FIN 317 Week 5 Mid Term Exam – Strayer

FIN 317 Week 5 Mid Term Exam – Strayer

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Chapters 1 Through 6

               CHAPTER 1

INTRODUCTION TO FINANCE FOR ENTREPRENEURS

True-False Questions

1.  Entrepreneurs provide the financing to individuals who think, reason, and act to convert ideas into commercial opportunities and create opportunities.

2.  Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.

3.  An entrepreneur is an individual who thinks, reasons, and acts to convert ideas into commercial opportunities and to create value.

4.  Mark Twain once said, “I was always able to see an opportunity before it became one.”

5.  Small businesses, those with less than 500 employees, represent over 99 percent of all employers, and account for about one-half of the gross domestic product in the United States.

6.  Small and growing enterprises are critical to the U.S. economy; small firms provide 20 to 30 percent of net new jobs.

7.  Small high-technology firms are responsible for twice as many product innovations per employee and obtain more patents per sales dollar than large high-technology firms.

         8.  Phillips and Kirchhoff, using Dun & Bradstreet data, found that 24 percent of new firms were still in existence after two years of operation.

         9.  Nearly half of business failures are due to economic factors such as inadequate sales, insufficient profits, and industry weakness.

         10.  Although the risks associated with starting a new entrepreneurial venture are large, there is always room for one more success.

        11.  Studies by Phillips and Kirchhoff, and by Headd, found that about 38%-40% of new firms survived six years of operation.

         12.  One study of Inc. magazine’s 500 high-growth firms suggests that about 88 percent of founders feel their firms’ successes are due to extraordinary ideas, while the remaining 12 percent feel their firms’ successes are due to exceptional execution of ordinary ideas.

        13.  “Fads” are large societal, demographic, or technological trends or changes that are slow in forming but once in place continue for many years.

         14.  “Fads” are not predictable, have short lives, and do not involve macro changes.

         15.  Three major megatrends discussed in Chapter 1 include: societal trends or changes, demographic trends or changes, and technological trends or changes.

         16.  In 1982, Harry Dent identified several major or megatrends shaping U.S. society and the world.

         17.  The so-called “baby boom” generation applies to people born in the United States during the 1946-1964 time period.

         18.  Perhaps the most important invention shuttling us from an industrial society to an information society is the computer chip.

         19.  Environmental commerce, or e-commerce, involves the use of electronic means to conduct business online.          

20.  The Office of Advocacy of the U.S. Small Business Administration documents that “employer firm births” have exceeded 700,000 annually in recent years.

21.  Reasonable estimates place nonemployer (e.g., single person or small family) business started each year at less than 100,000.

22.  Bill Gates once said: “I was seldom able to see an opportunity, until it ceased to be one.”

23.  A study by Phillips and Kirchhoff using Dun & Bradstreet data found that about three-fourths of new firms were still in existence after two years of operation.

24.  Studies by Phillips and Kirchhoff, and by Headd, found that one-half of new firms or new employers were still in existence after four years of operation.

25.  Nine principles of entrepreneurial finance are identified and explored in this entrepreneurial finance textbook,

       26.  The “time value of money” is an important component of the rent one pays for using someone else’s financial capital.

       27.  A venture’s financial objective is to survive.

28.  Private financial markets are a place where standardized contracts or securities are traded on organized security exchanges with restrictions on how they can be transferred.

        29.  Free cash flow is the net income forecast to be available to the venture’s owners over time.

30.  Free cash flows are adjusted for risk and the time value of money when used to calculate the value of a venture.

      31.  Free cash exists when cash exceeds that which is needed to operate, pay creditors, and invest in assets.

32.  Free cash is all the cash available to cover operating expenses.

       33.  Owner-manager (agency) conflicts are differences between manager’s self-interest and that of the owners who hired the manager.

       34.  The owner-debtholder conflict is the divergence of the owners’ and lenders’ self-interest as the firm gets close to going “public.”

       35.  The financial objective of increasing value is inconsistent with developing positive character and reputation.

       36.  Entrepreneurial finance is the application and adaptation of financial tools and techniques to the planning, funding, operations, and valuation of an entrepreneurial venture.

       37.  Financial distress occurs when cash flow is insufficient to meet current debt obligations.

      38.  The second stage in a successful venture’s life cycle is the startup stage.

39.  The rapid growth stage directly follows the startup stage.

40.  Early-stage ventures include firms in their development, startup, or     survival live cycle stages.

41.  Business angels are wealthy individuals acting as informal or private investors, who provide venture financing for small businesses.

        42.  Mezzanine financing is temporary financing needed to keep the venture afloat until the next offering.

43.   “Crises and bubbles” and “emerging economies and global change” are considered to be sources of entrepreneurial opportunities.

44.   In Chapter I five mega-trend categories are identified as sources of entrepreneurial opportunities.

45.   Entrepreneurial opportunities can occur only when there are societal changes in the world.

46.   One principal of entrepreneurial finance is “risk and expected reward go hand in hand.

47.   While cash is the language of business, accounting is the currency.

48.   Venture character and reputation can be assets or liabilities.


     Multiple-Choice Questions

1.  Successful entrepreneurs exhibit which of the following traits?
a.   recognize and seize commercial opportunities
b.   economic pessimism
c.   tend to be doggedly optimistic
d.   both a and b
e.   both a and c

2.  While one must be careful to avoid too many generalizations about entrepreneurial traits or characteristics, which one of the following characteristics would not normally be associated with successful entrepreneurs?
a. being able to see and seize a commercial opportunity
b. planning for the venture’s future
c. only being able to see an opportunity after it ceases to be one
d. being optimistic about the venture’s success

       3.  About one-half of all newly created businesses in the U.S. are dissolved or cease operations within how many years after being started?
 a.   two years
 b.   four years
 c.   six years
 d.   eight years

4.  About 60 percent of all newly created businesses in the U.S. are dissolved or cease operations within how many years after being started?
a. two years
b. four years
c. six years
d. eight years

5.  “Fads” are:
a.   not predictable
b.   have short lives
c.   do not involve macro changes
d.   all of the above

         6.  Harry Dent documented major generation waves in the United    States during the twentieth century in:
                 a.   1972
                 b.   1982
                 c.   1993
                 d.   2003

         7. “E-commerce” refers to:
                 a.   environmental commerce
                 b.   electronic commerce
                 c.   economic commerce
                 d.   exploratory commerce

8.  While entrepreneurial opportunities come from an almost unlimited number of sources, this textbook focuses on:
a. societal changes
b. demographic changes
c. technological changes
d. crises and bubbles
e. emerging economies and global changes
f. all of the above

9.  Indicate the number of principles of entrepreneurial finance that are emphasized in this textbook:
a. one
b. three
c. five
d. seven
e. nine

10.  Maximizing the value of the venture to its owners is the common financial goal of which of the following?
a.   the entrepreneur
b.   the debtholders
c.   the venture equity investors
d.   both a and b
e.   both a and c

11.  Which of the following is considered to be an “agency” conflict?
     a.   owner-manager conflict
     b.   stockholder-manager conflict
     c.   stockholder-debtholder conflict
     d.   manager-debtholder conflict

12.  Which one of the following possible conflicts of interest is usually minimized through the use of equity incentives?
a. owner-manager conflicts
b. owner-employee conflicts
c. manager-employee conflicts
d. manager-debtholder conflicts

13.  Which one of the following possible conflicts of interest increases in divergence at venture gets close to bankruptcy?
a.   owner-manager conflict
b.   owner-employee conflict
c.   manager-employee conflict
d.   manager-debtholder conflict

14.  Which of the following is not a life cycle stage of a successful venture?
a.   development stage
b.   startup stage
c.   survival stage
d.   cash cow stage
e.   early-maturity stage

15.  Which of the following does not describe activity during the venture’s life cycle startup stage?
a.   venture’s organization
b.   venture’s development
c.   operating cash flows are generated
d.   initial revenue model is put in place

16.  At which stage of the venture’s life cycle stage is best characterized