Question 1

One reason to hire a certified public accountant (CPA)firm is to

Accepted Answer

A certified public accountant (CPA) firm can perform audits of financial statements to ensure accuracy, standardize financial statements into a recognizable format and develop procedures for accounting activities. Therefore, all of these options are valid reasons to hire a CPA firm.

Question 2

In the context of business valuation, the ________ is determined by examining similar companies that have been acquired or more often by simply looking at the percentage premium being offered in general on all new public acquisitions.

Accepted Answer

The answer of In the context of business valuation, the...

Question 3

Which of the following valuation methods requires that the net cash flow be projected for some period of time in the future?

Accepted Answer

The answer of Which of the following valuation methods requires...

Question 4

In the context of business valuation, which of the following methods works best for firms with hard resources and not an Internet business?

Accepted Answer

Asset-based valuation works best for firms with hard resources, as it calculates the value based on the assets owned by the company. This method is not suitable for Internet businesses, which may not have many physical assets but may have high brand value and customer base. Price/earnings valuation, discounted future net cash flow, and market estimation valuation are more suitable for such businesses.

Question 5

Which of the following is a benefit paid for by the company, such as vacations, vehicles, gifts, and loans?

Accepted Answer

Perquisites, commonly known as "perks," are benefits paid for by the company that go beyond an employee's regular salary and benefits package. These can include things like company cars, vacation homes, stock options, and even personal services like dry cleaning or housekeeping.

Question 6

Which of the following valuation methods takes the earnings (or projected earnings)of a small business and multiplies that figure by the market premium of companies in the industry?

Accepted Answer

The answer of Which of the following valuation methods takes...

Question 7

________ is performed by taking the earnings (net profit)of an organization; subtracting or adding any unusual items that the lender or investor believes are not customary, normal, or usual items; and dividing that figure by a capitalization rate.

Accepted Answer

The given description specifically matches with the capitalization of earnings valuation method. This method involves using the net profit of a company along with adjustments for unusual items, and dividing the resulting figure by a capitalization rate to arrive at the company's value.

Question 8

Developing an accurate valuation helps

Accepted Answer

Developing an accurate valuation provides insight for the founders as to the amount of capital and labor that should be invested in the effort, convinces outside equity investors of the potential long-term returns associated with harvesting the business, and benchmarks the growth of the firm by establishing a true starting point. Therefore, all of these are the best choices.

Question 9

Which of the following valuation methods requires estimating the value of a business by using the industry price-earnings ratio?

Accepted Answer

Price/earnings valuation requires estimating the value of a business by using the industry price-earnings ratio.

Question 10

A small business founder needs to plan for the type of sale that will ________ their returns.

Accepted Answer

As a small business founder, it would be ideal to plan for a type of sale that would maximize their returns. This means that they should aim to get the highest possible price for their business during the sale process. This would involve conducting thorough research, building value in the business, and finding potential buyers who are willing to pay a premium price for the business. By maximizing their returns, the founder can ensure that they achieve their financial goals and create a strong foundation for their future ventures.

Question 11

Which of the following valuation methods simply totals the value of all of the hard assets of an organization and adds in some value for goodwill?

Accepted Answer

Asset-based valuation simply adds up the value of all the hard assets of an organization, such as buildings, equipment, inventory, etc., and adds in some value for goodwill (if any). It is a simplistic approach that doesn't account for the potential earning capacity or future growth of the organization.

Question 12

Which of the following is a method to maximize the selling price?

Accepted Answer

Each method mentioned can be used to maximize the selling price by providing a rationale for a higher valuation. Discounted future net cash flow considers the future earnings potential, asset-based valuation focuses on the company's assets, and market estimation valuation looks at comparable market prices.

Question 13

Valuing a business is as much ________ as it is ________.

Accepted Answer

Valuing a business requires both technical knowledge and human judgment, making it both an art and a science. While it involves analyzing tangible assets and financial data, it also requires subjective assessments of intangible factors such as brand reputation and customer loyalty. Therefore, option C - art; science is the best choice.

Question 14

________ is a relatively straightforward valuation system that uses the industry in which a start-up operates.

Accepted Answer

The answer of ________ is a relatively straightforward valuation system...

Question 15

Market capitalization is the value of a business as it exists

Accepted Answer

Market capitalization refers to the current total value of a business based on its stock price and number of outstanding shares. It is a measure of the market's perception of a company's worth at a specific point in time.

Question 16

Which of the following is a good ballpark floor valuation for a business?

Accepted Answer

The answer of Which of the following is a good...

Question 17

The key starting point for any decision to exit or harvest a firm is

Accepted Answer

Establishing the valuation of the firm is important before making any decisions about exiting or harvesting, as it will determine the potential return on investment and inform negotiations with potential buyers or investors. Devise plans for turnaround, filing for bankruptcy, and reaching a resolution with creditors are all potential actions that may be taken after the decision to exit or harvest has been made.

Question 18

Which of the following statements is true of discounted future net cash flow?

Accepted Answer

Discounted future net cash flow involves projecting the difference between cash inflows and outflows for a period of time in the future and then discounting those figures back to the present value. The other statements are not correct descriptions of this concept.

Question 19

Once a decision has been made to sell a business, what choice is available to the small business owner?

Accepted Answer

All the given choices (A, B, and C) are available to a small business owner who has decided to sell their business. It ultimately depends on the owner's goals and preferences, as well as the state of the business and market conditions, to determine which option is the best. 
Selling the business intact to a third party provides a lump sum of cash and potentially ensures job security for current employees. Selling to a competitor can increase the value of the business and provide potential synergies, but could also lead to changes in company culture and job losses. Doing an initial public offering (IPO) can provide a large influx of capital, but comes with additional regulation and more complex financial management. A small business owner should carefully consider these options and consult with professionals to make the best decision for their business.

Question 20

Rony is the managing director of a fabric manufacturing company.In order to limit the profit of the company and, therefore, the taxes on the business, the management pays a hefty amount to Rony as year-end bonuses.The company also pays for his family vacations and foreign trips.The benefits enjoyed by Rony are called ________.

Accepted Answer

The benefits enjoyed by Rony are known as perquisites or perks. These are additional benefits given to employees on top of their regular salary or wages, such as company-paid vacations, bonuses, and other incentives. The management is using these perks to limit the company's profits and reduce taxes, which is not ethical or legal.

Quiz 13: Exit-Harvest-Turnaround

One reason to hire a certified public accountant (CPA) firm is to