New Venture Creation Test Preparation
Course Introduction
New Venture Creation explores the process of launching and developing new business ventures, equipping students with the tools and knowledge needed to identify opportunities, assess market potential, design innovative business models, and secure necessary resources. Students will learn to construct comprehensive business plans, understand funding options, analyze risks, and develop strategies for sustainable growth. The course combines theoretical frameworks with practical case studies and experiential activities, preparing future entrepreneurs to navigate challenges and drive a new venture from conception to successful operation.
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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Page 2
Chapter 1: Introduction to Finance for Entrepreneurs
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91 Verified Questions
91 Flashcards
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Sample Questions
Q1) Which one of the following possible conflicts of interest increases in divergence at venture gets close to bankruptcy?
A)owner-manager conflict
B)owner-employee conflict
C)manager-employee conflict
D)manager-debtholder conflict
Answer: D
Q2) About one-half of all newly created businesses in the U.S.are dissolved or cease operations within how many years after being started?
A)two years
B)four years
C)six years
D)eight years
Answer: B
Q3) Free cash flows are adjusted for risk and the time value of money when used to calculate the value of a venture.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Developing the Business Idea
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88 Flashcards
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Sample Questions
Q1) Determine the return on assets (ROA)for a venture with the following financial information: revenues = $500,000; net profit = $70,000; and asset turnover = 2.00 times.
A)10%
B)14%
C)20%
D)28%
E)34%
Answer: D
Q2) Entrepreneurial ventures emphasize survival and providing an acceptable living for their owners with growth being a secondary goal.
A)True
B)False
Answer: False
Q3) A venture with a low score on the VOS Indicator should always be abandoned. A)True
B)False
Answer: False
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Page 4
Chapter 3: Organizing and Financing a New Venture
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81 Flashcards
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Sample Questions
Q1) A trademark must be novel in order to receive protection.
A)True
B)False
Answer: False
Q2) Financial bootstrapping maximizes the need for financial capital.
A)True
B)False
Answer: False
Q3) A copyright must be registered with the U.S.Copyright Office in order for a work to be protected.
A)True
B)False
Answer: False
Q4) Which of the following are not sources of seed and start-up financing?
A)family and friends
B)the entrepreneur's physical and financial assets
C)business angels
D)venture capitalists
E)stock and bond markets
Answer: E
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Chapter 4: Preparing and Using Financial Statements
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68 Flashcards
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Sample Questions
Q1) What is Acme's taxable income and tax expense?
A)$6,000;$2,040
B)$2,000;$1,320
C)$4,000;$1,360
D)$2,000;$680
E)$9,500;$3,230
Q2) Net income,or profit,is the bottom line measure of what's left from the firm's net sales after operating expenses,financing costs,and taxes have been deducted.
A)True
B)False
Q3) Determine the total operating fixed costs (TOFC)based on the following: Administrative expenses = $200,000; Marketing expenses = $180,000; Depreciation expenses = $100,000; and Interest expenses = $20,000.
A)$200,000
B)$380,000
C)$400,000
D)$480,000
E)$500,000
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Chapter 5: Evaluating Operating and Financial Performance
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64 Flashcards
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Sample Questions
Q1) 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
Q2) A venture's cash,marketable securities,and receivables comprise the venture's "liquid assets".
A)True
B)False
Q3) A firm has the following balance sheet information: total assets = $100,000; current assets = $30,000; inventories = $10,000; cash = $5,000; total liabilities = $30,000; current liabilities = $15,000; notes payable = $2,000.What are the firm's quick and NWC-to-Total-Assets ratios?
A)1.00 and .13
B)1.33 and .13
C)1.00 and .15
D)1.33 and .15
Q4) Total debt includes current liabilities,long-term debt,and retained earnings.
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 sale-to-cash conversion period is calculated by dividing average revenues by net sales per day.
A)True
B)False
Q3) The "cash conversion cycle" measures the time it takes to pay off the principal on a loan.
A)True
B)False
Q4) A venture's operating cycle is the same as its cash conversion cycle.
A)True
B)False
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) Which of the following describes the interest rate on debt that is virtually free of default risk?
A)real rate
B)nominal rate
C)risk-free rate
D)prime rate
E)inflation rate
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) The graph of the term structure of interest rates,which plots interest rates to time to maturity is called the yield curve.
A)True
B)False
Q4) Startup financing usually comes from entrepreneurs,business angels,and investment bankers.
A)True
B)False
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) Investor liability is "unlimited" under which of the following types of business organizational forms?
A)proprietorship
B)limited liability company (LLC)
C)corporation
D)S corporation
E)S limited liability company (SLLC)
Q2) Rule 502 of Regulation D deals with:
A)integration
B)information
C)solicitation
D)resale
E)a,b,c,and d above
F)a and b above
Q3) The typical business organization for a venture in its rapid-growth stage is a partnership or LLC.
A)True
B)False
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Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) A firm's maximum sustainable sales growth rate occurs at a retention ratio of 100%.
A)True
B)False
Q2) Increases in accounts receivable and accounts payable that accompany sales increases are called "spontaneously generated funds".
A)True
B)False
Q3) During which life cycle stage is a venture typically most accurate in forecasting sales?
A)rapid growth stage
B)startup stage
C)development stage
D)early-maturity stage
E)survival stage
Q4) Long-term financial planning begins with a forecast of annual working capital needs.
A)True
B)False
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11
Chapter 10: Valuing Early-Stage Ventures
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Sample Questions
Q1) Surplus cash is the cash remaining after required cash,all operating expenses,reinvestments,and dividends payouts are made.
T 17.Required cash is the amount of cash required to operate a venture through its day-to-day business.
A)True
B)False
Q2) As used in this textbook,the "terminal" value is the same as the "horizon" value.
A)True
B)False
Q3) Which one of the following components is not a component of the equity valuation cash flow calculation?
A)net income
B)depreciation and amortization expense
C)change in net operating working capital (without surplus cash)
D)capital expenditures
E)net equity repurchases
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12
Chapter 11: Venture Capital Valuation Methods
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Sample Questions
Q1) A price-earnings ratio is related to the level and growth of earnings.
A)True
B)False
Q2) The return on book equity equals the sustainable growth rate when all earnings are paid out in the form of dividends.
A)True
B)False
Q3) Failure to account for any additional rounds of financing and its accompanying dilution in order to meet projected earnings will result in the investor's not receiving an adequate number of shares to ensure the required percent ownership at the time of exit.
A)True
B)False
Q4) For the typical business plan having current and early cash outflows and later-stage cash inflows,the VCSC and DDA methods will typically give lower valuations than the MDM and PDM.
A)True
B)False
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) Venture Capital firms tend to specialize in publicly identified niches because of the potential for value-added investing by venture capitalists.Which is not one of these niches?
A)industry type
B)venture stage
C)size of investment
D)management style
E)geographic area
Q2) "Due diligence," in venture investing context,is the process of ascertaining the viability of a business plan.
A)True
B)False
Q3) After determining the next fund's objectives and policies,the "professional venture investing cycle's" next step is:
A)solicit investments in new fund
B)organize the new fund
C)obtain commitments for a series of capital calls
D)conduct due diligence and actively invest
E)arrange harvest or liquidation
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Page 14
Chapter 13: Other Financing Alternatives
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Sample Questions
Q1) When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The ability of the entrepreneur to repay borrowed funds is known as:
A)capacity
B)capital
C)collateral
D)conditions
E)character
Q2) Which of the following is not a Small Business Administration program?
A)loan guaranty programs
B)certified and preferred lender programs
C)low documentation loan programs
D)energy and conservation loan programs
E)certified financial planner funding programs
Q3) A foreign national may seek Lawful Permanent Resident (LPR)status by investing $1 million in the U.S.that will preserve or create at least 100 jobs for U.S.workers.
A)True
B)False
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Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) A European-Style Option may only be exercised on a specific date.
A)True
B)False
Q2) The right to sell a specified asset at a specified price up until a specified date is called:
A)a forward contract
B)an American-style put option
C)an American-style call option
D)a European-style call option
E)a European style put option
Q3) Warrant valuation (as presented in this text)is similar to option valuation except that one applies a dilution factor to the option value to arrive at a warrant value.
A)True
B)False
Q4) A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time. A)True
B)False
Page 16
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Chapter 15: Harvesting the Business Venture Investment
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Sample Questions
Q1) Harvesting is the process of exiting the privately held business venture to unlock the owners' investment value.
A)True
B)False
Q2) A venture is expected to have an exit value of $10,000,000 five years from now.If venture investors invest $1,000,000 now,and expect a 20% compounded rate of return on their investment,what portion of the exit value would they need?
A)10.5%
B)20.1%
C)24.9%
D)28.8%
E)32.5%
Q3) The acquisition of the venture by family members,managers,or outside buyers is a venture harvesting process known as:
A)systematic liquidation
B)outright sale
C)chapter 11 bankruptcy
D)going public
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17
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) "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
Q3) A voluntary bankruptcy petition if filed by the venture's management.
A)True
B)False
Q4) Chapter 7 bankruptcy filing permits for the attempt to reorganize.
A)True
B)False
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