)True
B)False
Answer: False
Q3) Mitchell and Mulherin, in investigating the deals of the fourth merger wave found that deregulation played a prominent role but that not all industries respond to deregulation the same way with some reacting more quickly than others.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Legal Framework
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Sample Questions
Q1) Bidders doing a mini-tender offer must file a Schedule TO within 20 business days from when the offer is announced.
A)True
B)False
Answer: False
Q2) In the United States which entities enforce antitrust laws?
A)Justice Department
B)Federal Trade Commission
C)Treasury Department
D)Both a and b
E)Both b and c
F)None of the above
Answer: D
Q3) If less than the requested number of shares are tendered, the Williams Act requires that the bidder must purchase the amount that were tendered anyway.
A)True
B)False
Answer: False
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Chapter 4: Merger Strategy
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Sample Questions
Q1) United Airlines' merger with Continental Airlines is an example of:
A)Vertical integration
B)Conglomerate formation
C)Horizontal integration
D)None of the above
Q2) Cybo-Ottone and Murgia found positive abnormal returns for European bank merger announcements.
A)True
B)False
Q3) United Airlines was finally able to realize synergies when they acquired travel-related businesses such as hotels and car rental companies.
A)True
B)False
Q4) Both Eckbo and Stillman found:
A)No negative shareholder responses from competitors to horizontal deals
B)Significant negative effects
C)The shareholder wealth effects were delayed and occurred one to two years later
D)None of the above
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Chapter 5: Antitakeover Measures
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Sample Questions
Q1) The case involving this company established the legality of poison pills in the United States:
A)Crown-Zellerbach
B)Kraft Foods
C)Universal Foods
D)Household International
Q2) Malatesta and Walking found that, on average, the managerial ownership percentage was significantly less for firms that adopted poison pills compared with industry averages.
A)True
B)False
Q3) Poison pills can increase shareholder values through facilitating an auction process.
A)True
B)False
Q4) The Georgeson studies showed that pill-protected companies had reduced shareholder values.
A)True
B)False
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Chapter 6: Takeover Tactics
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Sample Questions
Q1) Which of the following are used to implement a hostile takeover of a target?
A)Poison pill
B)Tender offer
C)Corporate charter amendments
D)All of the above
Q2) Borstadt and Swirlein shows the dissidents were successful in their proxy fights
A)Most of the time
B)No consistent pattern
C)42% of the time
D)Almost 80% of the time
Q3) In the United States, following the receipt of a tender offer from a bidder, the target must respond by filing a:
A)Schedule TO
B)Schedule 13F
C)Schedule 14D-9
D)Schedule 10K
Q4) Research has showed that "bad bidders" are no more likely to become targets of takeover bids.
A)True
B)False
Page 8
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Chapter 7: Hedge Funds As Activist Investors
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Q1) Research, such as the work of Clifford, has established that when activists establish share position in target shareholder wealth declines.
A)True
B)False
Q2) Which of the following are examples of factors that facilitated the growth of activist hedge funds over the years 2012-2015?
A)Rising stock market
B)High cash balances of U.S.companies
C)Growth of the U.S.economy
D)All of the above
Q3) Research, such as the work of Huang, found that companies which had activists in their shareholder base tended to receive higher takeover premiums when they are sold.
A)True
B)False
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Chapter 8: Going-Private Transactions and Leveraged Buyouts
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Sample Questions
Q1) Unsecured debt is sometimes also called subordinate debt.
A)True
B)False
Q2) Kaplan found that the post-buyout investors did not enjoy the tax-related benefits of LBOs.
A)True
B)False
Q3) Research by Cao and also data from Mergerstat showed that:
A)LBO premiums were less than M&A premiums but increased over time
B)Decreased over time
C)No discernable pattern
D)None of the above
Q4) Which of the following is true of senior debt?
A)The rate on senior debt is 2% to 3% above prime
B)Senior debt is usually about a quarter to a third of total LBO debt
C)The term is usually 5 to 10 years
D)All of the above
Q5) In the United States two-tiered tender offers are not that common any more. A)True B)False
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Chapter 9: The Private Equity Market
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Q1) Drexel Burnham and Lambert and Michael Milken were pioneers in the development of the hedge fund industry.
A)True
B)False
Q2) Private equity firms used to be referred to as LBO firms.
A)True
B)False
Q3) Which of the following are examples of private equity firms?
A)KKR
B)Blackstone
C)Morgan Stanley
D)Apollo Group
E)All of the above
F)Both a and c
G)a, b, and d
Q4) Glode and Green theorize that the findings of Kaplan and Schoar may be due to insufficient disclosure by private equity firms.
A)True
B)False
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Chapter 10: The Junk Bond and the Leveraged Loan Market and Stapled Financing
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Q1) The collapse of the junk bond market mainly ended the use of original issue high-yield bonds in the decades that followed.
A)True
B)False
Q2) Ma, Rao, and Peterson showed that the junk bond market was so resilient in the mid-1980s that the bankruptcy of LTV had little impact of bond default probabilities.
A)True
B)False
Q3) Altman and Namacher found the following historical average default rates applied to high-yield bonds: j.
A)5% k.
B)2% l.
C)10% m.
D)none of these
Q4) The original issue high-yield bond market got its start in the late 1970s.
A)True
B)False
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Chapter 11: Corporate Restructuring
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Sample Questions
Q1) Asian spin-off volume:
A)Historically follows the same pattern as the U.S.spin-off volume
B)Followed the same pattern as European spin-off volume
C)Has declined in the past when spin-offs rose in European and the United States
D)None of the above
Q2) The sell-offs by Starwood following its acquisition of Taittinger were motivated by:
A)Eliminating a nonstrategic component
B)Eliminating a poorly performing unit
C)Raising cash to pay off debt
D)None of the above
Q3) A defensive spin-off is where a target sells off a division to make the company less attractive to bidders.
A)True
B)False
Q4) The trend in European sell-offs is opposite that of the United States.
A)True
B)False
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Chapter 12: Restructuring in Bankruptcy
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Q1) In the United States, the rules governing corporate reorganizations are detailed in which part of the bankruptcy law?
A)Chapter 13
B)Chapter 11
C)Chapter 9
D)None of the above
Q2) George and Hwang found that firms with high distress costs had:
A)Lower leverage
B)Lower probabilities of default
C)None of the above
D)Both a and b
Q3) Which of the following is the largest bankruptcy in history?
A)Continental Airlines
B)Worldcom
C)Lehman Brothers
D)None of the above
Q4) The debtor in possession is another name for the bankrupt company.
A)True
B)False
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Chapter 13: Corporate Governance
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Q1) Malmendier and Tate analyzed the performance of CEOs who were awarded this status in the form of relatively high compensation, awards, and press coverage.They found:
A)Such CEOs underperforming compared to their prior performance as well as the performance of their peers
B)The compensation of such CEOs rose significantly on attainment of the superstar status but their performance declined
C)Such CEOs spent a disproportionate amount of time doing other activities such as attending public and private events as well as writing books
D)All of the above
E)None of the above
Q2) Cooper, Gulen, and Rau found that firms in the highest decile ranking of executive compensation earned significant negative excess returns.
A)True
B)False
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Chapter 14: Joint Ventures and Strategic Alliances
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Q1) Enhancing R&D is a common reason why companies form joint ventures.
A)True
B)False
Q2) McConnell and Nantell study showed that shareholders in companies entering into joint ventures enjoyed announcement period returns of -4%.
A)True
B)False
Q3) Chan, Kensinger, Keown, and Martin found positive abnormal returns from strategic alliances.
A)True
B)False
Q4) Das, Sen, and Sengupta showed that technological alliances were associated with greater announcement returns than marketing alliances.
A)True
B)False
Q5) Chan, Kensinger, Keown, and Martin found significant transfers of wealth from alliance partners.
A)True
B)False
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Chapter 15: Valuation
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Q1) Which of the following factors will influence the initial potential dilution of earnings per share?
A)Differential in P/E ratios
B)Relative size of the two firms as measured by earnings
C)Taxability of target earnings
D)All of the above
E)Both a and b
Q2) Moeller, Schlingemann, and Stulz's research shows that during the period 1998-2001, acquiring firm shareholders gained a total of $240 billion!
A)True
B)False
Q3) For many years the concentrated holdings by large block holders made hostile takeovers in Europe more difficult to complete.
A)True
B)False
Q4) In thin markets float shares are not as plentiful.
A)True
B)False
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Chapter 16: Tax Issues in Mergers & Acquisitions
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Q1) In a Type A reorganization in the United States, at least what percent of the payment to the target must be stock in the acquiring company:
A)20%
B)50%
C)80%
D)100%
E)No specific percentage
Q2) In the United States, up until 2001, there was only one accepted accounting treatment for mergers and acquisitions-pooling.
A)True
B)False
Q3) In a Type B reorganization in the United States, at least what percent of the payment to the target must be stock in the acquiring company:
A)20%
B)50%
C)80%
D)100%
E)No specific percentage
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