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ENTR 430 Exam 2
Terms in this set (30)
The value of all of a company's expected cash flows after a specified forecast period
the value of the equity of a company. Used to determine the value of each owner's portion of the business.
Gordon Growth Model
A model for determining the terminal value of a business that assumes a company exists forever and grows at a constant rate forever
The discounted cash flow method of business valuation is a methodology that places a value on a business by determining, at a specified discount rate, the sum of the _______________ values of all of the business's expected future cash flows
A/An __________________ business valuation is predicted on the idea that a business's true value lies in its ability to produce net income and positive cash flow in the future
A __________ business valuation attempts to establish the value of a business by comparing the business to be put on the market to similar businesses that have recently been sold.
Which of the following statements about business valuation is false?
- The discounted cash flow method of business valuation determines a value for a business based upon the expected future cash flows of the business.
- The discount rates used for business valuation are usually higher than the discount rates used for capital budgeting.
- A business valuation may become necessary because of insurance requirements, because one of the owners wants to exit the business, or because of the tax planning or tax reporting needs of either the business or one of its owners.
- An entrepreneur should place a value on his business based on how much time and money the entrepreneur has invested in the business.
An entrepreneur should place a value on his business based on how much time and money the entrepreneur has invested in the business.
The equity value of your LLC is $4,500,000. If an angel investor offers to invest $450,000 in your business, what percentage of the equity of your business would you likely give him?
An angel investor is willing to invest $100K in your company for 10% of the equity and wants to triple her money in five years. How much must the company be worth in three years to get her the requested return?
Your company currently has 1,000 shares of stock and plans to sell an angel investor shares that will account for a 10% stake in business. Approximately, how many shares will you need to sell him?
Start-up businesses usually go through a period of zero revenue: the start-up phase of the business
Entrepreneurial working capital management involves asking for better terms than those offered by any vendor, creditor, lender or customer in order to maximize your business' profitability and cash flow.
Which of the following is not a balance sheet item working capital management typically focuses on?
- Accounts Receivable
- Fixed Assets
Sales paid for with a credit card like a Visa or MasterCard should be included in a company's accounts receivable.
Keep inventory at a minimum level to maximize available cash, but keep enough inventory on hand to always satisfy production or customer demand
The two primary goals of inventory management are to:
A business can be profitable and still go out of business because it runs out of cash
Accounts payable are amounts a business owes to its customers
Which of the following is not true about accounts payable?
- Accounts payable are amounts a business owes to its customers.
- Usually, accounts payable relate to a business's recurring purchases.
- For many businesses, the largest portion of accounts payable typically relates to purchases of inventory.
- The usual method of managing accounts payable is to pay out as little cash as possible in order to properly settle the obligations.
Categorizes unpaid customer invoices based on the number of days they have been outstanding
An aging of accounts receivable is a schedule that:
Work-in-process inventory is made up of items that are kept on hand not to be sold, but instead to help the firm maintain consistent operations. Replacement parts for key manufacturing equipment is a good example of work-in-process inventory
When a company can determine, based on its history, that a certain percentage of its accounts receivable are typically not collectible - or when a company has identified specific individual accounts receivable that are likely not collectible - the company should establish a reserve for bad debts
Ideally, a good business succession plan is in writing and transparent to all of a business's stakeholders so that, when the time comes to institute the plan, the process can move forward with those most affected by the plan both aware of and in agreement with the plan
A __________ is a contract between a business's owners that indicates the terms that will surround the purchase of an exiting owner's interest in the business
Legally terminating the existence of a business
In order for a business owner to harvest cash via capital gain, the owner must sell 100% of his ownership of a business
In association with a U.S. initial public offering (IPO), the Securities and Exchange Commission (SEC) requires that 100% of the ownership of a company be offered for sale to the general public
An estimate of the value of a business most business brokers, M & A advisors, and investment banking firms consider to be the best estimate of the value of a business to be put on the market for sale
____________ is the process of a company willingly subjecting itself to a form of investigation by a protentional buyer of the business or a potential new partner in the business
A usually bulleted list of the significant conditions and circumstances associated with a proposed business arrangement is called a ________________
Selling a business, though generally a large and complex transaction, rarely brings with it significant emotional impact for a business owner.
Which of the following statements is false with regard to selling a business?
- An asset-only purchase is often preferable for a buyer.
- In order to get the best price for your business, beyond sharing your financial statements, you'll want to be able to produce two or three years of tax returns that are accurate, tie into your business's financial statements, and demonstrate your business's profitability.
- One type of professional help that's almost always required when selling a business is the guidance of a good attorney.
- Selling a business, though generally a large and complex transaction, rarely brings with it significant emotional impact for a business owner.
Attempting to sell a business should only occur after properly positioning the business for sale
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