Financial Management for Entrepreneurs Practice Exam
Course Introduction
Financial Management for Entrepreneurs equips students with foundational knowledge and practical tools essential for managing the financial aspects of new and growing ventures. The course covers key topics such as financial planning, budgeting, cash flow management, startup financing, valuation, and interpreting financial statements. Through case studies and real-world examples, students learn how to make informed financial decisions, assess funding options, manage risks, and develop strategies for sustainable growth. Emphasis is placed on the unique financial challenges and opportunities faced by entrepreneurs, including bootstrapping, investor relations, and resource allocation for startups.
Recommended Textbook
Entrepreneurial Finance 4th Edition by J.
Chris Leach
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15 Chapters
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Chapter 1: Introduction and Overview
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Sample Questions
Q1) Entrepreneurs provide the financing to individuals who think,reason,and act to convert ideas into commercial opportunities and create opportunities.
A)True
B)False
Answer: False
Q2) 4.Lindsey and Tobias have the opportunity to invest in a project that requires an investment of $3,000.There is a 35% chance of a $2,900 return;a 40% chance of a $3,400 return;and a 25% chance of a $4,500 return one year from now.Lindsey requires a 15% return on the project after the first year,but Tobias requires a return of only 12%.Using the expected rate of return:
A)Lindsey and Tobias should both invest in the project
B)Only Tobias should invest in the project
C)Only Lindsey should invest in the project
D)Lindsey and Tobias should both reject the project
Answer: A
Q3) "Fads" are not predictable,have short lives,and do not involve macro changes.
A)True
B)False
Answer: True
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Page 3
Chapter 2: From the Idea to the Business Plan
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Sample Questions
Q1) 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
Q2) Determine the dollar amount of net profit for a venture with the following financial information: revenues = $500,000;return on assets = 20%;and asset turnover =2.00 times.
A)$10,000
B)$25,000
C)$50,000
D)$60,000
E)$75,000
Answer: C
Q3) Ideas that are said to be "ahead of their time" are too early to become viable business opportunities for the inventor or innovator.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) Which form of business organization typically offers the easiest transfer of ownership?
A)proprietorship
B)limited partnership
C)corporation
D)subchapter S corporation
E)general partnership
Answer: C
Q2) Limited liability in the corporate business structure means creditors can seize only some of the corporation's assets.
A)True
B)False
Answer: False
Q3) An idea is enough to be patented.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) Your venture has total assets of $690,net fixed assets of $500,long term debt of $80,and stockholders' equity of $400.What is the amount of your venture's current liabilities?
A)-$100
B)$100
C)$210
D)$290
E)$1,090
Q2) Financial statement that shows how cash,as reflected in accrual accounting,flows into and out of a company during a specific period of operation is called the:
A)income statement
B)balance sheet
C)statement of retained earnings
D)statement of cash flows
Q3) Startup financing (e.g. ,financing from business angels and venture capitalists)usually occurs during the development stage in a new venture's life cycle. A)True
B)False
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Chapter 5: Evaluating Financial Performance
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Sample Questions
Q1) The "cash burn rate" is the cash burn for a fixed period of time,typically a month.
A)True
B)False
Q2) Liquidity ratios indicate the venture's ability to pay short term assets from short-term liabilities.
A)True
B)False
Q3) What is the return on equity for Runs and Goses?
A)26.1%
B)44.7%
C)62.6%
D)18.4%
E)7.9%
Q4) "Cash burn" is the cash a venture expends on its operating,financing,and depreciation expenses.
A)True
B)False
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Chapter 6: Financial Planning:short Term and Long Term
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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 constant ratio forecasting method makes projections based on the assumption that certain costs and some balance sheet items are best expressed as a percentage of sales.
A)True
B)False
Q3) Which one of the following ratios is not part of the "standard" return on equity (ROE)model?
A)net profit margin
B)asset turnover
C)equity multiplier
D)retention rate
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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) Bond ratings reflect the inflation risk of a firm's bonds.
A)True
B)False
Q3) Early-stage ventures tend to have large amounts of senior debt relative to more mature ventures.
T 23.Investment risk is the chance or probability of financial loss on one's venture investment,and can be assumed by debt,equity,and founding investors.
A)True
B)False
Q4) Closely held corporations are those companies whose stock is traded over-the-counter.
A)True
B)False
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) The Securities Act of 1933 provides a very narrow definition as to what constitutes a security.
A)True
B)False
Q2) Which one of the following is not a requirement for registration of securities with the SEC?
A)the name under which the issuer is doing business
B)the name of the state where the issuer is organized
C)the names of all products sold by the issuer
D)the names and addresses of the directors
E)the names of the underwriters
Q3) Rule 502 of Regulation D deals with:
A)integration
B)information
C)solicitation
D)resale
E)a and b above
F)a,b,c,and d above
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Chapter 9: Valuing Early-Stage Ventures
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Sample Questions
Q1) The "maximum dividend method" assumes that all surplus cash will be paid out as dividends.
A)True
B)False
Q2) Surplus cash is the amount of cash required to pay scheduled dividends for next quarter.
A)True
B)False
Q3) A "post-money" valuation differs from a "pre-money" valuation by the cost of financial capital.
A)True
B)False
Q4) As used in this textbook,the "terminal" value is the same as the "horizon" value.
A)True
B)False
Q5) The "stepping stone" year is the second year after the explicit forecast period when valuing a venture.
A)True
B)False
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Chapter 10: Venture Capital Valuation Methods
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Sample Questions
Q1) The value of the existing venture without the proceeds from the potential new equity issue is known as?
A)pre-money valuation
B)post money valuation
C)staged financing
D)the capitalization rate
Q2) What is the post-money valuation?
A)$658,354
B)$499,954
C)$408,377
D)$249,977
Q3) The basic venture capital method estimates a venture's value using only terminal/exit flows to all the venture's owners.
A)True
B)False
Q4) In staged financing,the expected effect of future dilution is borne by both founders and the investors currently seeking to invest.
A)True
B)False
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Chapter 11: Professional Venture Capital
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Sample Questions
Q1) When evaluating the prospects of a new venture,venture capital firms consider which of the following?
A)characteristics of the proposal
B)characteristics of the entrepreneur/team
C)nature of the proposed industry
D)both b and c
E)all of the above
Q2) A "term sheet" is a summary of the investment terms and conditions accompanying an investment by venture capitalists.
A)True
B)False
Q3) Pension funds are the dominant source of funds for venture investing.
A)True
B)False
Q4) 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
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Chapter 12: Other Financing Alternatives
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Sample Questions
Q1) The Small Business Administration was created by an Act of Congress in 2003.
A)True
B)False
Q2) Credit cards issued to start-ups have proven to be an alternative source of start-up financing.
A)True
B)False
Q3) In which of the following credit programs is the SBA role in the loan one of providing a direct loan to a community organization,which reloans the funds in small amounts?
A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan
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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Chapter 13: Security Structures and Determining Enterprise
Values
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Q1) When consistent assumptions are used,we
A)get the same value for equity under the enterprise and equity methods of valuation
B)we get a higher value of equity under the equity method of valuation
C)we get a lower value of equity under the equity method of valuation
D)we get equity values that cannot be compared across the equity and enterprise methods of valuation
Q2) Which of the following is not an input to the Black and Scholes model?
A)earnings per share
B)stock price
C)risk free rate
D)volatility
Q3) Generally speaking,warrants are call options that allow the holder to purchase what type of security at a specific price?
A)common stock
B)preferred stock
C)convertible debt
D)none of the above
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Page 15
Chapter 14: Harvesting the Business Venture Investment
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Sample Questions
Q1) The type of agreement with an investment bank involving the investment bank's underwritten purchase and resale of securities is called:
A)firm commitment
B)best efforts commitment
C)due diligence
D)making a red herring disclaimer
E)a private placement
Q2) Based on the following information,estimate the percentage appreciation on stock bought by the founders:founders' purchase price $1.00;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)900%
Q3) An "initial public offering" is the only method used by entrepreneurs when exiting a venture.
A)True
B)False
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Page 16
Chapter 15: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) Your firm has an average collection period of 36.5 days.Sales revenues are $30,000.What is your firm's average investment in accounts receivables?
A)$3,650
B)$3,000
C)$1,000
D)$822
E)$444
Q2) During the maturity stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?
A)managing ongoing operations
B)maintaining and adding value
C)obtaining seasoned financing
D)obtaining seed financing
Q3) A "cross default provision" and an "acceleration provision" both cause principal obligations on a loan to become immediately due.
A)True
B)False
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Page 17