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Finance
Q:
While not a direct loss to a venture, underpricing can represent a significant opportunity cost to the venture's owners.
a. True
b. False
Q:
Unicorns are low-expected-growth companies with valuations in excess of $1 trillion.
a. True
b. False
Q:
When harvesting a venture, the outright purchase of the going concern by managers, employees, or external buyers is known as going public.
a. True
b. False
Q:
The process of exiting the privately held business venture to unlock the owners' investment value is known as harvesting.
a. True
b. False
Q:
One method of harvesting a successful venture is through systematic distribution of assets directly to lenders.
a. True
b. False
Q:
Other than when the venture is operating in a declining industry, it is difficult to think of cases where the disadvantages of liquidation outweigh the advantages.
a. True
b. False
Q:
When an initial business plan is prepared, attention should be paid to the investors' and founders' desire for eventual liquidity by anticipating a harvest for the venture investors.
a. True
b. False
Q:
An obligatory disclaimer disavowing any intent to act as an offer to sell, or solicit an offer to buy, securities is known as a red herring.
a. True
b. False
Q:
An advantage of an exit strategy that pays out the venture's investment value over several years can make it more difficult for entrepreneurs to start a new venture because adequate capital has not been released from the existing venture.
a. True
b. False
Q:
For harvesting purposes, we need to decide on the venture's value at exit and how that exit value pie will be divided up among investors.
a. True
b. False
Q:
A lockup provision prohibits insiders from selling their existing shares for a specified period of time.
a. True
b. False
Q:
In a typical venture's life cycle, the rapid-growth stage involves managing ongoing operations, maintaining and adding value, and obtaining seasoned financing.
a. True
b. False
Q:
Most companies choose best efforts agreements in order to minimize the inherent risks of going public.
a. True
b. False
Q:
The relative value method estimates a firm's value by examining how comparable firms are valued based on value-related multiples.
a. True
b. False
Q:
A special type of harvesting process where the firm's top management continues to run the firm and has a substantial equity position in the reorganized firm is known as a leveraged buyout.
a. True
b. False
Q:
Restructuring is the process of exiting the privately held business venture to unlock the owners' investment value.
a. True
b. False
Q:
The sale of used shares of common stock is a secondary market offering.
a. True
b. False
Q:
The sale of new shares of common stock is a secondary offering.
a. True
b. False
Q:
A leveraged buyout (LBO) is a special type of management buyout (MBO).
a. True
b. False
Q:
A leveraged buyout (LBO) takes place when the purchase price of a firm is financed largely with debt financial capital.
a. True
b. False
Q:
Exit values for many mature ventures are usually determined by (1) discounted cash flow (DCF) methods or (2) relative valuation models based on some form of multiples analysis.
a. True
b. False
Q:
When harvesting a venture, the methodical distribution of assets directly to the owners is known as a systematic liquidation.
a. True
b. False
Q:
When harvesting a venture, the two-step public equity registration and sale is known as an outright sale.
a. True
b. False
Q:
ESOP stands for "employee stock ownership plan."
a. True
b. False
Q:
One method of harvesting a venture is through systematic distribution of assets directly to the owners.
a. True
b. False
Q:
In determining a harvest value, nonmonetary items such as culture, managerial succession, and employee retention are not factored in.
a. True
b. False
Q:
An initial public offering (IPO) is the only method used by entrepreneurs when exiting a venture.
a. True
b. False
Q:
Indicate whether the statement is true or false.Valuation methods that estimate a firm's worth using value-related multiples of comparable firms are sometimes known as relative value methods.a. Trueb. False
Q:
If venture investors invest $6,750,000 now, will receive 32% of the exit value, and expect a 22% compounded rate of return on their investment, what is the exit value at the end of seven years?
a. $103,521,949
b. $39,931,321
c. $69,552,505
d. $84,854,057
Q:
In the aftermarket trading for the venture's securities, an order that is to be executed as soon as possible at the prevailing market price is known as a:
a. put order
b. market order
c. limit order
d. stop order
Q:
An order to purchase stock that can be executed only at a specified price or better is called a:
a. market order
b. limit order
c. stop order
d. private order
Q:
Which of the following is not a characteristic of a "unicorn" company?
a. high expected growth
b. a valuation in excess of $1 billion
c. a previously successful IPO
d. high expected growth and a valuation in excess of $1 billion
Q:
The distribution of the venture's cash flows directly to the owners is a venture harvesting process known as:
a. a systematic liquidation
b. an outright sale
c. Chapter 11 bankruptcy
d. going public
Q:
Which of the following is not a type of trading order?
a. market order
b. limit order
c. stop order
d. repurchase order
Q:
Which of the following is the premium that would be applied to venture valuation due to an investor's majority ownership of a venture?
a. proxy premium
b. control premium
c. influence premium
d. liquidity premium
Q:
Ventures that are high-expected-growth companies with valuations in excess of $1 billion are called:
a. giraffes
b. unicorns
c. elephants
d. giants
Q:
The negotiated period around an equity securities offering during which insiders are prohibited from selling their existing shares is called a(n):
a. seasoned offering
b. underpricing
c. underwriting spread
d. lockup provision
Q:
An initial public offering (IPO) involves a:
a. sale of new securities to private investors
b. sale of used securities to the public
c. venture's first offering of SEC-registered securities to the public
d. venture's reoffering of its publicly traded securities
Q:
Assume that a venture is expected to have an EBITDA of $1,500,000 at the end of five years from now. If the venture's value is expected to be $12,000,000, what valuation multiple was being assumed?
a. 12 times
b. 4 times
c. 8 times
d. 10 times
Q:
The difference between what the investment bank gets from selling securities to public investors and what they pay to the issuing firm is known as:
a. IPO underpricing
b. an underwriting spread
c. a firm commitment
d. best efforts
Q:
IPO stand for:
a. "investment pricing organization"
b. "initial public offering"
c. "institutional pricing overhead"
d. "immediate pricing opportunity"
Q:
In the aftermarket trading for the venture's securities, an order that converts to a market order once a certain price is achieved is known as a:
a. put order
b. market order
c. limit order
d. stop order
Q:
In an outright sale of a venture, the venture can be sold to:
a. family members and managers
b. managers and employees
c. employees and outside (external) buyers
d. family members, managers, employees, and outside (external) buyers
Q:
Which of the following is not a disadvantage of a systematic liquidation?
a. the treatment and taxation of liquidation proceeds as ordinary income rather than capital gains
b. the commitment of the entrepreneur's resources and focus on a dying venture rather than on other more lucrative ventures
c. the harvesting of the investment gets spread out over a number of years
d. the acceleration of the venture's rate of decline as other industry participants respond to the reduction in investment
Q:
The sale of used shares is known as a(n):
a. primary offering
b. secondary offering
c. initial public offering
d. shelf offering
Q:
The sale of new securities is known as a(n):
a. primary offering
b. secondary offering
c. initial public offering
d. shelf offering
Q:
In the investment banking process, which of the following is a duty of the investment bank?
a. be the targeted investors for a firm's securities
b. provide banking services, such as checking accounts, to firms
c. find buyers for a firm's securities
d. market only founder shares
Q:
The type of agreement with an investment bank involving the investment bank's underwritten purchase and resale of securities is called:
a. a firm commitment
b. a best efforts agreement
c. due diligence
d. a red herring disclaimer
Q:
A venture is expected to have an exit value of $10,000,000 five years from now. If venture investors invest $1,000,000 now, and expect a 20% compounded rate of return on their investment, what portion of the exit value would they need?
a. 10.5%
b. 20.1%
c. 24.9%
d. 28.8%
Q:
Shares registered with the Securities and Exchange Commission and state securities regulators and sold to the public are known as a(n):
a. primary offering
b. secondary offering
c. initial public offering
d. shelf offering
Q:
Which of the following describes when a syndicate's offering price is less than the market price immediately following the offering?
a. IPO underpricing
b. due diligence
c. a firm commitment
d. best efforts
Q:
Which of the following is not an advantage of a systematic liquidation?
a. maintaining control throughout the harvest period
b. the harvesting of the investment value can be spread out over a number of years
c. the taxation treatment of liquidation proceeds as ordinary income
d. the time, effort, and costs of finding a buyer for the venture can be avoided
Q:
Registering equity and selling it via an IPO of new shares followed by a secondary offering of existing shares is a venture harvesting process known as:
a. a systematic liquidation
b. an outright sale
c. Chapter 11 bankruptcy
d. going public
Q:
Which of the following has the least senior claim on a venture's asset?
a. common stock
b. preferred stock
c. convertible preferred stock
d. convertible debt
Q:
The following Multiple-Choice Questions relate to Learning Supplement 14BN(h) in the Black and Scholes model involves the use of the:a. number of shares issuedb. next time that a venture capitalist will invest moneyc. normal distribution cumulative density functiond. number of times that the venture will have to raise money
Q:
Convertible debt can have all of the following characteristics except:a. bankruptcy rightsb. regular dividend paymentsc. a structure to provide senior interest in specific assetsd. a tax shield due to interest expense
Q:
Which of the following can be structured to assure shareholders that they will share in the payment of any dividends to common stockholders?
a. paid in kind preferred stock
b. cumulative preferred stock
c. participating preferred stock
d. convertible preferred stock
Q:
Which of the following is an example of a put option that is "out of the money"?
a. option to sell at $11, stock is worth $12
b. option to buy at $13, stock is worth $12
c. option to buy at $12, stock is worth $12
d. option to sell at $13, stock is worth $12
Q:
To calculate the enterprise valuation cash flow, one begins with which of the following items from the income statement?
a. Net Sales Net Income
b. Operating Profit Gross Sales
c. Earnings Before Interest and Taxes) (1 Enterprise Tax Rate)
d. Net Income Enterprise Tax Rate
Q:
An option that can be exercised at any time until its expiration is called a(n):
a. Asian-style option
b. American-style option
c. European-style option
d. Bermuda-style option
Q:
Which of the following is an example of a call option that is "in the money"?
a. option to sell at $11, stock is worth $12
b. option to buy at $13, stock is worth $12
c. option to sell at $13, stock is worth $12
d. option to buy at $11, stock is worth $12
Q:
Which of the following offers the option where the dividend obligation can be satisfied in cash or by issuing additional par amounts of the preferred security?
a. paid in kind preferred stock
b. cumulative preferred stock
c. participating preferred stock
d. convertible preferred stock
Q:
Which of the following requires that all previously unpaid preferred dividends must be paid prior to any common dividend?
a. paid in kind preferred stock
b. cumulative preferred stock
c. participating preferred stock
d. convertible preferred stock
Q:
An option that can be exercised only at its expiration date is called a(n):
a. Asian-style option
b. American-style option
c. European-style option
d. Bermuda-style option
Q:
A round of financing where shares sell for a lower price than previous rounds is known as a(n):
a. reset round
b. recessive round
c. angel round
d. anticipation round
Q:
An option that can be exercised only at a specific set of dates is called a(n):
a. Asian-style option
b. American-style option
c. European-style option
d. Bermuda-style option
Q:
Which of the following provides the option to transform preferred stock into common stock?
a. paid in kind preferred stock
b. cumulative preferred stock
c. participating preferred stock
d. convertible preferred stock
Q:
The following Multiple-Choice Questions relate to Learning Supplement 14BThe Black and Scholes model is intended to be used to value:a. stocksb. bondsc. optionsd. futures contracts
Q:
Which of the following is not a component of a preferred stock's security structure?a. the right to participate in any dividends paid to common stock shareholdersb. the payment of dividends in the form of additional shares of preferred stockc. the option for the holder to convert preferred stock into common stockd. the option for the holder to convert preferred stock into debt securities
Q:
When consistent assumptions are used, estimated equity values under the enterprise and equity methods should be:
a. the same for the two methods
b. higher for the equity method
c. higher for the enterprise method
d. different for the two methods
Q:
Which of the following is not a type of option?
a. call option
b. put option
c. warrant
d. leveraged buyout
Q:
The right for existing owners to maintain their ownership share by purchasing sufficient shares to keep their percentage share of the firm is called:
a. a stock option
b. a stock warrant
c. preemptive rights
d. participating stock
Q:
Which of the following is not a typical characteristic of convertible notes?
a. debt allowing for conversion into equity (common stock or convertible preferred stock)
b. convertible at a price set by a future financing round
c. issued to allow for a delayed valuation estimate
d. seasoned firms are the primary issuers of convertible notes
Q:
Generally speaking, warrants are call options that allow the holder to purchase what type of security at a specific price?
a. common stock
b. preferred stock
c. convertible debt
d. convertible notes
Q:
The right to sell a specified asset at a specified price up until a specified date is called a(n):
a. American-style put option
b. American-style call option
c. European-style call option
d. European-style put option
Q:
The right to buy a specified asset at a specified price on a specified date is called a(n):
a. forward contract
b. American-style put option
c. American-style call option
d. European-style call option
Q:
The following Multiple-Choice Questions relate to Learning Supplement 14BWhich of the following is not an input to the Black and Scholes model?a. earnings per shareb. stock pricec. risk-free rated. volatility
Q:
The unadjusted Black and Scholes model is a model for determining the value of a warrant to buy a new share.a. Trueb. FalseIndicate the answer choice that best completes the statement or answers the question.
Q:
Common stock represents the least senior claim on a venture's assets.
a. True
b. False
Q:
Warrant valuation (as presented in this text) is similar to option valuation except that one applies a dilution factor to the option value to arrive at a warrant value.
a. True
b. False