Financial Management for Entrepreneurs
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Course Introduction
Financial Management for Entrepreneurs equips students with the essential skills and knowledge to effectively manage financial resources within entrepreneurial ventures. The course covers key concepts including financial planning, budgeting, forecasting, funding strategies, venture capital, cash flow management, and financial statement analysis. Students will learn how to evaluate the financial viability of new business ideas, understand risk and return, make strategic investment decisions, and navigate the unique financial challenges faced by startups. By the end of the course, students will be prepared to make informed financial decisions that support sustainable growth and long-term success in entrepreneurial environments.
Recommended Textbook
Entrepreneurial Finance 4th Edition by J.
Chris Leach
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Chapter 1: Introduction and Overview
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Sample Questions
Q1) You have the opportunity of making a $5,000 investment.The outcomes one year from now will be either $4,500 or $6,000 with an equal chance of either outcome occurring.What is the expected outcome?
A)$4,500
B)$6,000
C)$5,250
D)$5,750
E)$5,000
Answer: C
Q2) Which of the following does not describe activity during the venture's life cycle startup stage?
A)venture's organization
B)venture's development
C)operating cash flows are generated
D)initial revenue model is put in place
Answer: C
Q3) Free cash is all the cash available to cover operating expenses.
A)True
B)False
Answer: False
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Chapter 2: From the Idea to the Business Plan
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Sample Questions
Q1) Business changes resulting in higher net profit always increases ROA.
A)True
B)False
Answer: False
Q2) The definition of an entrepreneurial firm is:
A)survival,high growth
B)high growth,high performance
C)survival,average performance
D)high,growth,average performance
Answer: B
Q3) A sound business model should provide a plan to generate revenues,make profits,and produce free cash flows.
A)True
B)False
Answer: True
Q4) Once conceptualized,a new idea should be examined for its business feasibility.
A)True
B)False Answer: True
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Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) The average tax rate for a single filer with taxable income of $82,250 would be:
A)14.7%
B)16.7%
C)20.0%
D)20.4%
E)25.0%
Answer: C
Q2) The income received by a proprietorship is taxed at personal tax rates.
A)True
B)False
Answer: True
Q3) During the development stage,seed financing chiefly comprises:
A)funds from business angels and venture capitalists
B)the entrepreneur's personal assets
C)funds from family and friends
D)a,b,and c
E)only b and c
Answer: E
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) What is Acme's operating income?
A)$4,000
B)$2,000
C)$9,500
D)$6,000
E)$1,320
Q2) "Variable expenses" are costs that are expected to remain constant over a range of revenues for a specific time period.
A)True
B)False
Q3) Production assets (e.g. ,inventories and equipment to produce products and give credit to customers)usually occurs during the development stage in a new venture's life cycle.
A)True
B)False
Q4) Operating income,or earnings before interest and taxes,reflects the firm's profits after all operating expenses,excluding financing costs,have been deducted from net sales.
A)True
B)False
Page 6
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Chapter 5: Evaluating Financial Performance
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Sample Questions
Q1) Liquidity ratios indicate the venture's ability to pay short term assets from short-term liabilities.
A)True
B)False
Q2) Last year,Nemo's Fish 'n Chips recorded the following financial data: sales = $85,000;cost of goods sold = $45,000;selling and administrative expenses = $25,000;depreciation and amortization = $7,000;interest expense = $12,000.The tax rate was 30%.Find Nemo's interest coverage for last year.
A)-.29 times
B).66 times
C).86 times
D)1.25 times
E)3.33 times
Q3) Which of the following is true?
A)ROA is always greater than or equal to ROE
B)an increase in the asset turnover ratio implies a decrease in the asset
Intensity ratio
C)a and b
D)none of the above
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Chapter 6: Financial Planning:short Term and Long Term
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Q1) If a venture has a return on assets (ROA)= 10%,an equity multiplier based on beginning equity =4.0 times,and a dividend payout ratio of 60%,the sustainable growth rate would be:
A)10%
B)16%
C)20%
D)24%
E)40%
Q2) A firm has net income of $320,000 on sales of $3,200,000.Its assets total $2,000,000;the equity at the beginning of the year was $1,600,000 and dividends paid were $80,000.What is the sustainable growth rate?
A)5%
B)15%
C)6.25%
D)4.69%
E)none of the above
Q3) The weighted average of a set of possible outcomes or scenarios is known as expected values.
A)True
B)False
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Chapter 7: Types and Costs of Financial Capital
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Q1) Calculate the after-tax WACC based on the following information:nominal interest rate on debt = 12%;cost of common equity = 25%;common equity = $700,000;interest-bearing debt = $300,000;and a tax rate = 25%.
A)15%
B)16.4%
C)20.2%
D)22.8%
E)30%
Q2) "Default-risk" is the risk that a borrower will not pay the interest and/or the principal on a loan.
A)True
B)False
Q3) The excess average return of long-term government bonds over common stock is called the market risk premium.
A)True
B)False
Q4) Typically,the stocks of closely held corporations aren't publicly traded.
A)True
B)False
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample
Questions
Q1) Which one of the following is not a characteristic of Regulation A?
A)An offering is limited to $5 million
B)the number offerees or investors is limited to 35
C)the offering is a public offering
D)the securities issued can generally be freely resold
Q2) SEC Rule 147 provides guidance on the issuer's diligent responsibilities in assuring that offerees are in-state and that securities don't move across state lines.
A)True
B)False
Q3) Investor liability in a proprietorship or corporation is unlimited.
A)True
B)False
Q4) In SEC v.Ralston Purina (1953),the U.S.Supreme Court took an important step toward defining a public offering for the purposes of Section 4(2)of the Securities Act of 1933.
A)True
B)False
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Chapter 9: Valuing Early-Stage Ventures
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Q1) The "pseudo dividend method" (PDM)is a valuation method involving zero explicitly forecasted dividends and an adjustment to working capital to strip surplus cash.
A)True
B)False
Q2) To calculate a terminal value,one divides the next period's cash flow by the:
A)constant discount rate plus a constant growth rate
B)constant discount rate plus a variable growth rate
C)constant discount rate minus a constant growth rate
D)constant growth rate minus constant discount rate
E)constant growth rate plus a variable discount rate
Q3) The equity valuation method involving explicitly forecasted dividends to provide surplus cash of zero is called?
A)maximum dividend method
B)pseudo dividend method
C)sustainable growth method
D)dividend payout method
Q4) The stepping stone year is the first year before the explicit forecast period.
A)True
B)False
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Chapter 10: Venture Capital Valuation Methods
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Sample Questions
Q1) The return to venture investors directly depends on which of the following?
A)venture's ability to generate cash flows
B)ability to convince an acquirer to buy the firm
C)the amount ofits short-term liabilities
D)both a and b
E)all of the above
Q2) Almost without exception,professional venture investors demand that some equity or deferred equity compensation be structured into any valuation.
A)True
B)False
Q3) A price-earnings ratio is related to the level and growth of earnings.
A)True
B)False
Q4) The capitalization rate is the sum of the discount rate and the growth rate of the cash flow in the terminal value period.
A)True
B)False
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Chapter 11: Professional Venture Capital
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Sample Questions
Q1) Individuals and families are more important suppliers of venture capital relative to finance and insurance firms.
A)True
B)False
Q2) When a syndicate of VCs invests in a venture,the investor in charge of organizing the due diligence process is known as the "lead investor."
A)True
B)False
Q3) Term sheets consist of the terms and conditions accompanying an investment,as stipulated by the founders of the venture.
A)True
B)False
Q4) Professional venture capital,as we know it today,did not exist before World War II.
A)True
B)False
Q5) SLOR stands for "standard letter of rejection."
A)True
B)False
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Chapter 12: Other Financing Alternatives
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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) SBA 7(a)loans are made usually for 1 to 3 years in amounts up to $5,000,000,require collateral,and can be used for most business purposes.
A)True
B)False
Q3) Unlike traditional commercial banks,venture banks typically provide debt to start-ups that have already received equity financing from professional venture capital firms.
A)True
B)False
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Chapter 13: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) An option not currently worth exercising is said to be an out of the money option.
A)True
B)False
Q2) Which of the following is not a type of option?
A)call option
B)put option
C)warrant
D)LBO
Q3) Which of the following offers the option where the dividend obligation can be satisfied in cash or by issuing additional par amounts of the preferred security?
A)paid in kind preferred stock
B)cumulative preferred stock
C)participating preferred stock
D)convertible preferred stock
E)non-cumulative preferred stock
Q4) A warrant is a type of call option.
A)True
B)False
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Chapter 14: Harvesting the Business Venture Investment
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Q1) The sale of new shares of common stock is a secondary offering.
A)True
B)False
Q2) The two discounted cash flow (DCF)methods covered in this text are the enterprise method and the debt funds method.
A)True
B)False
Q3) A venture can be harvested in which of the following ways?
A).systematic liquidation,outright sale,going public
B)outright sale,going public,acquisition
C)going public,acquisition
D)acquisition,systematic liquidation
Q4) In the investment banking process,which of the following is a duty of the investment bank?
A)to be the targeted investors for a firm's securities
B)to provide banking services such as checking accounts to firms
C)to find buyers for a firm's securities
D)both a and b
E)all of the above
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Chapter 15: Financially Troubled Ventures: Turnaround Opportunities
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Q1) Foreclosure occurs when cash flows are insufficient to meet current debt obligations.
A)True
B)False
Q2) Chapter 11 bankruptcy filing requires liquidation of the venture.
A)True
B)False
Q3) "Balance sheet insolvency" exists when a venture has negative book equity or net worth.
A)True
B)False
Q4) "Operations restructuring" involves:
A)improving the working-capital-to-sales relationship
B)postponing due dates for interest and principal payments
C)selling off fixed assets
D)cutting costs relative to the venture's revenues
E)a and c above
F)b and d above
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