ENTREPRENEURIAL FINANCE 7TH EDITION
LEACH EXAMS SET COMPLETE
QUESTIONS AND ANSWERS EXPERT
VERIFIED
◉ Venture investors returns depend on the venture's ability to
generate cash flows or to find an acquirer for the venture.
Answer: T
◉ The value of the venture's equity is equal to the value the
financing contributed in the first venture capital round.
Answer: F
◉ A direct application of the earnings-per-share ratio to venture
earnings is known as the direct comparison valuation method.
Answer: F
◉ The venture capital valuation method which capitalizes earnings
using a cap rate implied by a comparable ratio is known as direct
capitalization.
Answer: T
,◉ Failure to account for any additional rounds of financing and its
accompanying dilution in order to meet projected earnings will
result in the investor's not receiving an adequate number of shares
to ensure the required percent ownership at the time of exit.
Answer: T
◉ Almost without exception, professional venture investors demand
that some equity or deferred equity compensation be structured
into any valuation.
Answer: T
◉ If a venture issues debt prior to the exit period, the initial equity
investors will still receive first claims on the venture's net worth at
exit time.
Answer: F
◉ The utopia discount process allows the venture investors to value
their investment using only the business plan's explicit forecasts,
discounting it at a bank loan interest factor.
Answer: F
◉ The internal rate of return is the simple (non-compounded)
interest rate that equates the present value of the cash inflows
received with the initial investment.
,Answer: F
◉ The venture capital (VC) method estimates the venture's value
using only terminal/exit flows to investors.
Answer: T
◉ Post-money valuation of a venture is the pre-money valuation
plus money injected by new investors.
Answer: T
◉ Staged financing is financing provided in sequences of rounds
rather than all at one time.
Answer: T
◉ The capitalization rate is the sum of the discount rate and the
growth rate of the cash flow in the terminal value period.
Answer: F
◉ The internal rate of return (IRR) is the compound rate of return
that equates the present value of the cash inflows received with the
initial investment.
Answer: T
, ◉ The discount rate that one applies in a multiple scenario valuation
will usually be lower than the discount rate that would be applied to
the business plan cash flows.
Answer: T
◉ All of the scenarios in a multiple scenario analysis must have exit
cash flows in the same year.
Answer: F
◉ The discount rate applied in an Expected PV approach should be
the same rate across scenarios.
Answer: T
◉ The return to venture investors directly depends on which of the
following?
a. venture's ability to generate cash flows
b. ability to convince an acquirer to buy the firm
c. the amount of its short-term liabilities
d. both a and b
e. all of the above
Answer: D
LEACH EXAMS SET COMPLETE
QUESTIONS AND ANSWERS EXPERT
VERIFIED
◉ Venture investors returns depend on the venture's ability to
generate cash flows or to find an acquirer for the venture.
Answer: T
◉ The value of the venture's equity is equal to the value the
financing contributed in the first venture capital round.
Answer: F
◉ A direct application of the earnings-per-share ratio to venture
earnings is known as the direct comparison valuation method.
Answer: F
◉ The venture capital valuation method which capitalizes earnings
using a cap rate implied by a comparable ratio is known as direct
capitalization.
Answer: T
,◉ Failure to account for any additional rounds of financing and its
accompanying dilution in order to meet projected earnings will
result in the investor's not receiving an adequate number of shares
to ensure the required percent ownership at the time of exit.
Answer: T
◉ Almost without exception, professional venture investors demand
that some equity or deferred equity compensation be structured
into any valuation.
Answer: T
◉ If a venture issues debt prior to the exit period, the initial equity
investors will still receive first claims on the venture's net worth at
exit time.
Answer: F
◉ The utopia discount process allows the venture investors to value
their investment using only the business plan's explicit forecasts,
discounting it at a bank loan interest factor.
Answer: F
◉ The internal rate of return is the simple (non-compounded)
interest rate that equates the present value of the cash inflows
received with the initial investment.
,Answer: F
◉ The venture capital (VC) method estimates the venture's value
using only terminal/exit flows to investors.
Answer: T
◉ Post-money valuation of a venture is the pre-money valuation
plus money injected by new investors.
Answer: T
◉ Staged financing is financing provided in sequences of rounds
rather than all at one time.
Answer: T
◉ The capitalization rate is the sum of the discount rate and the
growth rate of the cash flow in the terminal value period.
Answer: F
◉ The internal rate of return (IRR) is the compound rate of return
that equates the present value of the cash inflows received with the
initial investment.
Answer: T
, ◉ The discount rate that one applies in a multiple scenario valuation
will usually be lower than the discount rate that would be applied to
the business plan cash flows.
Answer: T
◉ All of the scenarios in a multiple scenario analysis must have exit
cash flows in the same year.
Answer: F
◉ The discount rate applied in an Expected PV approach should be
the same rate across scenarios.
Answer: T
◉ The return to venture investors directly depends on which of the
following?
a. venture's ability to generate cash flows
b. ability to convince an acquirer to buy the firm
c. the amount of its short-term liabilities
d. both a and b
e. all of the above
Answer: D
