Question 1

Information asymmetry refers to the idea that entrepreneurs and potential investors tend to have different amounts and types of information about a the firm that the entrepreneur wants to start.

Accepted Answer

Information asymmetry occurs because the entrepreneur has more knowledge about their own business idea and plans than potential investors or lenders. This can create challenges in attracting funding or support for the venture.

Question 2

The statement of cash flows shows how much money came into the business,and how much went out,over a certain period of time.

Accepted Answer

The statement of cash flows shows the inflow and outflow of cash for a specific period of time.

Question 3

Cash is a short-term liability.

Accepted Answer

Cash is not a liability, it is an asset. Liabilities are obligations that the company owes to others, while assets are what the company owns or controls.

Question 4

Once entrepreneurs obtain money to start a new venture,managing the money is quite easy.

Accepted Answer

Managing the money for a new venture is not easy. It requires careful financial planning, monitoring and control to ensure that the funds are allocated and utilized effectively to achieve the objectives of the business. Poor financial management can lead to cash flow problems, debt accumulation, and even business failure. Therefore, entrepreneurs need to have a solid understanding of finance and accounting principles and seek professional advice when necessary to manage their funds wisely.

Question 5

In general,the introduction of the entrepreneur to the investor does not take place until the middle of the financing process.

Accepted Answer

The introduction of the entrepreneur to the investor usually takes place at the beginning of the financing process, as the entrepreneur needs to pitch their idea and seek investment.

Question 6

Most new ventures require large amounts of start-up capital.

Accepted Answer

While some new ventures may require significant start-up capital, there are many types of businesses that can be started with minimal funds or through bootstrapping strategies.

Question 7

If a company is profitable,that means it has adequate cash..

Accepted Answer

Profitability does not necessarily indicate that a company has adequate cash. Profitability refers to the amount of revenue that exceeds expenses, while cash adequacy refers to the availability of cash to pay for expenses and investments. A company may be profitable but have limited cash flow due to issues such as slow cash collections on accounts receivable or large investments in capital projects.

Question 8

Like all cost ratios,the return on sales ratio should be kept as low as possible.

Accepted Answer

Unlike other cost ratios, a high return on sales ratio is desirable as it indicates that the company is generating a higher profit margin from its sales, which is a positive indicator of its financial performance. Therefore, the statement is false.

Question 9

Any working capital that a new business needs to get started also needs to be included in start-up costs.

Accepted Answer

Working capital refers to the money needed to cover the day-to-day operating expenses of a business, such as rent, utilities, payroll, and inventory. This is important for new businesses to have in order to sustain operations until revenue begins to flow in. Therefore, it should be included in the start-up costs of a new business.

Question 10

When projecting increases in sales in financial statements,a new business should also project related increased costs.

Accepted Answer

When projecting increases in sales, it is important to also project the related increase in costs to accurately predict the financial health of the business. Ignoring the increased costs can lead to misleading financial statements and inaccurate projections.

Question 11

The single most important source of capital for new ventures is the entrepreneur's own savings.

Accepted Answer

The entrepreneur's own savings are often the first source of funding for a new venture. It shows the entrepreneur's commitment to the business and provides a foundation for future fundraising efforts. Other sources of capital may include friends and family, angel investors, bank loans, or venture capital funds, but the entrepreneur's personal savings are usually the starting point.

Question 12

Which of the following is NOT an advantage provided to entrepreneurs by venture capital?
A) Serves as a major source of money for high-risk business.
B) Demonstrates the credibility of a new business.
C) Provides connections to important stakeholders.
D) Gives assistance running a new business.
E) All of the above are possible advantages.

Accepted Answer

All of the above options are advantages provided to entrepreneurs by venture capital.

Question 13

The financial statement that shows such things as revenues,cost of sales,and operating expenses is called the income statement.

Accepted Answer

The income statement is also known as the profit and loss statement, and it shows a company's revenue, cost of sales (cost of goods sold), and operating expenses over a specific period of time.

Question 14

By syndicating,investors can gather information from a greater variety of different people with different experience and knowledge.

Accepted Answer

Syndicating allows investors to pool resources and information from multiple individuals with diverse backgrounds, experiences, and expertise. This can provide investors with a more comprehensive and well-rounded view of potential investments and opportunities.

Question 15

Investors probably will expect an entrepreneur to show a reasonable way to manage financial resources before they will invest in the new firm.

Accepted Answer

This statement is true. Investors want to see that an entrepreneur has a plan for financial management and that they can demonstrate a responsible approach to budgeting, spending, and revenue generation before they are willing to invest in a new venture.

Question 16

Most investors in new ventures need to focus on a particular industry and geographic location to develop enough expertise to manage their investments.

Accepted Answer

Focusing on a specific industry and geographic location allows investors to gain knowledge and experience in that particular area, which can increase the likelihood of successful investments. It also allows investors to build networks and connections within that industry, which can lead to valuable insights and opportunities.

Question 17

When new ventures are very young,they rarely obtain debt financing and tend to obtain equity financing instead.

Accepted Answer

This is true because new ventures usually do not have a proven track record or a lot of assets to use as collateral, making it difficult to obtain debt financing. Equity financing, on the other hand, allows the business to raise funds from investors in exchange for a share of ownership in the company. This can be an attractive option for young ventures as they work towards establishing themselves and building their business.

Question 18

If an investor knows the entrepreneur,then the entrepreneur will be less likely to try to take advantage of the investor.

Accepted Answer

When there is a personal relationship between the investor and the entrepreneur, it creates a sense of trust and accountability. The entrepreneur is less likely to jeopardize the relationship by being dishonest or unethical in their business dealings with the investor.

Question 19

Cash inflows and outflows always occur at the same time as revenues and expenses are incurred.

Accepted Answer

Cash inflows and outflows may not always occur at the same time as revenues and expenses are incurred. Transactions may take time to process, such as when a customer takes several days or weeks to pay an invoice, or when a company pays for an expense on credit and the payment is due at a later date. Additionally, there may be timing differences between when revenue or expense recognition occurs for accounting purposes versus when the associated cash transaction takes place.

Question 20

Investors in new ventures almost never make investments in companies located near them.

Accepted Answer

Investors often prefer to invest in companies located near them to facilitate easier communication, oversight, and involvement in the company's growth and development.

Quiz 6: Financial Resources For New Ventures: How To Get Them, How To Manage Them