Q&A Hero

Q: Which of the following refers to the failure to meet loan interest or principal payments when due? a. insolvency b. loan default c. a cross-default provision d. foreclosure

Q: Which of the following refers to the legal process used by creditors to try to collect amounts owed on loans in default? a. foreclosure b. loan default c. an acceleration provision d. a cross-default provision

Q: During the survival stage of a venture's life cycle, which of the following is not a basis for operating or financial decisions? a. monitoring financial performance b. obtaining seasoned financing c. projecting cash needs d. obtaining first-round financing

Q: Your firm has inventory of $188,000, cost of goods sold of $522,000, and accounts receivable of $214,000. What is your inventory conversion period? a. 98 days b. 152 days c. 168 days d. 131 days

Q: Operations restructuring involves: a. growing revenues relative to costs b. reducing the amount of outstanding debt c. reducing net working capital d. reducing the cash conversion cycle

Q: During the maturity stage of a venture's life cycle, which of the following is not a basis for operating or financial decisions? a. managing ongoing operations b. maintaining and adding value c. obtaining seasoned financing d. obtaining seed financing

Q: When individual creditors have an incentive to foreclose on a venture, even though it is worth more as a going concern, it is said that there is a: a. common pool problem b. holdout problem c. solvency problem d. cram-down problem

Q: During the rapid growth stage of a venture's life cycle, which of the following is not a basis for operating or financial decisions? a. creating and building value b. obtaining additional financing c. choosing the organizational form d. examining exit opportunities

Q: The Federal Bankruptcy Reform Act was implemented between: a. 19001902 b. 19301932 c. 19781979 d. 20082009

Q: The legal process that facilitates a creditor's ability to collect on loans in default is known as: a. an acceleration provision b. a holdout provision c. foreclosure d. a private workout

Q: Which of the following provides that defaulting on one loan places all loans in default? a. insolvency b. loan default c. an acceleration provision d. a cross-default provision

Q: Which of the following is not a typical outcome of a Chapter 11 bankruptcy? a. successful reorganization and the continuation of operations b. liquidation under Chapter 7 bankruptcy legislation c. a government bailout resulting in continued operations at the expense of operational independence from the government d. merging the venture with another firm

Q: A venture may file for legal bankruptcy in order to liquidate the venture under which of the following chapters? a. Chapter 1 b. Chapter 5 c. Chapter 7 d. Chapter 11

Q: When a venture's cash on hand is insufficient to pay currently due liabilities, this is referred to as: a. financial distress b. balance sheet insolvency c. bankruptcy d. liquidation

Q: Your firm has an average collection period of 36.5 days. Sales revenues are $30,000. What is your firm's average investment in accounts receivables? a. $3,650 b. $3,000 c. $1,000 d. $822

Q: During the development stage of a venture's life cycle, which of the following is not a basis for operating or financial decisions? a. screening business ideas b. preparing the business plan c. obtaining seed financing d. managing the ongoing operations

Q: Which of the following refers to when a bankruptcy court accepts a reorganization plan for all creditors, including dissenting creditor classes? a. an automatic stay provision b. a holdout problem c. a cram-down procedure d. net worth requirements

Q: The rule governing hierarchical order in which claim payments must be made during a bankruptcy is known as the: a. cram-down procedure b. absolute priority rule c. prepackaged bankruptcy rule d. involuntary bankruptcy rule

Q: When a venture files for legal bankruptcy through Chapter 11 and attempts to reorganize, which of the following is not likely to be a possible outcome? a. Chapter 7 liquidation b. a merger c. asset restructuring d. reorganization and continuation of operations

Q: Balance sheet insolvency occurs when a venture has: a. positive net worth b. total liabilities less than total assets c. negative retained earnings but positive net worth d. total liabilities greater than total assets

Q: During the startup stage of a venture's life cycle, which of the following is not a basis for operating or financial decisions? a. creating and building value b. choosing the organizational form c. preparing initial financial statements d. obtaining startup financing

Q: Which of the following provides that all future interest and principal obligations on a loan become immediately due when default occurs? a. insolvency b. loan default c. an acceleration provision d. a cross-default provision

Q: When a venture is in financial distress but believes it has a turnaround opportunity, which of the following will not apply? a. operations restructuring b. asset restructuring c. private restructuring d. financial restructuring

Q: Financial restructuring involves: a. growing revenues relative to costs b. reducing the cash conversion cycle c. issuing mortgage debt d. a debt composition change and a debt payments extension

Q: Operations restructuring involves: a. improving the working-capital-to-sales relationship b. postponing due dates for interest and principal payments c. selling off fixed assets d. cutting costs relative to the venture's revenues

Q: Asset restructuring involves: a. improving the working-capital-to-sales relationship b. growing revenues relative to costs c. changing the contractual terms of existing debt obligations d. cutting costs relative to the venture's revenues

Q: A venture may file for legal bankruptcy in order to attempt to reorganize under which of the following chapters? a. Chapter 13 b. Chapter 5 c. Chapter 7 d. Chapter 11

Q: Which of the following refers to changing the contractual terms of the existing debt obligations? a. a debt payments extension b. asset restructuring c. financial restructuring d. a debt composition change

Q: A venture is bankrupt when a petition for bankruptcy is filed with a federal bankruptcy court.a. Trueb. False

Q: During the rapid-growth stage of a venture's life cycle, the relevant financing and operating decisions encountered are to go public, or to sell or merge the firm. a. True b. False

Q: An acceleration provision provides that all future interest and principal obligations on a loan become immediately due when default occurs. a. True b. False

Q: A debt payments extension involves postponing due dates for interest and principal payments. a. True b. False

Q: When a venture's cash flow is insufficient to meet its current contractual debt obligations, asset flow insolvency exists. a. True b. False

Q: During the development, startup, and survival stages of a venture's life cycle, the relevant financing and operating decisions faced are either restructuring or liquidating. a. True b. False

Q: Increasing revenues relative to current costs is the same thing as cutting costs relative to current revenues. a. True b. False

Q: The two basic options available to resolve a venture in financial distress are restructure or liquidate. a. True b. False

Q: Cash flow insolvency exists when a venture's cash flow is insufficient to meet its current contractual debt obligations. a. True b. False

Q: A prepackaged bankruptcy involves using a combination of a private workout and a Chapter 7 liquidation. a. True b. False

Q: Foreclosure is the legal process used by creditors to try to collect amounts owed on loans in default. a. True b. False

Q: A debt composition change occurs when creditors reduce their contractual claims against the venture. a. True b. False

Q: Operations restructuring always involves growing a venture's revenues relative to its costs. a. True b. False

Q: A Chapter 7 bankruptcy filing permits a venture in financial distress the opportunity to reorganize. a. True b. False

Q: Balance sheet insolvency exists when a venture has negative net debt. a. True b. False

Q: Financial distress occurs when cash flow is insufficient to meet current debt obligations. a. True b. False

Q: Foreclosure occurs when cash flows are insufficient to meet current debt obligations. a. True b. False

Q: Balance sheet insolvency exists when a venture has negative book equity or net worth. a. True b. False

Q: A cross-default provision and an acceleration provision both cause principal obligations on a loan to become immediately due. a. True b. False

Q: The common pool problem exists because individual creditors have the incentive to foreclose on the venture even though it is worth more as a going concern. a. True b. False

Q: A venture in financial distress tries to reorganize under Chapter 7 of the U.S. Bankruptcy Code. a. True b. False

Q: A cross-default provision provides that defaulting on one loan makes the venture liquidate all other loans. a. True b. False

Q: Cash flow insolvency occurs when a venture's cash flow is insufficient to meet its' current contractual equity obligations. a. True b. False

Q: When one or more creditors refuse to agree to the reorganization terms of a venture in the hopes of making a larger individual recovery, it is said that a holdout problem has arisen. a. True b. False

Q: Operations restructuring involves growing revenues relative to costs and/or cutting costs relative to the venture's revenues. a. True b. False

Q: The transfer of title to the venture's assets to a third-party trustee is called assignment. a. True b. False

Q: A voluntary bankruptcy petition is filed by the venture's management. a. True b. False

Q: About two-thirds of new businesses with employees survive more than two years, and about one-half make it past the five-year mark. a. True b. False

Q: A private workout is a voluntary agreement between a venture's owners and its shareholders that provides for a financial restructuring of the venture's outstanding debt. a. True b. False

Q: Ventures that reorganize under Chapter 11 bankruptcies may still be liquidated via Chapter 7 bankruptcies. a. True b. False

Q: Asset restructuring involves improving the working-capital-to-sales relationship and/or selling off fixed assets. a. True b. False

Q: Balance sheet insolvency exists when a venture's total assets exceeds its total debt. a. True b. False

Q: Foreclosure is a legal process used by entrepreneurs to avoid diluting their ownership positions. a. True b. False

Q: A Chapter 11 bankruptcy filing requires liquidation of the venture. a. True b. False

Q: Indicate whether the statement is true or false.An involuntary bankruptcy petition is filed by the venture's management.a. Trueb. False

Q: The investment bank's process of ascertaining, to the extent possible, an issuing firm's financial condition and investment intent is known as: a. IPO underpricing b. due diligence c. a firm commitment d. an underwriting spread

Q: The arrangement where an underwriter has the option of selling additional shares when the issue is heavily oversubscribed is known as a: a. green shoe option b. red herring c. best efforts agreement d. lockup provision

Q: The NYSE participates in: a. the sale of new securities to private investors b. primary offerings c. primary and secondary offerings d. secondary and liquidation offerings

Q: The acquisition of the venture by family members, managers, or outside buyers is a venture harvesting process known as: a. a systematic liquidation b. an outright sale c. Chapter 11 bankruptcy d. going public

Q: A type of agreement with an investment bank employing only marketing and distribution efforts without the actual transfer of securities ownership to the investment banking syndicate is called: a. IPO underpricing b. due diligence c. a firm commitment d. a best efforts agreement

Q: A stock offering by a private firm involving the registration and sale to the public of existing shares, but no new shares, is called: a. IPO underpricing b. due diligence c. a direct listing d. a best efforts agreement

Q: Which of the following is not a way to harvest a venture? a. systematic liquidation b. outright sale c. Chapter 11 bankruptcy d. going public

Q: A venture is expected to have an exit value of $10,000,000 two years from now. If venture investors invest $2,000,000 now, and expect a 20% compounded rate of return on their investment, what portion of the exit value would they need? a. 10.0% b. 20.2% c. 25.0% d. 28.8%

Q: Which of the following is not a candidate for a leveraged buyout? a. a venture with stable and adequate operating cash flows b. a venture with a high amount of equity relative to debt c. a venture with the ability to protect market share d. a venture with a high debt ratio

Q: Based on the following information, estimate the percentage appreciation on stock bought by the founders: founders' purchase price = $1.00; venture investors' purchase price = $2.00; current stock price = $10.00; founders' holding period = 5 years; and venture investors holding period = 3 years. a. 100% b. 400% c. 600% d. 900%

Q: A direct listing is a private company's initial public offering sold exclusively to institutional investors.a. Trueb. False

Q: In a typical venture's life cycle, the examining of exit opportunities often occurs during the rapid-growth stage. a. True b. False

Q: When an industry is in decline, a systematic liquidation is typically the most attractive harvest strategy. a. True b. False

Q: Two discounted cash flow (DCF) methods are the enterprise method and the debt funds method. a. True b. False

Q: A management buyout (MBO) is a special type of leveraged buyout (LBO). a. True b. False

Q: An outright sale occurs when an entrepreneur sells the venture to family members, managers, employees, or outside buyers. a. True b. False

Q: IPO underpricing results in a direct loss to the venture's owners. a. True b. False