Q&A Hero

Q: The concept of an enterprise value is that it is the combined value of all of venture's financing, typically equity plus all of the debt. a. True b. False

Q: Options generally have no effect on the value of a venture capital investment. a. True b. False

Q: Owning a put option on a stock is the same as selling a call option on that same stock. a. True b. False

Q: A European-style option may only be exercised on a specific date. a. True b. False

Q: An alternative approach to the enterprise valuation method adds the tax shield from paying interest back into the flows and discounts at a before-tax weighted average cost of capital. a. True b. False

Q: The Black and Scholes model requires the stock price as an input. a. True b. False

Q: The Black and Scholes model requires an exercise price as an input. a. True b. False

Q: A warrant is a type of call option. a. True b. False

Q: Convertible debt is debt with the option to exchange it into nonconvertible or straight debt. a. True b. False

Q: An option is a right to buy or sell additional shares of stock. a. True b. False

Q: Convertible preferred stockholders have the right to convert a preferred share into a specified number of common shares at any time after the expiration date. a. True b. False

Q: A warrant is a call option issued by a company granting the holder the right to buy common stock at a specific price at a specific time. a. True b. False

Q: As the underlying stock price increases in value, a put option to sell it becomes more valuable. a. True b. False

Q: Piggyback registration rights allow holders of convertible securities to "vote as if converted." a. True b. False

Q: For preferred noncumulative stock, all previously unpaid preferred dividends must be paid before any common stock dividend is paid. a. True b. False

Q: The Black and Scholes model requires the inflation rate as an input. a. True b. False

Q: Convertible debt is debt that converts into preferred stock. a. True b. False

Q: By issuing preferred stock, and thus forfeiting bankruptcy rights from the use of debt, the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization. a. True b. False

Q: An American-style option is an option that can be exercised only at the expiration date. a. True b. False

Q: The enterprise method of valuation can be executed with either an after-tax or before-tax weighted average cost of capital as long as the rate is applied to the appropriate enterprise cash flows. a. True b. False

Q: For American and Bermudan embedded options, the exercise price can change over time as specified in the security agreement. a. True b. False

Q: The value of a warrant can be directly derived from the value of a call option. a. True b. False

Q: Preferred stock is the equity claim senior to common stock and providing preference on dividends but not liquidation proceeds. a. True b. False

Q: Convertible notes are debt allowing for conversion into stock at a price set by a future financing round. a. True b. False

Q: Entity valuation allows us to answer the question of how much debt a venture needs to issue to achieve a target capital structure (D/V). a. True b. False

Q: An option granting the right to sell a stock at $10 when that stock currently has a market price of $8 is "in the money." a. True b. False

Q: The enterprise value includes the value of the debt, equity, and warrant pieces of a venture. a. True b. False

Q: A call option is the obligation to purchase a specific asset at a predetermined price. a. True b. False

Q: Registration rights embedded in a venture's securities grant certain classes of shareholders the right, under certain circumstances, to have their securities registered with the SEC. a. True b. False

Q: A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share. a. True b. False

Q: If a share of preferred stock has a $10 par value, and the stock has a 2:1 conversion ratio, then the conversion price would be $5. a. True b. False

Q: An option not currently worth exercising is said to be "out of the money." a. True b. False

Q: Indicate whether the statement is true or false.If a call option can be bought for $12 and the stock's market value is $12, it's said to be "at the money."a. Trueb. False

Q: An organization that usually provides both an equity investment and a mentoring and educational program to help startup firms succeed is called a(n): a. business incubator b. seed accelerator c. angel assistor d. crowdfunding arranger

Q: Commercial banks, jointly with not-for-profit Certified Development Companies, are lenders in which of the following SBA credit programs? a. 7(a) loan b. CDC/504 loan c. microloan d. venture capital loan

Q: In which of the following credit programs does the SBA approve and guarantee a not-for-profit Certified Development Company's portion of the debt? a. 7(a) loan b. CDC/504 loan c. microloan d. venture capital loan

Q: Which of the following types of crowdfunding involves soliciting nonequity funds to finance specific business products and services or requesting donations for a specific purpose? a. debt crowdfunding b. equity crowdfunding c. rewards-based crowdfunding d. asset incentive crowdfunding

Q: Which of the following is not a common characteristic of business incubators? a. they make equity investments in their client firms b. they help entrepreneurs obtain private and public loan funds c. they are usually formed as nonprofit organizations that are operated by either private firms or public entities d. they require entrepreneurs to apply for admittance to their business incubation programs

Q: In which of the following credit programs does the SBA borrow money to be lent to Small Business Investment Companies (SBICs) and guarantee payment to investors? a. 7(a) loan b. CDC/504 loan c. microloan d. venture capital loan

Q: When assessing the creditworthiness of new entrepreneurs, lending institutions review the "Five C's." The focus on the intended purpose of the loan is known as: a. capacity b. capital c. collateral d. conditions

Q: Which of the following types of crowdfunding involves soliciting funds from a large number of small investors in exchange for an equity position in the venture requesting the funding? a. debt crowdfunding b. equity crowdfunding c. rewards-based crowdfunding d. asset incentive crowdfunding

Q: Which of the following is not a Small Business Administration program? a. loan guaranty programs b. certified and preferred lender programs c. energy and conservation loan programs d. certified financial planner funding programs

Q: Not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs) are lenders in which of the following SBA credit programs? a. 7(a) loan b. CDC/504 loan c. microloan d. venture capital loan

Q: Which of the following is not a current Small Business Administration (SBA) credit program? a. 7(a) loan b. CDC/504 loan c. microloan d. credit card loan

Q: Arranging for partial ownership as a component of the expected return to a lessor is known as: a. venture leasing b. capital leasing c. investment leasing d. direct public leasing

Q: Which of the following statements regarding factoring is not true? a. receivables lending is the process of factoring b. factoring is done at a discount to the third-party purchaser c. factoring discounts are often a function of the riskiness of the receivables d. factoring speeds the inflow of cash to the seller of the receivables

Q: What does SBA stand for in the context of new ventures? a. "Standard Business Arrangement" b. "Small Business Association" c. "Small Business Administration" d. "Standard Borrowing Arrangement"

Q: Which of the following is not a duty of the Small Business Administration? a. provide capital and credit to entrepreneurial startups b. guarantee loans issued under its credit programs to small businesses c. provide equity financing for startups d. help create new jobs in small businesses

Q: In which of the following credit programs is the SBA's role in the loan one of providing a direct loan to a community organization, which reloans the funds in small amounts? a. 7(a) loan b. CDC/504 loan c. microloan d. credit card loan

Q: Selling receivables to a third party at a discount from their face value is referred to as: a. factoring b. receivables lending c. venture banking d. venture financing

Q: In which of the following credit programs does the SBA approve a loan and guarantee up to 85% of loan value? a. 7(a) loan b. CDC/504 loan c. microloan d. venture capital loan

Q: Which of the following is not a source of debt funding for a startup firm? a. accounts payable b. vendor financing c. factoring d. leasing

Q: Venture banks do not seek loan returns from: a. interest received b. principal repayments c. warrants being exercised d. direct public offerings

Q: Small Business Investment Companies (SBICs) are lenders in which of the following SBA credit programs? a. 7(a) loan b. 504 loan c. microloan d. venture capital loan

Q: Commercial banks, credit unions, and/or financial services firms are lenders in which of the following SBA credit programs? a. 7(a) loan b. CDC/504 loan c. microloan d. venture capital loan

Q: Personal credit cards have proven to be a source of financing for startup firms for all of the following reasons except: a. credit card debt is not based on the firm's ability to repay, but rather the individual cardholder's ability to repay b. teaser rates afford initial low cost borrowing c. balance transfers occur at below-prime rates d. credit card debt can create problems if the firm doesn't generate cash flows to cover credit card payments once low introductory rates expire

Q: Bank debt is not a realistic source of financing for startups due to all of the following reasons except: a. payables either do not yet exist or the startup's history is inadequate b. a large portion of the assets are intangible and provide no collateral c. the startup's dependence on a small number of irreplaceable people is not a good match to demand deposits or other bank liabilities d. the startup's receivables collection track record is incomplete

Q: All of the following are common loan restrictions except: a. limits on total debt b. limits on total equity c. restrictions on dividends or other payments to owners and/or investors d. performance standards on financial ratios

Q: Which of the following is not a common model for obtaining funds from customers to help finance startups? a. pay-in-advance b. subscription c. matchmaking d. pay-at-delivery

Q: By an act of Congress, the Small Business Administration (SBA) was created in which of the following years? a. 1953 b. 1968 c. 1973 d. 1985

Q: A provision that allows lenders to acquire equity at a specific price is known as a(n): a. factor b. warrant c. venture lease d. equity carve-out

Q: The use of receivables as collateral for a loan is known as: a. capital leasing b. warehouse financing c. receivables lending d. venture leasing

Q: The Small Business Administration was created by an act of Congress in 2003.a. Trueb. False

Q: Two types of crowdfunding are rewards-based crowdfunding and debt crowdfunding. a. True b. False

Q: Indirect public offerings have recently become a serious challenge to traditional venture capital firms. a. True b. False

Q: In a factoring arrangement, the third party makes its money by purchasing the receivables at a discount from the total amount due on the receivables. a. True b. False

Q: Credit cards issued to startups have proven to be an alternative source of startup financing. a. True b. False

Q: The returns to venture bank lenders are generated solely from interest payments made by borrowers plus the return of the loan principal. a. True b. False

Q: Factoring is the selling of receivables to a third party at a discount from their face value. a. True b. False

Q: Microloans in the SBA credit program are made by not-for-profit or government-affiliated Community Development Financial Institutions (CDFIs). a. True b. False

Q: SBA 7(a) loans are made usually for 1 to 3 years in amounts up to $10,000,000, require collateral, and can be used for most business purposes. a. True b. False

Q: Rewards-based crowdfunding involves soliciting nonequity funds to finance specific business products and services or to request donations for a specific purpose. a. True b. False

Q: The SBA's venture capital credit program works through Community Development Financial Institutions (CDFIs). a. True b. False

Q: A seed accelerator is an organization that usually provides both an equity investment and a mentoring and educational fixed-term, cohort program to help startup companies succeed. a. True b. False

Q: Business crowdsourcing is the process of obtaining business ideas, development support, and operating services from a large network of nonemployees. a. True b. False

Q: A business incubator is an organization that helps startup companies develop by providing management, operating, and financial services. a. True b. False

Q: Commercial banks receive a portion of their returns from warrants in addition to the receipt of interest and the repayment of the principal that was lent. a. True b. False

Q: For the CDC/504 loan, the SBA approves and guarantees the development company's portion of the debt but does not guarantee the debt of the participating commercial bank. a. True b. False

Q: Microloans in the SBA credit program are intended for very small businesses with a maximum amount of $50,000 to be used for general business needs. a. True b. False

Q: Among startups, it is widely understood that bank debt (outside of Small Business Administration loans) is not a very realistic source of financing for ventures with less than two years of operating results. a. True b. False