New Venture Finance Exam Review
Course Introduction
New Venture Finance examines the financial aspects of launching and growing entrepreneurial ventures. The course covers essential topics such as evaluating funding needs, sources of capital (including angel investors, venture capital, and crowdfunding), valuation of startups, financial forecasting, and managing cash flow in early-stage companies. Students learn how to develop persuasive business plans, pitch to investors, and navigate legal and ethical considerations in entrepreneurial finance. Through case studies and real-world examples, the course equips students with the knowledge and tools required to secure and strategically manage funding for new business ventures.
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 of the following is not a life cycle stage of a successful venture?
A)development stage
B)startup stage
C)survival stage
D)cash cow stage
E)early-maturity stage
Answer: D
Q2) Free cash flow is the net income forecast to be available to the venture's owners over time.
A)True
B)False
Answer: False
Q3) Bill Gates once said: "I was seldom able to see an opportunity,until it ceased to be one."
A)True
B)False Answer: False
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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) Direct costs of producing a product or providing a service is called
A)gross profit
B)gross profit margin
C)net profit
D)net profit margin
E)cost of goods sold
Answer: E
Q2) The evaluation of "entry barriers" occurs under which one of the following parts of the VOS indicator?
A)industry/market considerations
B)pricing/profitability considerations
C)financial/harvest considerations
D)management team considerations
Answer: A
Q3) An entrepreneur may start a number of different types of businesses,including salary-replacement firms,lifestyle firms,and entrepreneurial firms or ventures.
A)True
B)False
Answer: True
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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) An S corporation provides unlimited liability for its shareholders.
A)True
B)False
Answer: False
Q2) Certification marks are typically used to:
A)indicate membership in a trade group
B)indicate a certain brand of service
C)indicate quality
D)are symbols used to associate products to a specific brand
Answer: C
Q3) The average tax rate for a corporation with taxable income of $100,000 would be:
A)15.0%
B)16.75%
C)20.0%
D)22.25%
E)25.0%
Answer: D
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Chapter 4: Preparing and Using Financial Statements
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Sample Questions
Q1) 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
Q2) EBDAT is equal to:
A)revenues - variable costs - cash fixed costs
B)revenues + variable costs + cash fixed costs
C)revenues - variables costs - total fixed costs
D)revenues + variable costs - cash fixed costs
Q3) 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
Q4) Expenses or costs that vary directly with revenues are said to be:
A)fixed expenses
B)semi-fixed expenses
C)semi-variable expenses
D)variable expenses
Page 6
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Chapter 5: Evaluating Operating and Financial Performance
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64 Flashcards
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Sample Questions
Q1) 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%
Q2) The gross profit margin for Runs and Goses is?
A)26.2%
B)30.3%
C)43.3%
D)56.3%
E)60.0%
Q3) A venture's cash,marketable securities,and receivables comprise the venture's "liquid assets".
A)True
B)False
Q4) Leverage ratios indicate the extent to which the venture has used debt and its ability to meet debt obligations.
A)True B)False
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Chapter 6: Managing Cash Flow
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Sample Questions
Q1) 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
Q2) Even in a young,successful venture,restricted access to bank credit and with little to no access to short-term lending markets can hinder operations until the next round of financing.
A)True
B)False
Q3) A venture's cash conversion cycle will decrease if the purchase-to-payment conversion period increases.
A)True
B)False
Q4) Early-stage ventures are defined as firms that are only operating in either their development or startup stages.
A)True
B)False
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) 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
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) Which of the following components is not typically included in the rate on short-term U.S.treasuries?
A)liquidity premium
B)default risk premium
C)market risk premium
D)b and c
E)a,b,and c
Q4) The coefficient of variation measures the standard deviation of a venture's return relative to its expected return.
A)True
B)False
Page 9
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) A Regulation D Rule 505 offering is limited to 35 accredited investors.
A)True
B)False
Q2) "Security" exemptions from registration with the SEC include which of the following:
A)securities issued by banks and thrift institutions
B)government securities
C)intrastate offerings
D)securities issued by large,high quality corporations
E)a,b,and c above
F)a,b,c,and d above
Q3) According to the Investment Advisers Act of 1940,a bank would not be classified as an "investment advisor".
A)True
B)False
Q4) Regulation of investment companies (including professional venture capital firms)is carried out under the Investment Company Act of 1940.
A)True
B)False
Page 10
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Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) A sales growth rate based on the retention of profits is referred to as the:
A)real sales growth rate
B)sustainable sales growth rate
C)spontaneous sales growth rate
D)nominal sales growth rate
E)weighted average sales growth rate
Q2) Internally generated funds which are available for distribution to owners of for reinvestment back into the business to support future growth can be characterized by which of the following?
A)operating income
B)operating cash flow
C)net income
D)net cash flow
E)pre-tax income
Q3) The volatility of a firm's cash balance will steadily decreases as the firm progresses from the survival stage to the rapid-growth stage.
A)True
B)False
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11
Chapter 10: Valuing Early-Stage Ventures
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Sample Questions
Q1) The maximum dividend valuation method involves explicitly forecasted dividends to provide surplus cash which is positive.
A)True
B)False
Q2) Your firm has been in business for two years.In its first year,the firm ended with $227,000 of current assets,long-term assets of $143,000,$70,000 in surplus cash,current liabilities of $52,000,and long-term assets of $68,000.At the end of the second year,current assets were $279,000,long-term assets of $195,000,surplus cash of $90,000,current liabilities of $62,000,and long-term assets of $78,000.What is your firm's change in net operating working capital?
A)$22,000
B)$62,000
C)$42,000
D)$244,000
E)$32,000
Q3) Surplus cash is the amount of cash required to pay scheduled dividends for next quarter.
A)True
B)False
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Page 12
Chapter 11: Venture Capital Valuation Methods
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Sample Questions
Q1) The discount rate applied in an Expected PV approach should be the same rate across scenarios.
A)True
B)False
Q2) Determine the net income of a "comparable" firm based on the following information:value of target firm = $4,000,000; net income of target firm = $200,000; stock price of "comparable" firm = $30.00; and 300,000 shares of stock outstanding for the comparable firm.
A)$450,000
B)$500,000
C)$550,000
D)$600,000
E)$700,000
Q3) During the exit period,which of the following will have last crack at the venture's wealth?
A)banks giving loans to the venture
B)convertible debt holders of the venture
C)initial equity investors of the venture
D)participating preferred equity holders
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) According to Figure 12.4,individuals and families were the largest supplier of venture capital in 2009.
A)True
B)False
Q2) Which of the following is not one of the four likely outcomes of the venture firm's screening process?
A)seek the lead investor position
B)seek a non-lead investor position
C)close the capital fund
D)refer the venture to more appropriate financial market participants
E)issue a standard letter of rejection
Q3) The term "carried interest" refers to:
A)interest not currently paid but which must be paid in the future by a professional venture capitalist
B)interest transported directly to a bank
C)interest owed on a loan in default
D)the portion of profits paid to the professional venture capitalist as incentive compensation
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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 focus on the intended purpose of the loan is known as:
A)capacity
B)capital
C)collateral
D)conditions
E)character
Q2) When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The guarantees,or additional forms of security (such as assets),the entrepreneur can provide the lender is known as:
A)capacity
B)capital
C)collateral
D)conditions
E)character
Q3) Warrants allow lenders to buy equity at a specified price.
A)True
B)False
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15
Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) Options generally have no effect on the value of a venture capital investment. A)True
B)False
Q2) Which of the following requires that all previously unpaid preferred dividends must be paid prior to any common dividend?
A)paid in kind preferred stock
B)cumulative preferred stock
C)participating preferred stock
D)convertible preferred stock
E)non-cumulative preferred stock
Q3) By issuing preferred stock,and thus forfeiting bankruptcy rights from the use of debt,the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization.
A)True
B)False
Q4) The unadjusted Black and Scholes model is a model for determining the value of a warrant to buy a new share.
A)True
B)False
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Chapter 15: Harvesting the Business Venture Investment
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Sample Questions
Q1) The sale of used shares of common stock is a secondary market offering.
A)True
B)False
Q2) An "initial public offering" is the only method used by entrepreneurs when exiting a venture.
A)True
B)False
Q3) 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
Q4) The two discounted cash flow (DCF)methods covered in this text are the enterprise method and the debt funds method.
A)True
B)False
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) A private workout is a voluntary agreement between a venture's owners and its shareholders that provides for a financial restructuring of the venture's outstanding debt.
A)True
B)False
Q2) Chapter 7 bankruptcy filing permits for the attempt to reorganize.
A)True
B)False
Q3) The common pool problem exists because individual creditors have the incentive to foreclosure on the venture even though it is worth more as a going concern.
A)True
B)False
Q4) 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
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