Startup Finance
Textbook Exam Questions
Course Introduction
Startup Finance explores the financial aspects crucial to launching and growing a new business. The course covers topics such as funding sources, financial modeling, valuation, cash flow management, and investor relations. Students learn how to prepare financial statements, forecast funding needs, and understand key metrics that drive startup success. Emphasis is placed on practical skills for securing venture capital, angel investment, and managing limited resources effectively in early-stage companies.
Recommended Textbook
Entrepreneurial Finance 4th Edition by
J. Chris Leach
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2
Chapter 1: Introduction and Overview
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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) Which one of the following would not be considered a type of venture financing?
A)seed financing
B)startup financing
C)mezzanine financing
D)liquidity-stage financing
E)seasoned financing
Answer: E
Q3) Perhaps the most important invention shuttling us from an industrial society to an information society is the computer chip.
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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Q1) Venture opportunity screening involves assessment of an idea's commercial potential to produce revenue growth,financial performance,and value.
A)True
B)False
Answer: True
Q2) A sound business model is a plan to generate investor interest,make profits,and grow asset investments.
A)True
B)False
Answer: False
Q3) A sound business model provides a plan which includes all of the following except?
A)generates revenues
B)makes profits
C)retains all its earnings
D)produces free cash flows
E)all of the above are included
Answer: C
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Chapter 3: Organizing and Financing a New Venture
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Sample Questions
Q1) "Business method" is one kind of patent.
A)True
B)False
Answer: True
Q2) The average tax rate for a corporation with taxable income of $75,000 would be:
A)15.0%
B)18.3%
C)20.0%
D)22.7%
E)25.0%
Answer: B
Q3) Which of the following forms of protecting intellectual property currently has a protection limit of 20 years?
A)copyrights
B)patents
C)trade secrets
D)trademarks
Answer: B
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) 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
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) Assets are financial and physical items controlled or owned by the business.
A)True
B)False
Q4) Accrual accounting is the practice of recording economic activity when recognized rather than waiting until realized.
A)True
B)False
Q5) On the balance sheet,Total Liabilities = Total Assets - Owners Equity.
A)True
B)False
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Chapter 5: Evaluating Financial Performance
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Sample Questions
Q1) The difference between a venture's ability to generate cash to pay interest and the amount of interest it has to pay is determined by which of the following ratios?
A)fixed charges coverage
B)debt to asset
C)equity multiplier
D)debt to equity
E)interest coverage
Q2) Runs and Goses operating profit margin is?
A)26.2%
B)56.3%
C)43.3%
D)30.3%
E)60.0%
Q3) Which one of the following conversion periods is not a component in 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
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Page 7
Chapter 6: Financial Planning:short Term and Long Term
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Q1) If a venture has a return on assets (ROA)= 12%,an equity multiplier based on beginning equity =3.0 times,and a sustainable growth rate of 18%,the retention rate would be:
A)10%
B)20%
C)30%
D)40%
E)50%
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) Increases in accounts payable and notes payable are examples of spontaneously generated funds.
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 venture life cycle stages would involve seasoned financing rather than venture financing?
A)Development stage
B)Startup stage
C)Survival stage
D)Rapid-growth stage
E)Maturity stage
Q2) Which of the following is an example of rent on financial capital?
A)interest on debt
B)dividends on stock
C)collateral on equity
D)a and b
E)a,b,and c
Q3) Bond ratings reflect the inflation risk of a firm's bonds.
A)True
B)False
Q4) Formal historical accounting procedures include explicit records of debt (interest and principal)and dividend capital costs.
A)True
B)False
Page 9
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Q1) Of the following,which is not true about Regulation A?
A)it is shorter and simpler than the full registration
B)it does not have limitations on the number or sophistication of offerees.
C)it is a public offering rather than a private placement
D)it can generally be freely sold
E)it requires no offering statement be filed with the SEC
Q2) Which of the following is not true about registering securities with the SEC?
A)it is a time consuming process
B)it required the disclosure of accounting information
C)it is usually done with the help of an investment bank
D)it is an inexpensive process
E)it provides information to prospective investors
Q3) 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
Q4) A Regulation D Rule 505 offering is limited to 35 accredited investors.
A)True
B)False
Page 10
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Chapter 9: Valuing Early-Stage Ventures
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Sample Questions
Q1) The present value of the terminal value is called?
A)going-concern value
B)present value
C)terminal value
D)reversion value
E)net present value
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) "Net operating working capital" is current assets other than surplus cash less non-interest-bearing current liabilities.
A)True
B)False
Q4) The pseudo dividend method treats surplus cash as a free cash flow to equity.
A)True
B)False
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Chapter 10: Venture Capital Valuation Methods
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Q1) The expected present value method incorporates the present values of different scenarios,as well as their probabilities,into the valuation process.
A)True
B)False
Q2) The discount rate applied in an Expected PV approach should be the same rate across scenarios.
A)True
B)False
Q3) What is the number of shares that must be issued to the new investor in order for the investor to earn his target return?
A)3,156,276
B)1,578,138
C)4,156,276
D)2,578,138
Q4) The VSCS and DDA methods are "just-in-time" capital methods which do not assess capital charges for idle cash.
A)True
B)False
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Chapter 11: Professional Venture Capital
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Sample Questions
Q1) When screening prospective new ventures,venture capital firms must consider the nature of the proposed industry.Which of the following is not part of the screening of the proposed industry?
A)market attractiveness
B)managerial references
C)potential size
D)technology
E)threat resistance
Q2) Two typical issues addressed in a term sheet are valuation and the size and staging of financing.
A)True
B)False
Q3) "Due diligence," in venture investing context,is the process of ascertaining the viability of a business plan.
A)True
B)False
Q4) SLOR stands for "standard letter of recognition."
A)True
B)False
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Chapter 12: Other Financing Alternatives
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Sample Questions
Q1) 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
Q2) In which of the following credit programs does the SBA approve and guarantee a not-for-profit Certified Development Company's portion of the debt?
A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan
Q3) The SBA's venture capital credit program works through Community Development Financial Institutions (CDFIs).
A)True
B)False
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Chapter 13: Security Structures and Determining Enterprise
Values
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Q1) For American and Bermudan embedded options,the exercise price can change over time as specified in the security agreement.
A)True
B)False
Q2) The Black and Scholes model is intended to be used to value A)stocks
B)bonds
C)options
D)futures contracts
Q3) The right to buy a specified asset at a specified price on 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
Q4) The Black and Scholes model requires an exercise price as an input. A)True
B)False
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Chapter 14: Harvesting the Business Venture Investment
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Q1) In determining a harvest value,non-monetary items such as culture,managerial succession,and employee retention are not factored in.
A)True
B)False
Q2) 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
Q3) The two discounted cash flow (DCF)methods covered in this text are the enterprise method and the debt funds method.
A)True
B)False
Q4) When harvesting a venture,the methodical distribution of assets directly to the owners is known as a systematic liquidation.
A)True
B)False
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Chapter 15: Financially Troubled Ventures: Turnaround Opportunities
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Q1) "Asset restructuring" involves:
A)improving the working-capital-to-sales relationship
B)growing revenues relative to costs
C)changing the contractual terms of existing debt obligations
D)cutting costs relative to the venture's revenues
E)a and c above
F)b and d above
Q2) During the survival stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?
A)monitoring financial performance
B)obtaining seasoned financing
C)projecting cash needs
D)obtaining first round financing
Q3) "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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