Deck 14: Valuation of Entrepreneurial Ventures

Question 1

Emotional bias is not an underlying issue in valuing a business.

Answer 1

False

Question 2

Traditional valuation methods includes all of the following except:

A)adjusted tangible book value
B)price/earnings ratio
C)high equity/low debt
D)discounted earnings

Answer 2

C

Question 3

If cash flow is deemed the most important consideration in buying a business,which valuation method is likely to be used?

A)adjusted tangible book value
B)price/earnings ratio
C)high equity/low debt
D)discounted earnings

Answer 3

D

Question 4

What is a rollup?

A)the acquisition and merging of small companies in the same market
B)of a dissolution of a partnership
C)a product-line acquisition
D)the amount of risk involved in an acquisition

Question 5

"Why is the business being sold?" is not an important question to ask when analyzing the viability of buying a business.

Question 6

Emotional bias is likely to have what effect on a seller's valuation of a business?

A)increase the valuation
B)decrease the valuation
C)have no net effect on the valuation
D)none of the above

Question 7

Buyers and sellers assign different values to a business.

Question 8

When considering physical facilities,the entrepreneur should be concerned about

A)which facilities are owned versus leased.
B)which facilities are used for production.
C)whether adequate capital is maintained.
D)facility upkeep.

Question 9

Adjusted tangible book value is a popular method of valuation.

Question 10

The price/earnings ratio (multiple of earnings) method is determined by dividing the market price of common stock by retained earnings.

Question 11

Business valuation is essential when attempting to buy out a partner.

Question 12

Tangible assets as well as intangible assets of a business need to be assessed for proper venture evaluation.

Question 13

Closely held ventures usually suffer from which of the following shortcomings?

A)a lack of management depth
B)overcapitalization
C)insufficient controls
D)internal conflict

Question 14

When considering management,the entrepreneur should be concerned about

A)ownership positions.
B)pension and profit sharing.
C)total number of employees.
D)employee benefits.

Question 15

Replacement value of a business is based upon the value of each asset if it had to be replaced at a certain cost.

Question 16

Return on investment

A)is net profit divided by investment.
B)provides a replacement value.
C)establishes a value for the business.
D)is equal to the current prime rate.

Question 17

One of the most common reasons for acquiring a business is developing more growth-phase products.

Question 18

Knowing a venture's pre-money valuation is not possible.

Question 19

Specific factors of a venture being offered for sale that should be examined include

A)age, trends, and future.
B)profits, sales, and operating ratios.
C)employees, suppliers, and competitors.
D)profits, price, product.

Question 20

__________ refers to conducting a thorough analysis of every facet of an existing business.

A)Due diligence
B)Industry capitalization
C)Knowledge acquisition
D)Risk assessment

Question 21

List and briefly explain the three methods utilized for business evaluation.

Question 22

The price/earnings ratio is determined by

A)patents.
B)dividing market price of common stock by earnings per share.
C)goodwill.
D)deferred financing costs.

Question 23

The discounted earnings method of valuation establishes

A)potential earning power.
B)an appropriate rate for replacement.
C)expectancy of the business expenses.
D)future profits.

Question 24

What hidden costs are involved when establishing the value of a firm?

A)insufficient controls and costs
B)divergent expenses
C)personal expenses
D)travel expenses

Question 25

List and describe the sources an entrepreneur should examine to find available business buying opportunities.

Question 26

Sales and earnings of a venture are projected from

A)historical projections
B)historical financials
C)data on start-ups
D)property values

Question 27

Explain the purpose of a letter of intent.

Question 28

In the context of buying a business,a known commodity may command a higher price for what reason?

A)historical projections have intrinsic value
B)avoiding start-up costs has value
C)property values are variable
D)the value of a founder's stock decreases over time

Question 29

What should be considered in analyzing a business and what are some weaknesses of small business?

Question 30

List some of the questions to ask before making a potential purchase and explain why each is important.