Deck 14: Valuing and Harvesting Entrepreneurial Ventures

Question 1

What is a buy-sell agreement?

A)An agreement designed to handle situations in which one or more of the entrepreneurs wants to sell their interest in the venture
B)An agreement to sell a share of a business to an unwanted buyer
C)An agreement by which family members are brought into the business by buying out other investors
D)An agreement designed to handle situations where the employees have stock ownership plans

Answer 1

A

Question 2

Why do some buyers pay more for a business that what the valuation method illustrates its worth to be?

A)To avoid start-up costs
B)Because they like the name of the business
C)To add start-up costs to their calculation
D)None of these choices

Answer 2

A

Question 3

Which of the following statements about exit strategies are true?

A)An exit strategy is a method by which the initial investors and a company can liquidate their investment
B)A common exit strategy is to take the company public by an initial public offering
C)A common exit strategy is to sell the company to another firm
D)All of these choices

Answer 3

D

Question 4

What are securities?

A)Tradable financial assets of company equity that include company shares,bonds and options
B)Tradable intangible assets of a company
C)The safety and insurance aspects of a business
D)Company structures

Question 5

Undercapitalisation is the term used for:

A)a company that has hidden its capital under other businesses
B)a company that does not put any money in the bank and hides the capital
C)a company that is in liquidation
D)a company that has insufficient capital to conduct normal business operations and pay creditors

Question 6

What does the term 'business valuation' mean?

A)The calculated value of the business,used to track its increases or decreases
B)How the value is calculated to sell products
C)What equity investors do to value the business
D)All of these choices

Question 7

Management succession means:

A)the transition of managerial decision-making in a business
B)the success of management in meeting goals
C)a series of management choices and decisions
D)All of these choices

Question 8

The purposes of a letter of intent is to:

A)Clarify the key points of a complex transaction for the convenience of all the parties
B)Declare officially that the parties are currently negotiating
C)Provide safeguards in case of the deal collapsing during negotiation
D)All of these choices

Question 9

A harvest strategy is:

A)The first step in an exit strategy
B)How and when the owners and investors will release an actual cash return on their investment in a venture
C)The end of the first financial year of the adjusted business plan and strategy
D)All of these choices

Question 10

What is a liquidity event?

A)The second part of the harvest strategy
B)The way in which a manager plans to add in more liquid assets
C)The way in which a manager plans to close out other investors
D)The way in which an investor plans to close out an investment; also known as an exit strategy

Question 11

What are some of the barriers to a succession strategy?

A)Sibling rivalry
B)Family members' fear of losing status
C)A complete aversion to death for fear of loss or abandonment
D)All of these choices

Question 12

Adjusted tangible book value is a:

A)Common method of double-entry bookkeeping
B)Common method of valuing a business by computing its net worth as the difference between total assets and total liabilities
C)Common method of valuing a business by computing its goodwill as an asset
D)Common methods of valuing a business by computing its gross profit,net profit and cost of goods

Question 13

When the owner of a business discusses 'goodwill' what does he or she mean?

A)Goodwill is the name of the business
B)Goodwill is the residual value created by an owner of a business in terms of their time,effort and public image after the value of the physical and tangible assets are deducted from the total value of the business
C)Goodwill is when the company throws in extra goods at the time of purchase
D)All of these choices

Question 14

What is the best description of a retail investor?

A)An individual or small business that is not a wholesale investor; generally a high-wealth individual who is not acting as an institutionalised professional investor
B)A retail chain that wants to buy the business
C)A conglomerate or corporation that is a wholesale investor
D)None of these choices

Question 15

What are the main points in developing a succession strategy?

A)Understanding the contextual aspects,identifying successor qualities,and understanding influencing forces and carrying out the succession plan
B)Understanding who has power in the family and making your decision this way
C)Identifying each family members' qualities and deciding this way
D)The main point of a succession strategy should be left to the family to sort out

Question 16

Discounted earnings method is:

A)a method of determining the true value of the firm using a pricing formula that includes earning power and adjusted tangible book value
B)a method of determining the true value of the firm using a cost of goods formula including earning power and adjustable tangible book value
C)a method of determining the true value of the firm using financial ratios and adjustable tangible book value
D)None of these choices

Question 17

What are some common reasons for acquiring an entrepreneur's business?

A)To develop more growth-stage products by acquiring a business that has developed new products in the buyer's industry
B)To increase the number of customers by acquiring a business whose current customers will substantially broaden the buyer's customer base 

C)To increase market share by acquiring a business in the buyer's industry 

D)All of these choices

Question 18

Which of the following are valuation methods?

A)Fixed price
B)Book value
C)Multiple of earnings
D)All of these choices

Question 19

Forcing events are:

A)unavoidable events that cause replacement of the owner or manager,such as death,illness,legal problems or poor mental health
B)unavoidable start-up events that cause replacement of the staff,such as death,illness,legal problems off poor mental health
C)unavoidable before-start events that cause replacement of the investors,such as death,illness,legal problems or poor mental health
D)completely avoidable events that cause problems for the consumer

Question 20

What are the main differences between an entrepreneurial and a managerial successor in any business?

A)An entrepreneurial successor is highly gifted with ingenuity,creativity and drive; a managerial successor is interested in efficiency,internal control and the effective use of resources
B)An entrepreneur cannot be a manager as a successor
C)A managerial successor will value innovation over administration
D)There are no differences between the two