Venture Capital and Private Equity
Exam Answer Key
Course Introduction
This course provides an in-depth exploration of the structure, function, and strategies of venture capital and private equity industries. Students will examine the investment process from sourcing deals and performing due diligence to structuring transactions and managing portfolio companies. The course covers the lifecycle of venture-backed startups and buyouts, legal and ethical considerations, valuation techniques, and the roles of general and limited partners. By analyzing real-world case studies and current industry trends, students will gain practical insights into how venture capitalists and private equity investors drive innovation, growth, and value creation in businesses.
Recommended Textbook
Entrepreneurial Finance 5th Edition by J.
Chris Leach
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16 Chapters
1061 Verified Questions
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Chapter 1: Introduction to Finance for Entrepreneurs
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Sample Questions
Q1) Nearly half of business failures are due to economic factors such as inadequate sales,insufficient profits,and industry weakness.
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 is your breakeven point in sales units?
A)5,000
B)7,500
C)10,000
D)12,500
E)15,000
Answer: C
Q3) One principal of entrepreneurial finance is "risk and expected reward go hand in hand.
A)True
B)False
Answer: True
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Chapter 2: Developing the Business Idea
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Sample Questions
Q1) 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
Q2) 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
Q3) A venture opportunity-screening guide,called the VOS Indicator,is used to determine potential attractiveness of venture opportunities as business opportunities.
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) 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
Q2) Which of the following are intellectual property rights that allow firms to differentiate their products and services through the use of unique marks which allow consumers to easily identify the source and quality of the products and services?
A)patents
B)trademarks
C)legal disclaimers
D)copyrights
E)trade secrets
Answer: B
Q3) A trademark must be novel in order to receive protection.
A)True
B)False
Answer: False
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Chapter 4: Preparing and Using Financial Statements
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Sample Questions
Q1) In breakeven analysis,solving for when EBITDA is equal to zero gives breakeven in terms of:
A)economic revenues
B)variable costs
C)survival revenues
D)fixed costs
Q2) "Variable expenses" are costs or expenses that vary directly with revenues.
A)True
B)False
Q3) Find the "survival revenues" (SR),also known as the EBDAT breakeven)based on the following information:cash fixed costs = $60,000; variable costs = $70,000; and sales = $100,000.
A)$85,714
B)$100,000
C)$116,667
D)$200,000
E)$300,000
Q4) GAAP stands for "Generally Accepted Accounting Principles."
A)True
B)False
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Chapter 5: Evaluating Operating and Financial Performance
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Sample Questions
Q1) Second-round,mezzanine,and liquidity-stage financing generally occur during a venture's survival stage.
A)True
B)False
Q2) For a venture with inventories,the quick ratio will always be greater than the current ratio.
A)True
B)False
Q3) Investment bankers are users of financial ratios and measures of ventures primarily during the rapid-growth stage relative to the development and startup stages.
A)True
B)False
Q4) Which of the following is used to compare a venture's performance against the average performance of other firms in the same industry?
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) Determine the cash conversion cycle based on the following information:inventory-to-sale conversion period = 112.9 days; sale-to-cash conversion period = 57.1 days; and purchase-to-payment conversion period = 76.8 days.
A)93.2 days
B)132.6 days
C)170.0 days
D)246.8 days
E)365.0 days
Q2) Calculate the sale-to-cash 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
Q3) 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) Typically,the stocks of closely held corporations aren't publicly traded.
A)True
B)False
Q2) The additional interest rate premium required to compensate the lender for the probability that a borrower will not be able to repay interest and principal on a loan is known as?
A)inflation premium
B)default risk premium
C)liquidity premium
D)maturity premium
E)investment risk premium
Q3) Your venture has net income of $600,taxable income of $1,000,operating profit of $1,200,total financial capital including both debt and equity of $9,000,a tax rate of 40%,and a WACC of 10%.What is your venture's EVA?
A)$400,000
B)$200,000
C)$0
D)($180,000)
E)($300,000)
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) The Investment Advisers Act of 1940 provides a definition of an investment company.
A)True
B)False
Q2) In the Ninth Circuit Court of Appeals decision on SEC v.Murphy,all of the following were considerations in determining an offering to be a private placement except:
A)there must be an arm's length relationship between the issuer of the security and the prospective purchaser
B)the number of offerees must be limited
C)the size and the manner of the offering must not indicate widespread solicitation
D)the offerees must be sophisticated
E)some relationship between the offerees and the issuer must be present
Q3) Regulation D Rule 502 focuses,in part,on resale restrictions imposed on privately-placed securities.
A)True
B)False
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Chapter 9: Projecting Financial Statements
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Sample Questions
Q1) An "expected value" is:
A)a simple average of a set of scenarios or possible outcomes
B)a weighted average of a set of scenarios or possible outcomes
C)the highest scenario value or outcome
D)the lowest scenario value or outcome
Q2) A firm with a positive growth rate in sales will require some additional funds,assuming the existing ratios will not be changed.
A)True
B)False
Q3) Sales forecasting accuracy is usually highest during a venture's startup stage in its life cycle.
A)True
B)False
Q4) "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) "Required cash" is?
A)the cash needed to pay interest expense
B)a valuation method for early stage ventures
C)cash needed to cover a venture's day-to-day operations
D)cash available to pay as a dividend
Q2) The explicit forecast period is the two to ten year period in which the venture's financial statements are explicitly forecast.
A)True
B)False
Q3) The "terminal" value is the value of the venture at the beginning of the explicit forecast period.
A)True
B)False
Q4) The pseudo dividend method treats equity infusions and withdrawals in a "just in time" fashion.
A)True
B)False
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Chapter 11: Venture Capital Valuation Methods
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Sample Questions
Q1) The value of the venture's equity is equal to the value the financing contributed in the first venture capital round.
A)True
B)False
Q2) What is the percent ownership of our venture that must be sold in order to provide the venture investor's target return?
A)33.33%
B)75.94%
C)12.76%
D)15.00%
Q3) 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
Q4) The DDA and VCSC methods give the same valuation.
A)True
B)False
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Chapter 12: Professional Venture Capital
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Sample Questions
Q1) If an investment management firm is known to be a "two and twenty shop",this implies that the firm:
A)receives an annual 2% fee on invested capital,and a 20% carried interest
B)receives an annual 20% fee on invested capital,and a 2% carried interest
C)receives an annual 2% fee on gross operating profits,and a 20% carried interest
D)receives an annual 20% fee on gross operating profits,and a 2% carried interest
Q2) 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
Q3) When the venture fund calls upon the investors to deliver their investment funds,it reflects the deal flow.
A)True
B)False
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Chapter 13: Other Financing Alternatives
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Sample Questions
Q1) In a factoring arrangement,the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables.
A)True
B)False
Q2) The use of receivables as collateral for a loan is known as:
A)capital leasing
B)warehouse financing
C)receivables lending
D)a microloan
E)venture leasing
Q3) In which of the following credit programs does the SBA approve a loan and guarantees up to 85% of loan value?
A)7(a)loan
B)504 loan
C)microloan
D)venture capital loan
E)credit card loan
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Chapter 14: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) An option granting the right to sell a stock at $10 when that stock currently has a market price $8 is "in the money."
A)True
B)False
Q2) For American and Bermudan embedded options,the exercise price can change over time as specified in the security agreement.
A)True
B)False
Q3) Which of the following offers the option where the dividend obligation can be satisfied in cash or by issuing additional par amounts of the preferred security?
A)paid in kind preferred stock
B)cumulative preferred stock
C)participating preferred stock
D)convertible preferred stock
E)non-cumulative preferred stock
Q4) A European-Style Option may only be exercised on a specific date. 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) The distribution of the venture's cash flows directly to the owners is a venture harvesting process known as:
A)systematic liquidation
B)outright sale
C)chapter 11 bankruptcy
D)going public
Q3) A leveraged buyout (LBO)takes place when the purchase price of a firm is financed largely with debt financial capital.
A)True
B)False
Q4) The sale of new securities is known as:
A)primary offering
B)secondary offering
C)initial public offering
D)shelf offering
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Chapter 16: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) When a venture files for legal bankruptcy through Chapter 11 and attempts to reorganize,which is not likely to be a possible outcome?
A)Chapter 7 liquidation
B)merge the venue
C)restructuring of assets
D)reorganize and continue to operate
Q2) Which of the following refers to the failure to meet loan interest or principal payments when due?
A)insolvency
B)loan default
C)acceleration provision
D)cross default provision
E)foreclosure
Q3) An "acceleration provision" provides that all future interest and principal obligations on a loan become immediately due when default occurs.
A)True
B)False
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Page 18