CHAPTER 1
INTRODUCTION AND OVERVIEW
True-False Questions
A. 1. Entrepreneurs provide the financing to individuals who think, reason, and act to convert
ideas into commercial opportunities and create opportunities.
T. 2. Entrepreneurship is the process of changing ideas into commercial opportunities and
creating value.
T. 3. An entrepreneur is an individual who thinks, reasons, and acts to convert ideas into
commercial opportunities and to create value.
F. 4. Mark Twain once said, “I was always able to see an opportunity before it became one.”
T. 5. Small businesses, those with less than 500 employees, represent over 99 percent of all
employers, and account for about one-half of the gross domestic product in the United
States.
F. 6. Small and growing enterprises are critical to the U.S. economy; small firms provide 20 to
30 percent of net new jobs.
T. 7. Small high-technology firms are responsible for twice as many product innovations per
employee and obtain more patents per sales dollar than large high-technology firms.
F. 8. Phillips and Kirchhoff, using Dun & Bradstreet data, found that 24 percent of new firms
were still in existence after two years of operation.
,T. 9. Nearly half of business failures are due to economic factors such as inadequate sales,
insufficient profits, and industry weakness.
T. 10. Although the risks associated with starting a new entrepreneurial venture are large, there
is always room for one more success.
T. 11. Studies by Phillips and Kirchhoff, and by Headd, found that about 38%-40% of new firms
survived six years of operation.
F. 12. One study of Inc. magazine’s 500 high-growth firms suggests that about 88 percent of
founders feel their firms’ successes are due to extraordinary ideas, while the remaining 12
percent feel their firms’ successes are due to exceptional execution of ordinary ideas.
F. 13. “Fads” are large societal, demographic, or technological trends or changes that are slow in
forming but once in place continue for many years.
T. 14. “Fads” are not predictable, have short lives, and do not involve macro changes.
T. 15. Three major megatrends discussed in Chapter 1 include: societal trends or changes,
demographic trends or changes, and technological trends or changes.
F. 16. In 1982, Harry Dent identified several major or megatrends shaping U.S. society and the
world.
T. 17. The so-called “baby boom” generation applies to people born in the United States during
the 1946-1964 time period.
T. 18. Perhaps the most important invention shuttling us from an industrial society to an
information society is the computer chip.
,F. 19. Environmental commerce, or e-commerce, involves the use of electronic means to
conduct business online.
T. 20. The Office of Advocacy of the U.S. Small Business Administration documents that
“employer firm births” have approached 600,000 annually in recent years.
F. 21. Reasonable estimates place nonemployer (e.g., single person or small family) business
started each year at less than 100,000.
F. 22. Bill Gates once said: “I was seldom able to see an opportunity, until it ceased to be one.”
T. 23. A study by Phillips and Kirchhoff using Dun & Bradstreet data found that about three-
fourths of new firms were still in existence after two years of operation.
T. 24. Studies by Phillips and Kirchhoff, and by Headd, found that one-half of new firms or
new employers were still in existence after four years of operation.
F. 25. Nine principles of entrepreneurial finance are identified and explored in this
entrepreneurial finance textbook,
T. 26. The “time value of money” is an important component of the rent one pays for using
someone else’s financial capital.
F. 27. A venture’s financial objective is to survive.
F. 28. Private financial markets are a place where standardized contracts or securities are
traded on organized security exchanges with restrictions on how they can be transferred.
, F. 29. Free cash flow is the net income forecast to be available to the venture’s owners over time.
T. 30. Free cash flows are adjusted for risk and the time value of money when used to calculate
the value of a venture.
T. 31. Free cash exists when cash exceeds that which is needed to operate, pay creditors, and
invest in assets.
F. 32. Free cash is all the cash available to cover operating expenses.
T. 33. Owner-manager (agency) conflicts are differences between manager’s self-interest and
that of the owners who hired the manager.
F. 34. The owner-debtholder conflict is the divergence of the owners’ and lenders’ self-interest as
the firm gets close to going “public.”
F. 35. The financial objective of increasing value is inconsistent with developing positive
character and reputation.
T. 36. Entrepreneurial finance is the application and adaptation of financial tools and techniques
to the planning, funding, operations, and valuation of an entrepreneurial venture.
F. 37. Financial distress occurs when cash flow is insufficient to meet current debt obligations.
T. 38. The second stage in a successful venture’s life cycle is the startup stage.
F. 39. The rapid growth stage directly follows the startup stage.
INTRODUCTION AND OVERVIEW
True-False Questions
A. 1. Entrepreneurs provide the financing to individuals who think, reason, and act to convert
ideas into commercial opportunities and create opportunities.
T. 2. Entrepreneurship is the process of changing ideas into commercial opportunities and
creating value.
T. 3. An entrepreneur is an individual who thinks, reasons, and acts to convert ideas into
commercial opportunities and to create value.
F. 4. Mark Twain once said, “I was always able to see an opportunity before it became one.”
T. 5. Small businesses, those with less than 500 employees, represent over 99 percent of all
employers, and account for about one-half of the gross domestic product in the United
States.
F. 6. Small and growing enterprises are critical to the U.S. economy; small firms provide 20 to
30 percent of net new jobs.
T. 7. Small high-technology firms are responsible for twice as many product innovations per
employee and obtain more patents per sales dollar than large high-technology firms.
F. 8. Phillips and Kirchhoff, using Dun & Bradstreet data, found that 24 percent of new firms
were still in existence after two years of operation.
,T. 9. Nearly half of business failures are due to economic factors such as inadequate sales,
insufficient profits, and industry weakness.
T. 10. Although the risks associated with starting a new entrepreneurial venture are large, there
is always room for one more success.
T. 11. Studies by Phillips and Kirchhoff, and by Headd, found that about 38%-40% of new firms
survived six years of operation.
F. 12. One study of Inc. magazine’s 500 high-growth firms suggests that about 88 percent of
founders feel their firms’ successes are due to extraordinary ideas, while the remaining 12
percent feel their firms’ successes are due to exceptional execution of ordinary ideas.
F. 13. “Fads” are large societal, demographic, or technological trends or changes that are slow in
forming but once in place continue for many years.
T. 14. “Fads” are not predictable, have short lives, and do not involve macro changes.
T. 15. Three major megatrends discussed in Chapter 1 include: societal trends or changes,
demographic trends or changes, and technological trends or changes.
F. 16. In 1982, Harry Dent identified several major or megatrends shaping U.S. society and the
world.
T. 17. The so-called “baby boom” generation applies to people born in the United States during
the 1946-1964 time period.
T. 18. Perhaps the most important invention shuttling us from an industrial society to an
information society is the computer chip.
,F. 19. Environmental commerce, or e-commerce, involves the use of electronic means to
conduct business online.
T. 20. The Office of Advocacy of the U.S. Small Business Administration documents that
“employer firm births” have approached 600,000 annually in recent years.
F. 21. Reasonable estimates place nonemployer (e.g., single person or small family) business
started each year at less than 100,000.
F. 22. Bill Gates once said: “I was seldom able to see an opportunity, until it ceased to be one.”
T. 23. A study by Phillips and Kirchhoff using Dun & Bradstreet data found that about three-
fourths of new firms were still in existence after two years of operation.
T. 24. Studies by Phillips and Kirchhoff, and by Headd, found that one-half of new firms or
new employers were still in existence after four years of operation.
F. 25. Nine principles of entrepreneurial finance are identified and explored in this
entrepreneurial finance textbook,
T. 26. The “time value of money” is an important component of the rent one pays for using
someone else’s financial capital.
F. 27. A venture’s financial objective is to survive.
F. 28. Private financial markets are a place where standardized contracts or securities are
traded on organized security exchanges with restrictions on how they can be transferred.
, F. 29. Free cash flow is the net income forecast to be available to the venture’s owners over time.
T. 30. Free cash flows are adjusted for risk and the time value of money when used to calculate
the value of a venture.
T. 31. Free cash exists when cash exceeds that which is needed to operate, pay creditors, and
invest in assets.
F. 32. Free cash is all the cash available to cover operating expenses.
T. 33. Owner-manager (agency) conflicts are differences between manager’s self-interest and
that of the owners who hired the manager.
F. 34. The owner-debtholder conflict is the divergence of the owners’ and lenders’ self-interest as
the firm gets close to going “public.”
F. 35. The financial objective of increasing value is inconsistent with developing positive
character and reputation.
T. 36. Entrepreneurial finance is the application and adaptation of financial tools and techniques
to the planning, funding, operations, and valuation of an entrepreneurial venture.
F. 37. Financial distress occurs when cash flow is insufficient to meet current debt obligations.
T. 38. The second stage in a successful venture’s life cycle is the startup stage.
F. 39. The rapid growth stage directly follows the startup stage.
