Startup Financing
Chapter Exam Questions
Course Introduction
Startup Financing explores the key principles, strategies, and challenges involved in funding new ventures. The course covers a range of financing options available to startups, including bootstrapping, angel investors, venture capital, crowdfunding, and government grants. Students will gain insight into the processes of preparing business plans, financial projections, and investor pitches. Emphasis is placed on understanding valuation methods, negotiating term sheets, and the legal and ethical aspects of raising capital. By the end of the course, students will be equipped with the knowledge to make informed financing decisions and navigate the dynamic landscape of startup funding.
Recommended Textbook
Entrepreneurial Finance 5th Edition by J.
Chris Leach
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Chapter 1: Introduction to Finance for Entrepreneurs
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Q1) The "time value of money" is an important component of the rent one pays for using someone else's financial capital.
A)True
B)False
Answer: True
Q2) Assume that you can sell a new product at $5.00 per unit.Your variable costs are $3.00 per unit and you fixed costs are $20,000.What will be your profit before taxes if you sell 12,000 units next year?
A)$0
B)$1,000
C)$2,000
D)$4,000
E)$8,000
Answer: D
Q3) Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
A)True
B)False
Answer: True
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Chapter 2: Developing the Business Idea
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Sample Questions
Q1) The free cash flows to equity of an entrepreneurial firm includes cash flows to:
A)venture investors
B)creditors
C)the entrepreneur
D)a and b
E)a and c
Fa,b,and c
Answer: E
Q2) A venture's value is determined by
A)the size and timing of its future free cash flows
B)time value of money
C)its net income
D)a and b
E)a and c
Answer: D
Q3) Ideas that are said to be "ahead of their time" are too early to become viable business opportunities for the inventor or innovator.
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) Limited liability in the corporate business structure means creditors can seize only some of the corporation's assets.
A)True
B)False
Answer: False
Q2) "Patents" are intellectual property rights granted for inventions that are useful,novel,and obvious.
A)True
B)False
Answer: False
Q3) 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
Q4) Patents,trade secrets,trademarks,and copyrights are intangible assets.
A)True
B)False
Answer: True
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Chapter 4: Preparing and Using Financial Statements
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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) 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
Q3) EBDAT is earnings before interest,taxes,depreciation,and amortization.
A)True
B)False
Q4) The practice of recording economic activity when realized is known as accrual accounting.
A)True
B)False
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Chapter 5: Evaluating Operating and Financial Performance
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Sample Questions
Q1) A venture's cash,marketable securities,and receivables comprise the venture's "liquid assets".
A)True
B)False
Q2) During the development and startup stages of a venture's life cycle,important users of financial ratios and measures include the entrepreneur,business angels,and venture capitalists (VCs).
A)True
B)False
Q3) What is the current ratio for Runs and Goses?
A)1.46
B)1.33
C)1.23
D)1.21
E)1.13
Q4) Which of the following is used to examine a venture's performance over time?
A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis
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Chapter 6: Managing Cash Flow
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Sample Questions
Q1) A venture's operating schedules typically include a: sales schedule,purchases schedule,and wages and commissions schedule.
A)True
B)False
Q2) Short-term financial planning is critical during the survival stage because operations not yet turning a profit and the associated cash burn often lead to a venture's inability to pay its maturing liabilities.
A)True
B)False
Q3) Seed financing is generally associated with which one of the following life cycle stages:
A)development stage
B)startup stage
C)survival stage
D)rapid-growth stage
E)early-maturity stage
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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Q1) 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
Q2) Liquidity premiums reflect the risk associated with firms that possess few liquid assets.
A)True
B)False
Q3) Which one of the following components is not used when estimating the cost of risky debt capital?
A)real interest rate
B)inflation premium
C)default risk premium
D)market risk premium
E)liquidity premium
Q4) A venture's "riskiness" in terms of poor performance or failure is usually very high during the maturity stage of its life cycle.
A)True
B)False
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) The definition of an "accredited investor," initially defined in the Securities Act of 1933,was expanded in Rule 501 of Reg D.
A)True
B)False
Q2) Which of the following is not true regarding the Securities Act of 1933?
A)it was passed in response to abuses thought to have contributed to the financial catastrophes of the Great Depression
B)it covers securities fraud
C)it requires securities to be registered formally with the federal government
D)it set of the nature and authority of the Securities and Exchange Commission
E)it focuses on those who provide investment advice
Q3) State laws designed to protect high net-worth investors from investing in fraudulent security offerings are known as blue-sky laws.
A)True
B)False
Q4) The trading of securities is regulated under the Securities and Exchange Act of 1954. A)True
B)False
10
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Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) 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%
Q2) Which one of the following would increase a firm's need for additional funds?
A)an increasing profit margin
B)a decreasing expected sales growth rate
C)an increase in accruals
D)an increasing dividend payout rate
E)a decrease in assets
Q3) "Financial capital needed" (FCN)is the amount of funds needed to acquire assets necessary to support a firm's sales growth.
A)True
B)False
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Chapter 10: Valuing Early-Stage Ventures
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Sample Questions
Q1) "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
Q2) The pseudo dividend method is
A)the cleanest for valuing assets,but creates problems valuing surplus cash
B)the cleanest for valuation purposes but its dividend-laden financial statements can dramatically understate the firm's cash position
C)the cleanest for cash planning,but creates problems valuing the venture by discounting the dividends
D)calculated by directly discounting the cash flow statement's projected dividend flow to investors,but ignores risks associated with periodic gluts of surplus cash
Q3) As used in this textbook,the "terminal" value is the same as the "horizon" value.
A)True
B)False
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Chapter 11: Venture Capital Valuation Methods
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Q1) 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
Q2) In staged financing,the expected effect of future dilution is borne by both founders and the investors currently seeking to invest.
A)True
B)False
Q3) The VSCS is like a post-money version of the DDA.
A)True
B)False
Q4) Post-money valuation of a venture is the pre-money valuation plus money injected by new investors.
A)True
B)False
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) The first major government foray into venture investing came with the formation of the Small Business Administration (SBA)in 1947.
A)True
B)False
Q2) Once the venture capital firm has received exit proceeds from a venture in the form of cash or securities,some method of returning the proceeds (less the carried interest)must be determined.
A)True
B)False
Q3) The beginning of professional venture capitalists is considered to have begun with the establishment or formation of:
A)Small Business Administration
B)Small Business Investment Companies
C)American Research and Development organization
D)Professional Venture Capitalists organization
Q4) The beginning of professional venture capitalists began with the formation of American Research and Development in 1966.
A)True
B)False
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Chapter 13: Other Financing Alternatives
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Q1) 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
Q2) Collateral plays an important role in determining the willingness to lend and the amount and terms of the loan,making it the most important factor in the lending process.
A)True
B)False
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
Q4) Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $35,000 to be used for general purposes.
A)True
B)False
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Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) The enterprise method of valuation can be executed with either an after-tax or before-tax weighted cost of capital as long as the rate is applied to the appropriate enterprise cash flows.
A)True
B)False
Q2) Which of the following is not an input to the Black and Scholes model?
A)earnings per share
B)stock price
C)risk free rate
D)volatility
Q3) The Black and Scholes model requires an exercise price as an input.
A)True
B)False
Q4) Preferred stock is the equity claim senior to common stock providing preference on dividends but not liquidation proceeds.
A)True
B)False
Q5) A warrant is a type of call option.
A)True
B)False
Page 16
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Chapter 15: Harvesting the Business Venture Investment
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Sample Questions
Q1) A "lockup provision" prohibits insiders from selling their existing shares for a specified period of time.
A)True
B)False
Q2) The investment banks process of ascertaining,to the extent possible,an issuing firm's financial condition and investment intent is known as:
A)IPO underpricing
B)due diligence
C)firm commitment
D)best efforts
E)underwriting spread
Q3) Which of the following is not a type of trading order?
A)market order
B)limit order
C)stop order
D)none of the above
Q4) ESOP stands for "employee stock ownership plan."
A)True
B)False
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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Q1) "Asset restructuring" involves improving the working-capital-to-sales relationship and/or selling off fixed assets.
A)True
B)False
Q2) A "cross default provision" provides that defaulting on one loan makes the venture liquidate all other loans.
A)True
B)False
Q3) Chapter 11 bankruptcy filing requires liquidation of the venture.
A)True
B)False
Q4) Ventures that reorganize under Chapter 11 bankruptcies may still be liquidated via Chapter 7 bankruptcies.
A)True
B)False
Q5) "Foreclosure" is a legal process used by creditors to try to collect amounts owed on loans in default.
A)True B)False
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