Financial Strategies for Startups
Exam Preparation Guide
Course Introduction
This course explores the essential financial concepts and tools necessary for startup success. Students will learn how to develop robust financial strategies, including budgeting, forecasting, cash flow management, and fundraising. The course covers methods for assessing funding options, constructing financial statements, negotiating with investors, and scaling financial operations as startups grow. Real-world case studies and practical assignments provide insight into the challenges and opportunities unique to entrepreneurial ventures, equipping students with the knowledge to make informed financial decisions in dynamic startup environments.
Recommended Textbook
Entrepreneurial Finance 5th Edition by J. Chris Leach
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16 Chapters
1061 Verified Questions
1061 Flashcards
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Chapter 1: Introduction to Finance for Entrepreneurs
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Small businesses,those with less than 500 employees,represent over 99 percent of all employers,and account for about one-half of the gross domestic product in the United States.
A)True
B)False
Answer: True
Q2) Founder and venture investor shares are sold to the public after the initial offering to the public is called?
A)secondary market transaction
B)secondary stock offering
C)venture offering
D)bridge loan
Answer: B
Q3) Studies by Phillips and Kirchhoff,and by Headd,found that one-half of new firms or new employers were still in existence after four years of operation.
A)True
B)False
Answer: True
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3
Chapter 2: Developing the Business Idea
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Sample Questions
Q1) Mark Twain said:"Like I tell anybody,if you fail to plan,you're planning to fail."
A)True
B)False
Answer: False
Q2) A SWOT analysis focuses on which of the following components or areas?
A)strengths
B)weaknesses
C)opportunities
D)threats
E)all of the above
F)a,b,and d
Answer: E
Q3) Free cash flows,which can be paid back to investors occurs when cash generated from operations exceeds all of the following except?
A)borrowing costs
B)non-cash depreciation
C)taxes
D)investment in assets
Answer: B
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Page 4
Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) The income received by a proprietorship is taxed at personal tax rates.
A)True
B)False
Answer: True
Q2) Nondisclosure agreements prohibit the creator of an idea or other form of intellectual property from sharing it with others once it has been presented the first time.
A)True
B)False
Answer: False
Q3) "Patents" are intellectual property rights granted for inventions that are useful,novel,and obvious.
A)True
B)False Answer: False
Q4) An idea is enough to be patented.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Preparing and Using Financial Statements
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Sample Questions
Q1) Find the NOPAT breakeven revenues (NR)given the following information:total operating fixed costs = $75,000; variable costs = $150,000; and sales = $200,000.
A)$100,000
B)$240,000
C)$300,000
D)$400,000
E)$460,000
Q2) Long-term,non-cancelable leases whereby the owner receives payments that cover the cost of the equipment plus a return on investment in the equipment is known as a capital lease.
A)True
B)False
Q3) Which one of the following is not considered to be an internal operating schedule?
A)income statement
B)cost of production schedule
C)cost of goods sold schedule
D)inventories schedule
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Chapter 5: Evaluating Operating and Financial Performance
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Sample Questions
Q1) Which of the following is used to compare a venture's performance against another firm at the same point in time?
A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis
Q2) What is Runs and Goses' debt-to-equity ratio?
A)0.91
B)2.15
C)0.48
D)1.12
E)2.32
Q3) The part of a venture's interest payment that is subsidized by the government because of the deductibility of interest is called the interest tax shield.
A)True
B)False
Q4) Net working capital reflects current assets deducted from current liabilities. A)True
B)False
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Chapter 6: Managing Cash Flow
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Sample Questions
Q1) The sum of the inventory-to-sale conversion period and the purchase-to-payment conversion period minus the sale-to-cash conversion period is called the cash conversion cycle.
A)True
B)False
Q2) Which one of the following conversion periods operates to reduce the length of the cash conversion cycle?
A)inventory-to-sale conversion period
B)sale-to-cash conversion period
C)purchase-to-payment conversion period
D)fixed assets-to-usage conversion period
Q3) Based on the following information,determine the average receivables (rounded to thousands of dollars)that were outstanding: Net sales = $575,000; Sale-to-cash conversion period = 57.1 days; Purchase-to-payment conversion period = 76.8 days; and Cost of goods sold = $380,000.
A)$90,000
B)$180,000
C)$121,000
D)$31,000
E)$41,000
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) Calculate the weighted average cost of capital (WACC)based on the following information:the equity multiplier is 1.66; the interest rate on debt is 13%; the required return to equity holders is 22%; and the tax rate is 35%.
A)11.5%
B)13.9%
C)15.0%
D)16.6%
Q2) The word "risk" developed from the early Italian word "risicare" and means:
A)don't care
B)take a chance
C)to dare
D)to gamble
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
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9
Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) Which one of the following SEC registration exemptions has a financing limit in a 12-month period and permits a maximum of 35 unaccredited investors?
A)Section 4(2)
B)Reg D: Rule 504
C)Reg D: Rule 505
D)Reg D: Rule 506
E)Regulation A
Q2) An early stage venture that is not an investment company and has written compensation agreements can structure compensation-related securities issues so they are exempt from SEC registration requirements.
A)True
B)False
Q3) 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
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Page 10
Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) A firm projects net income to be $500,000,intends to pay out $125,000 in dividends,and had $2 million of equity at the beginning of the year.The firm's sustainable growth rate is:
A)5%
B)18.75%
C)6.25%
D)4.69%
E)none of the above
Q2) If beginning of period common equity is $200,000 and end of period common equity is $300,000,the sustainable growth rate is:
A)33%
B)40%
C)50%
D)67%
E)75%
Q3) A customer-driven or "bottom-up" approach to forecasting sales is used primarily to forecast industry sales growth rates.
A)True
B)False
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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) 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
Q3) Post-money valuation is the pre-money valuation of a venture plus all monies previously contributed by the venture's founders.
A)True
B)False
Q4) "Equity valuation cash flow" is defined as: net sales + depreciation and amortization expense - change in net operating working capital (excluding surplus cash)- capital expenditures + net debt issues.
A)True
B)False
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Page 12
Chapter 11: 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) 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) The venture capital valuation method which capitalizes earnings using a cap rate implied by a comparable ratio is known as direct capitalization.
A)True
B)False
Q4) The discount rate applied in an Expected PV approach should be the same rate across scenarios.
A)True
B)False
Page 13
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) Term sheets are usually drafted by:
A)the mangers of the venture seeking VC funding
B)the VC fund seeking to fund the venture
C)management and founders
D)it is usually done by an third party,in order to Ensure the fair treatment of both parties
Q2) A "term sheet" is a summary of the investment terms and conditions accompanying an investment by venture capitalists.
A)True
B)False
Q3) 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
Q4) The first major government foray into venture investing came with the formation of the Small Business Administration (SBA)in 1947.
A)True
B)False
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Page 14
Chapter 13: Other Financing Alternatives
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Sample Questions
Q1) Commercial banks,jointly with not-for-profit Certified Development Companies,are lenders in which of the following SBA credit programs?
A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan
Q2) 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
Q3) Warrants allow lenders to buy equity at a specified price.
A)True
B)False
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Page 15
Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) If a call option can be bought for $12 and the stock's market value is $12,it's said to be "at the money".
A)True
B)False
Q2) An American-style option is an option that can be exercised only at the expiration date
A)True
B)False
Q3) An option is a right to buy or sell additional shares of stock.
A)True
B)False
Q4) Options generally have no effect on the value of a venture capital investment. A)True
B)False
Q5) Convertible debt is debt that converts into preferred stock. A)True B)False
B)False Page 16
Q6) The value of a warrant can be directly derived from the value of a call option. A)True
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Page 17
Chapter 15: Harvesting the Business Venture Investment
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Sample Questions
Q1) In a typical venture's life cycle,the examining of exit opportunities often occur during the rapid-growth stage.
A)True
B)False
Q2) If venture investors invest $1,000,000 now,will receive 50% of the exit value,and expect a 20% compounded rate of return on their investment,what will be the amount of the exit value at the end of two years?
A)$1,000,000
B)$1,440,000
C)$2,880,000
D)$5,000,000
E)$5,760,000
Q3) Which of the following is not an advantage of a systematic liquidation?
A)maintaining control throughout the harvestperiod
B)harvesting of the investment value can be spread out over a number of years
C)the taxation treatment of liquidation proceeds as ordinary income
D)the time,effort,and costs of finding a buyer for the venture can be avoided
Q4) The sale of used shares of common stock is a secondary market offering.
A)True
B)False
Page 18
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) Which of the following restricts the ability of individual creditors to foreclosure to try to recover their individual claims?
A)automatic stay provision
B)holdout problem
C)cram down procedure
D)net worth requirements
Q2) The ways,individually or in combination,for resolving financial distress are:
A)operations restructuring
B)financial restructuring
C)asset restructuring
D)all of the above
E)none of the above
Q3) During the rapid growth stage of a venture's life cycle,the relevant financing and operating decisions encountered are to go public,or to sell or merge the firm.
A)True
B)False
Q4) Chapter 7 bankruptcy filing permits for the attempt to reorganize.
A)True
B)False
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