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
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