ENTREPRENEURIAL FINANCE 7TH EDITION
LEACH EXAM REVIEW TESTED QUESTIONS
WITH 100 PERCENT CORRECT ANSWERS
◉ A potential investor is seeking to invest $500,000 in our venture,
which currently has 1,000,000 million shares held by us founders.
We expect our venture to produce half a million dollars in income
per year for the next five years. We know that a similar venture
produced $1,000,000 in income and sold shares to the public for
$10,000,000.
What is the pre-money valuation?
a. $120,300
b. $316,800
c. $158,400
d. $193,900
Answer: C
◉ A potential investor is seeking to invest $500,000 in our venture,
which currently has 1,000,000 million shares held by us founders.
We expect our venture to produce half a million dollars in income
,per year for the next five years. We know that a similar venture
produced $1,000,000 in income and sold shares to the public for
$10,000,000.
What is the post-money valuation?
a. $658,354
b. $499,954
c. $408,377
d. $249,977
Answer: A
◉ A potential investor is seeking to invest $500,000 in our venture,
which currently has 1,000,000 million shares held by us founders.
We expect our venture to produce half a million dollars in income
per year for the next five years. We know that a similar venture
produced $1,000,000 in income and sold shares to the public for
$10,000,000.
What is the value of the venture in year five using direct
capitalization?
a. $500,000
b. $5,000,000
,c. $1,000,000
d. $100,000
Answer: B
◉ For early stage ventures, which of the following is a strong reason
for having an equity component in employee compensation?
a. the expected deferred and tax-preferred compensation allows the
venture to pay a lower current compensation to employees
b. as a way to motivate employees to strive for the same goal of high
equity value
c. because any dividends received as part of the equity
compensation reduces taxable income
d. both a and b
e. all of the above
Answer: D
◉ During the exit period, which of the following will have last crack
at the venture's wealth?
a. banks giving loans to the venture
b. convertible debt holders of the venture
c. initial equity investors of the venture
d. participating preferred equity holders
Answer: C
, ◉ Suppose your venture's expected mean cash flows are $(85,000)
initially, followed by expected mean cash flows at the end of the first,
second, and third years of $40,000, $40,000, and $35,000. What is
the internal rate of return?
a. 13.9%
b. 14.7%
c. 16.2%
d. 17.2%
e. 19.2%
Answer: D
◉ A P/E multiple refers to:
a. price/expectations multiple
b. price/earnings multiple
c. profit/EBIT multiple
d. profit/earnings multiple
e. price/EBITDA multiple
Answer: B
◉ Estimate the value of a privately-held firm based on the following
information: stock price of a comparable firm = $20.00; net income
of a comparable firm = $20,000; number of shares outstanding for
LEACH EXAM REVIEW TESTED QUESTIONS
WITH 100 PERCENT CORRECT ANSWERS
◉ A potential investor is seeking to invest $500,000 in our venture,
which currently has 1,000,000 million shares held by us founders.
We expect our venture to produce half a million dollars in income
per year for the next five years. We know that a similar venture
produced $1,000,000 in income and sold shares to the public for
$10,000,000.
What is the pre-money valuation?
a. $120,300
b. $316,800
c. $158,400
d. $193,900
Answer: C
◉ A potential investor is seeking to invest $500,000 in our venture,
which currently has 1,000,000 million shares held by us founders.
We expect our venture to produce half a million dollars in income
,per year for the next five years. We know that a similar venture
produced $1,000,000 in income and sold shares to the public for
$10,000,000.
What is the post-money valuation?
a. $658,354
b. $499,954
c. $408,377
d. $249,977
Answer: A
◉ A potential investor is seeking to invest $500,000 in our venture,
which currently has 1,000,000 million shares held by us founders.
We expect our venture to produce half a million dollars in income
per year for the next five years. We know that a similar venture
produced $1,000,000 in income and sold shares to the public for
$10,000,000.
What is the value of the venture in year five using direct
capitalization?
a. $500,000
b. $5,000,000
,c. $1,000,000
d. $100,000
Answer: B
◉ For early stage ventures, which of the following is a strong reason
for having an equity component in employee compensation?
a. the expected deferred and tax-preferred compensation allows the
venture to pay a lower current compensation to employees
b. as a way to motivate employees to strive for the same goal of high
equity value
c. because any dividends received as part of the equity
compensation reduces taxable income
d. both a and b
e. all of the above
Answer: D
◉ During the exit period, which of the following will have last crack
at the venture's wealth?
a. banks giving loans to the venture
b. convertible debt holders of the venture
c. initial equity investors of the venture
d. participating preferred equity holders
Answer: C
, ◉ Suppose your venture's expected mean cash flows are $(85,000)
initially, followed by expected mean cash flows at the end of the first,
second, and third years of $40,000, $40,000, and $35,000. What is
the internal rate of return?
a. 13.9%
b. 14.7%
c. 16.2%
d. 17.2%
e. 19.2%
Answer: D
◉ A P/E multiple refers to:
a. price/expectations multiple
b. price/earnings multiple
c. profit/EBIT multiple
d. profit/earnings multiple
e. price/EBITDA multiple
Answer: B
◉ Estimate the value of a privately-held firm based on the following
information: stock price of a comparable firm = $20.00; net income
of a comparable firm = $20,000; number of shares outstanding for
