Deck 13: Exit-Harvest-Turnaround

Question 1

Asset valuation is typically the highest business valuation number that one calculates, unless the business is asset-intensive.

Answer 1

False

Question 2

Attempting a turnaround is the best effort to reverse the decline of a business.

Answer 2

True

Question 3

Estimating cash flows 10 years into the future and subtracting a salvage value for a firm is a good ballpark floor valuation for a business.

Answer 3

False

Question 4

A business is an investment of both time and money.

Question 5

The true value of a business is the amount of money that a willing seller and buyer agree upon.

Question 6

Every small business owner will eventually need or want to exit his or her business.

Question 7

When a small business is declining, the first step is to retrench.

Question 8

Harvesting encompasses more than just selling and leaving a business.

Question 9

It should be clear that a single universal method of valuation is needed when considering the purchase of a private company.

Question 10

Strategic solutions in a failing company rely on exiting those poor strategic choices that have been made over the years.

Question 11

Public companies have an established market capitalization, which is the value of a business as it exists at the present time.

Question 12

A small business person can effectively operate an existing company and pursue new opportunities at the same time.

Question 13

When a small business owner is no longer interested in the company, it is time for an exit strategy.

Question 14

Most entrepreneurial businesses run lax operations where every individual has general functions and there is plenty of slack available for cross-training.

Question 15

If a business is performing poorly, there is virtually no goodwill value.

Question 16

A new business has creative company perquisites for the owners to minimize the tax owed by the organization.

Question 17

An IPO (initial public offering)is the initial listing of a firm as a private entity in the public equities market.

Question 18

When a business's performance has declined, the owner may decide to either close it or reverse the decline and conduct a "turnaround."

Question 19

It does not take much effort to turn around an entrepreneurial business successfully once it starts into a decline.

Question 20

Developing an exit plan makes the family and investors uneasy about the new business.

Question 21

Bankruptcy is an option for an entrepreneur if the turnaround effort does not succeed quickly enough.

Question 22

In a Chapter 13 bankruptcy filing, the time to approval is typically slower than other bankruptcy filings, and a creditor committee is required.

Question 23

Improving a business's performance is very difficult once it starts into a decline.

Question 24

In a declining business, an effective way to improve operations is to increase marketing to sell more products.

Question 25

In bankruptcy proceedings, a "haircut" refers to creditors receiving more than the full amount of money that is due to them.

Question 26

In a declining small business, the owner and key managers should resign to improve the chances that the business can turnaround successfully.New owners and managers will likely have better ideas to improve performance.

Question 27

For an entrepreneurial business, the retrenchment efforts should focus on the firm's forfeiting the control of its cash flow, regardless of the impact to the long-term effort.

Question 28

Chapter 7 bankruptcy is intended for entrepreneurial firms with limited debts and assets.

Question 29

Since the processes and procedures for bankruptcy are easy and have a short-term impact on the owner of a small business, it is a feasible alternative for a declining business.

Question 30

When filing Chapter 11 bankruptcy, a firm has 90 days to propose a reorganization plan.

Question 31

In bankruptcy proceedings, creditors who do not have collateral pledged behind their debt will be paid only if there are funds remaining after other creditors have been paid.

Question 32

In a Chapter 7 bankruptcy filing, selling a business consists of selling the assets of the company.

Question 33

The time to begin to think of harvesting the business is

A)at the beginning.
B)after the first quarter of operations.
C)at the break-even part.
D)when there are no more alternatives.

Question 34

A small business owner may want to exit the business because

A)the business has done very well but the future does not hold the same potential for similar success.
B)all the assets are in the business.
C)other opportunities are available.
D)all of these.

Question 35

Chapter 13 bankruptcy is used for sole proprietorships.

Question 36

A business is an investment of both ________ and ________.

A)time; labor
B)time; money
C)labor; money
D)work; time

Question 37

If a small business that declares bankruptcy is a corporation or LLC, the owner's personal assets are not affected.

Question 38

In bankruptcy proceedings, creditors may be willing to take less than the full amount with the hope that the strength of the distressed firm will return in the future; they will then be in a position to receive more of their debt repayment.

Question 39

Chapter 17 bankruptcy allows a firm to be reorganized.

Question 40

Chapter 12 bankruptcy is used for the protection of family-owned business assets.

Question 41

One reason to hire a certified public accountant (CPA)firm is to

A)audit last year's financial statements.
B)put all of the statements into a standardized format.
C)develop procedures for the accounting of all activities.
D)all of these.

Question 42

In the context of business valuation, the ________ is determined by examining similar companies that have been acquired or more often by simply looking at the percentage premium being offered in general on all new public acquisitions.

A)minority discount
B)equity value
C)control premium
D)goodwill value

Question 43

Which of the following valuation methods requires that the net cash flow be projected for some period of time in the future?

A)Asset-based valuation
B)Price/earnings valuation
C)Discounted future net cash flow
D)Market estimation valuation

Question 44

In the context of business valuation, which of the following methods works best for firms with hard resources and not an Internet business?

A)Asset-based valuation
B)Price/earnings valuation
C)Discounted future net cash flow
D)Market estimation valuation

Question 45

Which of the following is a benefit paid for by the company, such as vacations, vehicles, gifts, and loans?

A)Benefits plus
B)Perquisites
C)Exempt benefits
D)Bonuses

Question 46

Which of the following valuation methods takes the earnings (or projected earnings)of a small business and multiplies that figure by the market premium of companies in the industry?

A)Asset-based valuation
B)Capitalization of earnings valuation
C)Market estimation valuation
D)Discounted future net cash flow valuation

Question 47

________ is performed by taking the earnings (net profit)of an organization; subtracting or adding any unusual items that the lender or investor believes are not customary, normal, or usual items; and dividing that figure by a capitalization rate.

A)Price/earnings valuation
B)Capitalization of excess earnings method
C)Discounted future net cash flow
D)Capitalization of earnings valuation

Question 48

Developing an accurate valuation helps

A)provide insight for the founders as to the amount of capital and labor that should be invested in the effort.
B)convince outside equity investors of the potential long-term returns associated with the harvesting of the business.
C)benchmark the growth of the firm by establishing a true starting point.
D)all of these.

Question 49

Which of the following valuation methods requires estimating the value of a business by using the industry price-earnings ratio?

A)Asset-based valuation
B)Price/earnings valuation
C)Capitalization of earnings valuation
D)Discounted future net cash flow

Question 50

A small business founder needs to plan for the type of sale that will ________ their returns.

A)minimize
B)maximize
C)increase
D)decrease

Question 51

Which of the following valuation methods simply totals the value of all of the hard assets of an organization and adds in some value for goodwill?

A)Asset-based valuation
B)Market estimation valuation
C)Price/earnings valuation
D)Capitalization of earnings valuation

Question 52

Which of the following is a method to maximize the selling price?

A)Discounted future net cash flow
B)Asset-based valuation
C)Market estimation valuation
D)All of these

Question 53

Valuing a business is as much ________ as it is ________.

A)monetary; assets
B)art; assets
C)art; science
D)monetary; science

Question 54

________ is a relatively straightforward valuation system that uses the industry in which a start-up operates.

A)Asset-based valuation
B)Market estimation valuation
C)Price/earnings valuation
D)Discounted future net cash flow

Question 55

Market capitalization is the value of a business as it exists

A)at the start of the business.
B)as of the first annual statement.
C)at present.
D)in the future.

Question 56

Which of the following is a good ballpark floor valuation for a business?

A)Taking the earnings (net profit)of the organization and dividing that figure by a capitalization rate
B)Estimating cash flows five years into the future and adding a salvage value for the firm
C)Locating the price/earnings (P/E)ratio for public companies in the same industry
D)Examining similar companies that have been acquired by looking at the percentage premium being offered in general on all new public acquisitions

Question 57

The key starting point for any decision to exit or harvest a firm is

A)establishing the valuation of the firm.
B)devising plans for turnaround.
C)filing for Chapter 7 bankruptcy.
D)reaching a resolution with creditors to accept an amount less than the full payment.

Question 58

Which of the following statements is true of discounted future net cash flow?

A)It requires that difference in the cash inflows and outflows of a business be projected for some period of subsequent time.
B)It involves accounting for all of the hard assets of an organization such as buildings, equipment, cash, etc.
C)It is determined by the nature of business, including longevity, business risk, consistency of earning, quality of management, and general economic conditions.
D)It involves taking the earnings of a business and multiplying that figure by the market premium of companies in their industry.

Question 59

Once a decision has been made to sell a business, what choice is available to the small business owner?

A)Sell the business intact to a third party
B)Sell the business to a competitor
C)Do an initial public offering
D)All of these

Question 60

Rony is the managing director of a fabric manufacturing company.In order to limit the profit of the company and, therefore, the taxes on the business, the management pays a hefty amount to Rony as year-end bonuses.The company also pays for his family vacations and foreign trips.The benefits enjoyed by Rony are called ________.

A)fiscal incidences
B)novated leases
C)swaps
D)perquisites

Question 61

Chapter 12 and Chapter 13 bankruptcies are used by what kinds of businesses that cannot be turned around?

A)S and C corporations
B)Limited liability corporations
C)Partnerships and limited liability partnerships
D)Family-owned businesses and sole proprietors

Question 62

Why is it so difficult to turn around a small business whose performance is declining?

A)Small businesses have limited slack resources.
B)Government regulations on small businesses limit the ability to innovate.
C)Economic issues, such as the interest rate charged on loans, make it difficult to get the loans needed to overcome problems.
D)None of these

Question 63

Which of the following statements is true of the fast-track version of Chapter 11 bankruptcy?

A)It shows how back taxes will be brought current over a five-year period.
B)It shows how unsecured creditors will be paid first.
C)It gives creditors far more control than in a larger organization Chapter 11 filing.
D)It is used if a firm's debts are more than $3 million.

Question 64

A business that is declining due to operations problems struggles with

A)not selling enough products or services.
B)not being efficient in producing the product.
C)both of these.
D)none of these.

Question 65

Which of the following is the initial listing of a firm as a public entity on the public equities market?

A)Internal price offering (IPO)
B)Initial public offering (IPO)
C)Internal public offering (IPO)
D)Interactive price offering (IPO)

Question 66

What term is used to describe the efforts to reverse the decline of a business?

A)Turnaround
B)Haircut
C)Retrench
D)None of these

Question 67

When a firm files a ________ bankruptcy, it receives immediate protection against all lawsuits and other efforts to collect from the firm.

A)Subchapter S
B)Subchapter C
C)Chapter 7
D)Chapter 11

Question 68

Fit and Fab Company is a boutique in the United States that offers custom-made designer wears to its customers.It used to source expensive material from the U.S.market.However, this resulted in huge losses for the company.The owners want to turn around the declining business.They control the cash outflow by sourcing the material from Asian countries that offer quality material and fabrics at half the price.Identify the technique used by Fit and Fab Company to reverse its decline.

A)Selection
B)Repositioning
C)Stabilization
D)Retrenchment

Question 69

Richard has invested $5 million in a roof installation company.Because of some bad strategic decisions made by the company owners, the company runs into losses.It files Chapter 11 bankruptcy.The company owners and Richard reach a resolution, and Richard agrees to accept $3 million in the hope that the firm will regain its glory in the future.This reduction in the amount of money that Richard accepts is known as a(n)

A)"look up."
B)"haircut."
C)"workout."
D)"slack."

Question 70

________ valuation is a method of business valuation that totals all of the hard assets of an organization and adds in some value for goodwill.

Question 71

Which of the following is the effort to reverse the decline of a business?

A)Turnaround
B)Quick time
C)Fast around
D)Bridge

Question 72

In a successful Chapter 11 bankruptcy, a business owner may be able to do all of the following EXCEPT

A)terminate leases and other contracts.
B)terminate union agreements.
C)force creditors to accept an equitable plan for reorganization.
D)sell the assets and keep the money for personal expenses.

Question 73

Which chapter of bankruptcy is used by family farming businesses?

A)7
B)11
C)12
D)13

Question 74

Which chapter of bankruptcy provides for selling a business's assets?

A)7
B)11
C)12
D)13

Question 75

When a company starts to decline, the first step is to ________.

A)file bankruptcy
B)seek more investors
C)retrench
D)stabilize

Question 76

Dura Steel Inc.is a steel manufacturing company, and the owners want to sell the company as most of them are in their early 80s.They do not want to sell it to their competitors as the company owns a lot of cutting-edge technologies and patents.They decide to list the company as a public entity in the public equities market.This listing is known as a(n)

A)alternative public offering (APO).
B)reverse merger takeover (RMT).
C)private investment in public equity (PIPE).
D)initial public offering (IPO).

Question 77

Which chapter of bankruptcy allows a firm to be reorganized in 90 days?

A)7
B)11
C)12
D)13

Question 78

Which legal form of business best protects an owner's personal assets when he or she must declare business bankruptcy?

A)Corporation and limited liability corporation
B)Partnership and limited liability partnership
C)Sole proprietor
D)All of these

Question 79

Hot Tacos Inc.is a start-up business that offers a variety of tacos to its customers.Some bad strategic and operational decisions result in huge losses for the company.Its owners encourage the chief chef to try different flavors and launch an innovative taco flavor to attract lost customers.This new taco proves to be a huge hit, and the firm regains its lost glory and profit.Identify the effort that Hot Tacos Inc.adopted to reverse its losses.

A)"Workout"
B)"Haircut"
C)"Cramdown"
D)"Turnaround"

Question 80

Which chapter of bankruptcy is intended for small firms with limited debts and assets?

A)7
B)11
C)12
D)13