Deck 1: Introduction and Overview

Question 1

One study of Inc.magazine's 500 high-growth firms suggests that about 88 percent of founders feel their firms' successes are due to extraordinary ideas,while the remaining 12 percent feel their firms' successes are due to exceptional execution of ordinary ideas.

Answer 1

False

Question 2

Nearly half of business failures are due to economic factors such as inadequate sales,insufficient profits,and industry weakness.

Answer 2

True

Question 3

The so-called "baby boom" generation applies to people born in the United States during the 1946-1964 time period.

Answer 3

True

Question 4

Environmental commerce,or e-commerce,involves the use of electronic means to conduct business online.

Question 5

Studies by Phillips and Kirchhoff,and by Headd,found that about 38%-40% of new firms survived six years of operation.

Question 6

Entrepreneurs provide the financing to individuals who think,reason,and act to convert ideas into commercial opportunities and create opportunities.

Question 7

"Fads" are large societal,demographic,or technological trends or changes that are slow in forming but once in place continue for many years.

Question 8

Perhaps the most important invention shuttling us from an industrial society to an information society is the computer chip.

Question 9

Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.

Question 10

Three major megatrends discussed in Chapter 1 include: societal trends or changes,demographic trends or changes,and technological trends or changes.

Question 11

Mark Twain once said,"I was always able to see an opportunity before it became one."

Question 12

Small high-technology firms are responsible for twice as many product innovations per employee and obtain more patents per sales dollar than large high-technology firms.

Question 13

The Office of Advocacy of the U.S.Small Business Administration documents that "employer firm births" have approached 600,000 annually in recent years.

Question 14

Phillips and Kirchhoff,using Dun & Bradstreet data,found that 24 percent of new firms were still in existence after two years of operation.

Question 15

An entrepreneur is an individual who thinks,reasons,and acts to convert ideas into commercial opportunities and to create value.

Question 16

In 1982,Harry Dent identified several major or megatrends shaping U.S.society and the world.

Question 17

"Fads" are not predictable,have short lives,and do not involve macro changes.

Question 18

Although the risks associated with starting a new entrepreneurial venture are large,there is always room for one more success.

Question 19

Small businesses,those with less than 500 employees,represent over 99 percent of all employers,and account for about one-half of the gross domestic product in the United States.

Question 20

Small and growing enterprises are critical to the U.S.economy;small firms provide 20 to 30 percent of net new jobs.

Question 21

Early-stage ventures include firms in their development,startup,orsurvival live cycle stages.

Question 22

Entrepreneurial finance is the application and adaptation of financial tools and techniques to the planning,funding,operations,and valuation of an entrepreneurial venture.

Question 23

Free cash is all the cash available to cover operating expenses.

Question 24

The rapid growth stage directly follows the startup stage.

Question 25

Reasonable estimates place nonemployer (e.g. ,single person or small family)business started each year at less than 100,000.

Question 26

A venture's financial objective is to survive.

Question 27

Free cash exists when cash exceeds that which is needed to operate,pay creditors,and invest in assets.

Question 28

Free cash flow is the net income forecast to be available to the venture's owners over time.

Question 29

The second stage in a successful venture's life cycle is the startup stage.

Question 30

A study by Phillips and Kirchhoff using Dun & Bradstreet data found that about three-fourths of new firms were still in existence after two years of operation.

Question 31

Free cash flows are adjusted for risk and the time value of money when used to calculate the value of a venture.

Question 32

Studies by Phillips and Kirchhoff,and by Headd,found that one-half of new firms or new employers were still in existence after four years of operation.

Question 33

Private financial markets are a place where standardized contracts or securities are traded on organized security exchanges with restrictions on how they can be transferred.

Question 34

Bill Gates once said: "I was seldom able to see an opportunity,until it ceased to be one."

Question 35

Financial distress occurs when cash flow is insufficient to meet current debt obligations.

Question 36

Owner-manager (agency)conflicts are differences between manager's self-interest and that of the owners who hired the manager.

Question 37

The owner-debtholder conflict is the divergence of the owners' and lenders' self-interest as the firm gets close to going "public."

Question 38

The "time value of money" is an important component of the rent one pays for using someone else's financial capital.

Question 39

The financial objective of increasing value is inconsistent with developing positive character and reputation.

Question 40

Nine principles of entrepreneurial finance are identified and explored in this entrepreneurial finance textbook,

Question 41

At which stage of the venture's life cycle stage is best characterized by the period when revenues start to grow and when cash flows from operations begin covering cash outflows?

A)survival stage
B)startup stage
C)rapid growth stage
D)maturity stage

Question 42

While one must be careful to avoid too many generalizations about entrepreneurial traits or characteristics,which one of the following characteristics would not normally be associated with successful entrepreneurs?

A)being able to see and seize a commercial opportunity
B)planning for the venture's future
C)only being able to see an opportunity after it ceases to be one
D)being optimistic about the venture's success

Question 43

"E-commerce" refers to:

A)environmental commerce
B)electronic commerce
C)economic commerce
D)exploratory commerce

Question 44

Which of the following does not describe activity during the venture's life cycle startup stage?

A)venture's organization
B)venture's development
C)operating cash flows are generated
D)initial revenue model is put in place

Question 45

Maximizing the value of the venture to its owners is the common financial goal of which of the following?

A)the entrepreneur
B)the debtholders
C)the venture equity investors
D)both a and b
E)both a and c

Question 46

Which one of the following possible conflicts of interest is usually minimized through the use of equity incentives?

A)owner-manager conflicts
B)owner-employee conflicts
C)manager-employee conflicts
D)manager-debtholder conflicts

Question 47

Business angels are wealthy individuals acting as informal or private investors,who provide venture financing for small businesses.

Question 48

"Fads" are:

A)not predictable
B)have short lives
C)do not involve macro changes
D)all of the above

Question 49

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

Question 50

Mezzanine financing is temporary financing needed to keep the venture afloat until the next offering.

Question 51

Indicate the number of principles of entrepreneurial finance that are emphasized in this textbook:

A)one
B)three
C)five
D)seven
E)nine

Question 52

Harry Dent documented major generation waves in the UnitedStates during the twentieth century in:

A)1972
B)1982
C)1993
D)2003

Question 53

Successful entrepreneurs exhibit which of the following traits?

A)recognize and seize commercial opportunities
B)economic pessimism
C)tend to be doggedly optimistic
D)both a and b
E)both a and c

Question 54

Obtaining bank loan,issuing bonds,and issuing stock is characteristic of which type of financing during the venture's life cycle?

A)seed financing
B)second round financing
C)mezzanine financing
D)seasoned financing
E)liquidity stage financing

Question 55

While entrepreneurial opportunities come from an almost unlimited number of sources,this textbook focuses on:

A)societal changes
B)demographic changes
C)technological changes
D)all of the above
E)none of the above

Question 56

Which is not a major source of start-up financing for a venture's startup stage?

A)entrepreneur's assets
B)business operations
C)family and friends
D)business angels
E)venture capitalists

Question 57

Which of the following is not a life cycle stage of a successful venture?

A)development stage
B)startup stage
C)survival stage
D)cash cow stage
E)maturity stage

Question 58

Which of the following is considered to be an "agency" conflict?

A)owner-manager conflict
B)stockholder-manager conflict
C)stockholder-debtholder conflict
D)manager-debtholder conflict

Question 59

About one-half of all newly created businesses in the U.S.are dissolved or cease operations within how many years after being started?

A)two years
B)four years
C)six years
D)eight years

Question 60

About 60 percent of all newly created businesses in the U.S.are dissolved or cease operations within how many years after being started?

A)two years
B)four years
C)six years
D)eight years

Question 61

One study of successful entrepreneurs indicated that a majority felt that the most important factor in the long-term success of their ventures was:

A)being greedy
B)having high ethical standards
C)working hard
D)taking frequent vacations

Question 62

Mezzanine financing is associated with which one of the following life cycle stages:
A)development stage
B)startup stage
C)survival stage
D)rapid growth stage
E)maturity stage
29.Entrepreneurial finance is the application and adaptation of financial tools and techniques to an entrepreneurial venture.Entrepreneurial finance involves:

A)planning
B)funding
C)operations
D)valuation
E)aand d above
F)all of the above

Question 63

The type of financing that occurs during the development stage of a venture's life cycle is typically referred to as:

A)seed financing
B)startup financing
C)first round financing
D)second round financing
E)mezzanine financing

Question 64

During a venture's rapid growth stage,funds for plant expansion,marketing expenditures,working capital,and product or service improvements is obtained through?

A)seed financing
B)second round financing
C)mezzanine financing
D)seasoned financing
E)liquidity stage financing

Question 65

During the maturity stage of a venture's life cycle,the primary source of funds is in the form of:

A)mezzanine financing
B)seed financing
C)startup financing
D)first round financing
E)seasoned financing

Question 66

You have the opportunity of making a $5,000 investment.The outcomes one year from now will be either $4,500 or $6,000 with an equal chance of either outcome occurring.What is the expected outcome?

A)$4,500
B)$6,000
C)$5,250
D)$5,750
E)$5,000

Question 67

The last stage in a successful venture's life cycle is called the:

A)rapid growth stage
B)maturity stage
C)development stage
D)survival stage
E)startup stage

Question 68

The last three stages of a successful venture's life cycle occur in the following order:

A)startup,development,rapid growth
B)startup,survival,rapid growth
C)survival,rapid growth,maturity
D)development,startup,survival

Question 69

The time value of money concept is associated with which one of the following principles of entrepreneurial finance:

A)real,human,and financial capital must be rented from owners
B)risk and expected reward go hand in hand
C)while accounting is the language of business,cash is the currency
D)it is dangerous to assume that people act against their own self-interests

Question 70

Which of the following advise and assist corporations on the type,timing,and costs of issuing new debt and equity securities and facilitate the sale of firms?

A)brokerage firms
B)venture law firms
C)specialist firms
D)investment banking firms

Question 71

The first three stages of a successful venture's life cycle occur in the following order:

A)development,rapid growth,survival
B)startup,development,rapid growth
C)startup,survival,rapid growth
D)survival,rapid growth,maturity
E)development,startup,survival

Question 72

You have the opportunity of making a $5,000 investment.The outcomes one year from now will be either $5,000 or $6,000 with an equal chance of either outcome occurring.What is the expected rate of return?

A)10%
B)15%
C)20%
D)25%
E)30%

Question 73

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

Question 74

The stage that precedes the middle stage in a successful venture's life cycle is called the:

A)rapid growth stage
B)maturity stage
C)development stage
D)survival stage
E)startup stage

Question 75

Financial markets where customized contracts or securities are negotiated,created,and held with restrictions on how they can be transferred are called:

A)private financial markets
B)public financial markets
C)domestic financial markets
D)international financial markets
E)all of the above

Question 76

Which of these statements is correct?

A)The development stage occurs between the startup and survival stages of a venture's life cycle
B)The early-maturity stage is the final stage of a new venture's lifecycle
C)Firms typically begin to cover all expenses with internally-generated funds during the survival stage
D)During the startup stage,revenues grow much more rapidly than cash expenditures
E)None of the above

Question 77

Founder and venture investor shares are sold to the public after the initial offering to the public is called?

A)secondary market transaction
B)secondary stock offering
C)venture offering
D)bridge loan

Question 78

A project requires an initial investment of $1,000,000.In one year,there is a 40% chance of a $950,000 return;a 50% chance of a $1,200,000 return;and a 10% chance of a $2,000,000 return.What is the project's expected return one year from now?

A)12.8%
B)15.5%
C)18.0%
D)38.3%

Question 79

Which stage in the venture life cycle is characterized by creating and building value,obtaining additional financing,and examining opportunities?

A)survival stage
B)startup stage
C)rapid growth stage
D)maturity stage

Question 80

The type of financing that occurs during the survival stage of a venture's life cycle is typically referred to as the:

A)seed financing
B)startup financing
C)first round financing
D)second round financing
E)mezzanine financing