FBE 527 Midterm Questions and Answers
with solutions
Why would firms go public via the backdoor? (2 reasons) - ANSWER 1) Fewer SEC requirements
to meet
2) It doesn't cost as much as paying an underwriter
But no "market maker"
Depreciation and rent are both sources of what? - ANSWER operating leverage
What are the 2 advantages of going public over private placements? - ANSWER 1) stock
becomes currency for acquisitions
2) you pay lower interest rates and get higher PE ratio
What are interest and sinking funds examples of? - ANSWER financial leverage
What is never in Stancill's necessary discretionary expenditures? - ANSWER Capital expenditures
that are discretionary outflows, like expanding warehouses
In Stancil's entreprenuerial capital budget model, what do you plot against what? - ANSWER 1)
coefficient of diffusion
2) rate of return for a set of proposals (r)
What is higher of cost of market called? - ANSWER Fraud
, Why do some sole proprietors aggressively obsolete inventory? - ANSWER To deliberately drive
down taxes: the higher COGS, the lower the profits, meaning lower taxes
What is a package? - ANSWER private placement memorandum, including a summary,
description of product/service, marketing plan, key team, and financial summary
what is a shopped deal? - ANSWER deal that has been shown to many potential investors;
implies other investors found something they didn't like
What was the change in the CPI-U in August 2018? - ANSWER 2/10 of 1% of the month (2.4% for
the year)
What is the fed's target for inflation? - ANSWER 2%
How do you find Break Even? - ANSWER Fixed charges/ contribution aka Gross profit/sales
What is contribution? - ANSWER gross profit/sales
What kind of charge is leverage in terms of break even analysis? - ANSWER a fixed charge
What is the maximum amount of debt that is financially viable? - ANSWER Amount of debt that
can be serviced = NOCFii / interest rate + sinking fund
What is NOCFii - ANSWER nocf - necessary discretionary
What does face amount of debt that can be serviced mean? - ANSWER how much money is
available to service the debt
with solutions
Why would firms go public via the backdoor? (2 reasons) - ANSWER 1) Fewer SEC requirements
to meet
2) It doesn't cost as much as paying an underwriter
But no "market maker"
Depreciation and rent are both sources of what? - ANSWER operating leverage
What are the 2 advantages of going public over private placements? - ANSWER 1) stock
becomes currency for acquisitions
2) you pay lower interest rates and get higher PE ratio
What are interest and sinking funds examples of? - ANSWER financial leverage
What is never in Stancill's necessary discretionary expenditures? - ANSWER Capital expenditures
that are discretionary outflows, like expanding warehouses
In Stancil's entreprenuerial capital budget model, what do you plot against what? - ANSWER 1)
coefficient of diffusion
2) rate of return for a set of proposals (r)
What is higher of cost of market called? - ANSWER Fraud
, Why do some sole proprietors aggressively obsolete inventory? - ANSWER To deliberately drive
down taxes: the higher COGS, the lower the profits, meaning lower taxes
What is a package? - ANSWER private placement memorandum, including a summary,
description of product/service, marketing plan, key team, and financial summary
what is a shopped deal? - ANSWER deal that has been shown to many potential investors;
implies other investors found something they didn't like
What was the change in the CPI-U in August 2018? - ANSWER 2/10 of 1% of the month (2.4% for
the year)
What is the fed's target for inflation? - ANSWER 2%
How do you find Break Even? - ANSWER Fixed charges/ contribution aka Gross profit/sales
What is contribution? - ANSWER gross profit/sales
What kind of charge is leverage in terms of break even analysis? - ANSWER a fixed charge
What is the maximum amount of debt that is financially viable? - ANSWER Amount of debt that
can be serviced = NOCFii / interest rate + sinking fund
What is NOCFii - ANSWER nocf - necessary discretionary
What does face amount of debt that can be serviced mean? - ANSWER how much money is
available to service the debt
