"FINA 4390 Student s test questions"
Group 2 1. A student is of one year away completing an MBA degree decides to go to law school. Which of the following is not a sunk cost? a. Money spent on beer for one year b. One year’s tuition for law school c. Living expense for one year d. None of the above Answer: D 2. You were planning to buy a new suit for $500 and got a $150 traffic ticket on the way to the mall. Which of the following is a sunk cost a. $500 suit b. $650 suit & ticket c. $150 ticket d. None of the above Answer: C Group 9 3. How do financial *** help the entrepreneur? a. *** reactions to new development b. Risks and rewards c. Identify problems d. All of the above Answer: D 4. Which would be something a prospective investor would look for in a business plan? a. Evidence of credible commitment b. Evidence of reputation and certification c. Critical elements for successor failure d. All of the above Answer: D 5. In which ways might an entrepreneur secure financing identify ways through the use of a technical board of advisors? a. Tearget the investor b. Due diligence c. Updating the business plan d. All of the above Answer: D 6. A technical board of advisors would not need to be created when? a. A new venture does not need to be planned b. Money is constant c. Profits are up d. Profits are down Answer: A According to the business plan, sales of the venture are expected to reach $1.5 million over the first 12 months of operation and the venture is projected to be breakign even by year-end. As a prospective investor, how would you decision to invest and the terms for investing change if: 7. In reality, as of year-end , the venture had yet to make its first sales? a. Adjust the business plan to where you have more ownership and the business to capture any future profits without putting more money in the business. b. Keep putting money in the business hoping to make a sale c. Adjust the business plan to where the starter of the business has more ownership d. Don’t change anything Answer: A 8. In reality, sales and profitability are exactly in line with projections? a. Terms of business plan are not changed b. All ownership changes to investor c. All ownership changes to business starter d. Adjust the business projections hoping for big profits Answer: A Group 9 9. If a bank refuse to draw a line of credit to a borrower, how will it affect their future financing choices? a. Reduce their spending limit b. Increase their accounts payable c. Capital equity d. a & b only Answer: D 10. The following are provisions in debt contracts between borrowers and lenders except: a. A term loan can be link to acquisition to assets b. A lender can require a borrower to personally guarantee the loan c. The loan can be set to corespond anticipated timing of business receipts d. All of the above Answer: D Group 6 11. What should you do if you are uncetain of the market size? a. Develop a model that can project both expectations o the future and uncertainty about the future. b. Develop a model that projects only expectations of the future c. Develop a model that projects only uncertainty about the future d. Negotiate a structure that uses warrants to tie ownership to actual performance Answer: A 12. When considering a business plan for a new venture you should ______ ? a. Forecasting b. Planning c. External reliance d. Citical thinking of the organization e. All of the above Answer: E Group 1 13. What impact does sunk cost have on decision making? a. Determine whether or not to accept a project b. Sunk cost is always equal to fixed cost c. No impact at all d. Base on decision on sunk costs Answer: A 14. Sunk cost can be define as: a. Marginal cost b. NPV of all future cash flows c. WACC d. Fixed cost that is not recoverable Answer: D Group 7 15. What are some characteristics of debt financing? a. Factor in a debt repayment plan b. Higher initial costs c. Be unexpected to generate cash flows d. All of the above Answer: D 16. What are some of the characteristics of equity financing? a. Indication of the terms b. Realistic vamation c. Interested investors in product d. All of the above Answer: D Group 5 17. Venture capital is: a. Financing used for a new venture b. Capital that is invested in a new ventures c. Capital supplied by the venture capital firm d. Both b & c Answer: D 18. Which of the following is a step you might take to convey to prosepctive investor your high level of confidence in the financial projections? a. Contigent warrants b. Convertible securities with a contingent conversion price c. Considering sunk costs d. Both a & b Answer: D Group 4 19. Using the information, how would you propose to identify the stages of new venture development a. Beginning 12 months – Development stage Month 12-24 – Start up stage Month 24-36 - Early growth stage Month 36-48 – Rapid growth Month 48-60 – Exit b. Month 48-60 – Development Month 36-48 – Start up Month 24-36 – Early growth Mong 18 – Rapid growth Beginning 12 months – Exit Answer: A 20. What kinds of investors are best suited for investing at the various stages of development? a. Development – friends and family, partner, yourself Start-up – venture capital, asset base lender Early growth – Equipment & lessor *** Rapid growth – Mezzanine lender, factor, trade credit Exit – Public debt, IPO, acquisition b. Development – IPO, public debt Start-up – Mezzanine lender, factor, trade credit Early growth – Friends and family, partner, your self Rapid growth – Venture capital Exit – Angel investors Answer: A Gourp 4 a 21. If you provided all the capital for a $ 5 million investment would you rather receive: a. 2 million shares of common stock b. 1.8 million prefered c. 4 million shares d. 10 million shares Answer: D 22. Many entrepreneurs make the mistake of focusing on which money valutaion as their ultimateconcern? a. True value to the entrepreneur b. Pre-money valuation c. Post-money valuation d. Plain vanilla valuation Answer: C Group 1 23. What kind of activities do not-for-profit entities complete for? a. Students and patients b. Customers c. Profits d. All of the above Answer: A 24. Why might entrepreneurs choose to orgnize as a not for profit venture? a. Stock options b. Tax relief and government aid c. Company aspect d. Both a & b Answer: B Group B 25. Which ratchet provision would you use to protect the investor against dilution subsequent rounds of financing? a. Convertible preferred stock or debt with floating conversion price b. Warrants or nights to acquire additional shares c. None of the above Answer: A 26. Hacker’s entrepreneurs will agree to the provisions because ... a. Ratchet provision protects the investors from dilution of value b. The interest is tax deductible c. Debt is contractual obligation so that in the event of bankruptcy, bondholders have priority over equity owners Answer: A Group 2 27. Why would an S corporation be organized rather than a C corporation? a. Limited liability to shareholders b. Limited constraint on maximum shareholders c. Earnings pass through to owner d. All of the above Answer: D Group 7 28. Why do you think convertible preferred stock is so common? a. Maintain their investment value b. Prevent dilution of investor shares c. Because it is less costly d. To create a more efficient market Answer: A 29. Why not use common stock? a. Investment is less protected in common stock b. Common stock is paid last company fails c. Preferred stock is convertible and retains value d. All of the above Answer: D Group b 30. Which source of new venture financing is the earliest source of outside financing and are in early stage projects? a. Venture capital b. Angel financing c. Trade credit d. All of the above Answer: B 31. All of the following are advantages of milestone except: a. Concept testing b. Reduces capital spending c. Identifies ways to enhance the expected benefits of the project d. Measures progress Answer: B Group 2 32. What is the meaning of “limited liability”? a. Liability of partners is limited to the extent of their investment b. Owner is liable for all business debts c. Transfer of ownwership is impossible d. Shares are sold on public markets Answer: A 33. Other stakeholders that may be affected by the failure of a limited liability company may include: a. Creditors b. Customers c. Suppliers d. All of the above Answer: D 34. An entrepreneur has 3 million dollars in his company. He sells 1million shares for $ 2 million to investor A and he sells 1.29 million shares for $1 million to investor A. Compute the post-money valuation of the venture: a. 1.8 million b. 2.4 million c. 3.2 million d. 3 million e. None of the above Answer: B 35. A provision of a ratchet provision include” a. Preferred stock b. Convertible preferred stock on debt with floating conversion price c. Common stock d. Warrants on rights to acquire additional shares e. Both b & d Answer: E