Question 1

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

Accepted Answer

High ethical standards are often cited by successful entrepreneurs as a cornerstone of long-term success, as they help in building trust with customers, employees, and partners.

Question 2

The type of financing that occurs during the survival stage of a venture's life cycle is typically referred to as:
A)seed financing
B)startup financing
C)first-round financing
D)mezzanine financing

Accepted Answer

First-round financing typically occurs during the survival stage of a venture's life cycle, when it needs funding to continue operating and growing. Seed financing and startup financing precede the survival stage and are used to launch the venture and get it off the ground, while mezzanine financing occurs later on when the venture is close to achieving its exit strategy.

Question 3

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%

Accepted Answer

The answer of A project requires an initial investment of...

Question 4

Assume that you can sell a new product at $5.00 per unit. Variable costs are $3.00 per unit, and fixed costs are $20,000. What will be the profit before taxes if you sell 12,000 units next year?
A)$0
B)$2,000
C)$4,000
D)$8,000

Accepted Answer

First, let's calculate the total revenue:
12,000 units x $5.00/unit = $60,000

Next, let's calculate the total variable costs:
12,000 units x $3.00/unit = $36,000

Now, let's calculate the total contribution margin (total revenue - total variable costs):
$60,000 - $36,000 = $24,000

Finally, let's calculate the profit before taxes (contribution margin - fixed costs):
$24,000 - $20,000 = $4,000

Therefore, the best choice is C, as it represents the correct profit before taxes when selling 12,000 units.

Question 5

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%

Accepted Answer

The expected value of the investment one year from now is calculated as the average of the two possible outcomes: (5000 + 6000) / 2 = 5500. The expected rate of return is then calculated as (5500 - 5000) / 5000 = 0.10, or 10%.

Question 6

Assume that you can sell a new product at $5.00 per unit. Variable costs are $3.00 per unit, and fixed costs are $20,000. What is the breakeven point in sales units?
A)5,000
B)7,500
C)10,000
D)12,500

Accepted Answer

The breakeven point is calculated by dividing fixed costs by contribution margin per unit, where contribution margin per unit is sales price per unit minus variable cost per unit.

Contribution margin per unit = $5.00 - $3.00 = $2.00
Breakeven point = $20,000 ÷ $2.00 = 10,000 units

Therefore, the best choice is C as it gives the correct breakeven point in sales units.

Question 7

Lindsey and Tobias have the opportunity to invest in a project that requires an investment of $3,000. In one year, there is a 35% chance of a $2,900 return; a 40% chance of a $3,400 return; and a 25% chance of a $4,500 return. Lindsey requires a 15% return on the project after the first year, but Tobias requires a return of only 12%. Using the expected rate of return:
A)Lindsey and Tobias should both invest in the project
B)Only Tobias should invest in the project
C)Only Lindsey should invest in the project
D)Lindsey and Tobias should both reject the project

Accepted Answer

To calculate the expected return, we first need to find the weighted average of the potential returns, based on their probability.

Expected return = (0.35 * 2900) + (0.40 * 3400) + (0.25 * 4500)
Expected return = 3215

Since the expected return of 3215 is higher than the initial investment of 3000, this project is expected to be profitable.

Next, we need to compare the expected return to the required return of each investor.

For Lindsey, the required return is 15%. Since the expected return (3215) is higher than the required return of 15%, it is a good investment for Lindsey.

For Tobias, the required return is 12%. Since the expected return (3215) is higher than the required return of 12%, it is also a good investment for Tobias.

Therefore, both Lindsey and Tobias should invest in this project.

Question 8

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

Accepted Answer

To find the expected outcome, we calculate the weighted average of the two outcomes: 
Expected outcome = (0.5 x $4,500) + (0.5 x $6,000) = $5,250. Therefore, the best choice is to invest since the expected outcome is greater than the initial investment.

Question 9

Which of the following would not be considered a type of venture financing?
A)seed financing
B)startup financing
C)mezzanine financing
D)seasoned financing

Accepted Answer

Seed financing, startup financing, and mezzanine financing are all types of venture financing, whereas seasoned financing refers to funding for established, mature companies and is not considered a type of venture financing.

Question 10

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

Accepted Answer

Private financial markets involve negotiations and transactions that take place between two private parties and are not available to the general public. Customized contracts or securities are negotiated and created in these markets, and there are often restrictions on how they can be transferred. Examples of private financial markets include venture capital, private equity, and hedge funds.

Question 11

You are considering investing in two independent projects: A and B. Project A requires an initial investment of $12,000. In one year, there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a $14,500 return. Project B requires an initial investment of $1,000. In one year, there is a 25% chance of a $950 return; a 25% chance of a $1,000 return; and a 50% chance of a $1,200 return. If you require a 7% return on your investment after one year, you should:
A)accept Project A and reject Project B
B)accept Project B and reject Project A
C)accept both projects
D)reject both projects

Accepted Answer

Project A's expected return is calculated as (0.3 * $10,500) + (0.5 * $12,500) + (0.2 * $14,500) - $12,000 = $1,150, which is less than the required 7% return of $840 ($12,000 * 0.07). Project B's expected return is (0.25 * $950) + (0.25 * $1,000) + (0.5 * $1,200) - $1,000 = $137.50, which is greater than the required 7% return of $70 ($1,000 * 0.07). Therefore, only Project B meets the required return.

Quiz 1: Introduction to Finance for Entrepreneurs

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

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

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?

Assume that you can sell a new product at $5.00 per unit. Variable costs are $3.00 per unit, and fixed costs are $20,000. What will be the profit before taxes if you sell 12,000 units next year?

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?

Assume that you can sell a new product at $5.00 per unit. Variable costs are $3.00 per unit, and fixed costs are $20,000. What is the breakeven point in sales units?

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?

Which of the following would not be considered a type of venture financing?

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