Deck 6: The Business Plans: How Are They Important

Question 1

Typically, the business valuation method showing the lowest value is:

A) discounted future earnings.
B) net book value.
C) modified book value.
D) liquidation value.

Answer 1

D

Question 2

Which of the following is an "asset" method of business valuation?

A) liquidation value.
B) book value.
C) adjusted book value.
D) all of the above.

Answer 2

D

Question 3

Setting a value for a business by using a "price multiplier" is:

A) a discounted cash flow approach.
B) a balance sheet approach.
C) a rule of thumb approach.
D) a liquidation value approach.

Answer 3

C

Question 4

Buying an independent business is on average lower risk than buying a franchise.

Question 5

Which of the following is an "income" method of business valuation?

A) capitalization of earnings.
B) capitalized cash flow.
C) discounted cash flow.
D) all of the above.

Question 6

Real estate agents often act as intermediaries for the sale of a business.

Question 7

The critical question to ask a business seller is "what is the price?"

Question 8

The ratio that indicates the "liquidity" of a company is:

A) the current ratio.
B) debt to equity.
C) gross margin.
D) the average collection period.

Question 9

Present value calculations are based on the idea that money is more valuable if received now than if received in the future.

Question 10

On average, the risk of buying an existing business is

A) the same as for starting a brand new business.
B) higher than for starting a brand new business.
C) lower than for buying a franchise.
D) lower than for starting a brand new business.

Question 11

A company's financial statements are interpreted by using:

A) ratio analysis.
B) business valuation.
C) the present value method.
D) the discount rate.

Question 12

You must know your desired "rate of return" to use the Capitalization of Earnings method.

Question 13

A negotiating plan for purchasing a business will include values for:

A) a fair market price.
B) the lowest reasonable price.
C) the maximum the buyer is willing to pay.
D) all of the above.

Question 14

"Goodwill" is classified as:

A) intellectual property.
B) licensing rights.
C) a key ratio.
D) an intangible asset.

Question 15

It is relatively easy to change an existing negative image of a firm.

Question 16

Cash skimming is a legal but misleading practice.

Question 17

The "core" business refers to a firm's primary services/products and primary market segments.

Question 18

The single biggest danger for the naive business buyer is:

A) overvalued assets.
B) interference from the previous owner.
C) lack of market.
D) hidden company debts.

Question 19

"Asset" methods of valuation are also known as "balance sheet" methods.

Question 20

"Taking over" a company means buying more than 50% ownership.

Question 21

A firm's ability to pay all of its financial obligations is called .

Question 22

A clause that requires a business seller to tell the buyer about anything that might discourage the sale is called a clause.

Question 23

The alternative to buying shares of a business is to just buy the .

Question 24

Explain and contrast both Asset and Income methods of business valuation giving clear examples of each. Explain how these values can be used to produce a weighted average business value.

Question 25

Identify three negotiating tips that could be used when buying a business. Explain the importance of each.

Question 26

The right of a creditor to take over a particular asset is called a .

Question 27

Unnecessary items that a company owns are know as assets.

Question 28

Explain "rule of thumb" valuation techniques and provide one or two examples of how they work.

Question 29

Explain the concept of ratio analysis. Identify several key ratios and explain what they might indicate about the health of a company. .