1. introduction to entrepreneurship and venture capital
quiz-introduction to entrepreneurship and venture capital
1、which one of the following is not a characteristic of entrepreneurship? a、entrepreneurship pursues opportunities and certain objectives. b、entrepreneurship could definitely create value. c、entrepreneurship is accompanied by risks and uncertainty. d、entrepreneurship is about to combine and deploy resources in an innovative way.
2、which one of the following statement about venture capital is true? a、liquidity for venture capital investment is high. b、venture capital would manage all its invested company themselves after investment. c、venture capital has to negotiate with the entrepreneurial firm to set the price for the company. d、it is easy for venture capital investors to sell the shares of their invested companies.
3、which of the following is not a characteristic of entreprenurs? a、risk-taking b、innovative c、passionate d、bureaucratic
4、what does certification benefit mean? a、the investment of venture capital investors could help confirm the high qulity of the venture. b、the investment of venture capital investors could give the entrepreneurial firms a strong network. c、the investment of venture capital could enable knowledge transfer to entrepreneurial firms. d、the investment of venture capital could provide credit ratings to entrepreneurial firms.
5、which stage in the venture's life cycle has the largest amout of investments? a、expansion stage. b、development stage. c、early growth stage. d、mature stage.
6、which of the following could not be the source for financial needs in the development stage? a、stock exchange. b、family and friends. c、crowdfunding. d、angel investors.
7、what are the responsibilities of entrepreneurs? a、perceive an opportunity to create value by redeploying society's resources b、devise a strategy for relocating and control of the necessary resources c、implement a plan of action to bring about the change d、havest the rewards that accrue from the innovation
8、entrepreneurship could... a、creat new product/services, new business model or new market. b、creat value for the society. c、make profits for the shareholders. d、help entrepreneur fulfill personal goals.
9、entrepreneurial firms have important influence on... a、economic growth b、employment in a society c、innovation in an economy d、socio-cultural development in a society
10、entrepreneurial financing may com from... a、venture capital b、crowdfunding c、angel investors d、government grants
11、who should learn about entrepreneurial financing? a、(potential) entrepreneurs. b、(potential) investors. c、(potential) government officials. d、(potential) professional managers.
12、established firms do not need entrepreneurship.
13、venture capital is a financier as well as a shareholder for its invested companies.
14、entrepreneurial firms could also get other benefits from the venture capital institutions except for financial investments.
15、the financial needs of entrepreneurial firms across its venture life cycle could be quite different.
2. entrepreneurial financing through the venture life cycle
quiz-entrepreneurial financing through the venture life cycle
1、in which stage the venture progresses from an idea to a promising business opportunity? a、development stage. b、early growth stage. c、startup stage. d、expansion stage.
2、which statement of the following is not a characteristic of internal financing? a、no collateral is needed. b、the amount of financing sourced is low to medium. c、the cost of capital is high. d、one example of internal financing is retained earnings.
3、which one of the following is not a kind of debt financing? a、trade credit. b、equipment financing. c、government debt programs. d、venture capital investment.
4、trade credit is... a、a debt that a supplier provides the company goods and the company doesn't have to pay them for some time. b、when you buy a machine, the lender or finance company finances that purchase, and take a collateral and equipment interest. c、the debt one entreprenurial company could get from the government. d、the company raises money from people, and in return, the company will give them a product or a reward.
5、which of the following statement is not true about replacement financing? a、it takes place in the expansion stage. b、leverage buyout (lbo) and private investment in public equity (pipe) are both replacement financing. c、replacement financing has a moderate level of risks. d、replacement financing happens mainly when the company wants to make strategic decisions.
6、the roles of financial managers include... a、financial planning. b、monitoring the venture's use of assets. c、monitoring the firm's operating efficiency and financial performance. d、arranging for any necessary financing.
7、which statements in the following are true about debt financing? a、debt is usually senior to equity. b、debt is often secured by collaterals. c、debt will make the creditor owner of the business. d、debt is an obligation to return principal and interest.
8、which ones of the following are crowdfunding? a、equity funding b、reward-based funding c、peer-to-peer lending d、charity-based crowdfunding
9、which ones of the following are vulture financing? a、restructuring financing b、replacment financing c、distressed financing d、expansion financing
10、which ones in the following could be identified as relevant or valuable assets in vulture financing? a、patents b、brands c、contracts d、equipments
11、one problem with debt is that paying interest from cash flow could be difficult for most start-ups.
12、when there is a large amout of investment needed, entrepreneurial company will go for external financing rather than internal financing.
13、most of external financings do not require collaterals.
14、equity financing is a kind of internal financing.
15、the aim of investors in distressed financing is not to finance the company, rather to buy the valuable assets of the company.
3. financial forecasting (1)
quiz-financial forecasting (1)
1、what is a yardstick company? a、a yardstick is an establishedn firm that is comparable to the venture on some dimensions that are important to forecasting. b、a yardstick is an established firm that is the best-performing company in the venture'sindustry. c、a yardstick is an established firm that is the largest company in the venture's industry. d、a yardstick is an established firm that is competing with the venture.
2、when forecasting revenue, which approach should we choose if there is no comparable firms for the new venture? a、yardstick approach. b、fundamental analysis. c、history data of the venture. d、historical real growth rate.
3、which one is not a factor in forecasting expense? a、costs of goods sold (cogs). b、marketing and sales expenditures. c、general and administrative expenditures. d、accounts revceivables.
4、in generating expense forecast, we could not get information on costs from... a、data on costs from comparable companies b、industry average data on costs from paid datasets c、industry data from government small business development departments d、data from the estimation of the entrepreneurs of the venture.
5、which one of the following is not a shortcoming of sensitivity analysis? a、history may not be predictive of the future. b、varing individual model inputs over predetermined ranges ignors possible interdependencies among variables. c、the forecaster's choice of maximum and minimum values for a given input may be subjective and result in a biased forecast. d、sensitivity analysis could only cover a limited number many different situations.
6、what are the generally used revenue forecast approaches for established firms? a、revenue forecast based on historial nomial growth rate b、revenue forecast based on historial real growth rate c、revenue forecast based on weighted historial real growth rate d、base forecast on fundamentals
7、what are the two approaches generally used for new ventures in revenue forecasting? a、yardsticks b、fundamental analysis c、forecasting based on historical real growth rate d、forecasting based on weighted historical real growth rate
8、what are the advantages in adopting a yardstick apporach in revenue forecasting? a、data is more likely to be available. b、this approach could provide insights into the development processes and financing choices. c、this approach does not require to get a lot of information or data. d、you could always find a yardstick company to any venture.
9、in fundamental analysis, how to forecast the revenue form the demand side? a、assess consumer willingness and ability to buy the product. b、assume that the venture has adequate ability to supply all that is demanded. c、begin with an estimate of the venture's market share. d、refer to the revenue of a comparable company.
10、how could we estimate the uncertainties and risks for new ventures? a、by using historical data. b、by using sensitivity analysis. c、by using scenario analysis. d、by using yardstick approach.
11、we should only use a bottom-up apprach in revenue forecasting.
12、there is no need to look at the supply side in revenue forecast in fundamental analysis.
13、one mistake that many make in expense forecasting is to underestimate the selling expenses.
14、in scenario analysis, we could randomly set up several scenarios and estimate their results.
15、fundamental analysis could be both empirical and conceptual.
4. financial forecasting (2)
quiz-financial forecasting (2)
1、which one of the following is not a key issues in cash flow forecasting? a、days receivable. b、inventory turnover. c、days payable. d、net profit.
2、in order to develop key assumptions, we should look for information into the following sources except... a、yardstick companies b、industry data c、other fundamental analysis d、forecasting from experts
3、when one business ratio from a comparable company contradicts that from industry average data, which one should we choose? a、choose the business ratio from the comparable company. b、choose the industry average data. c、choose the average of the two ratios. d、choose the one that fits into the situation of venture most.
4、which is the first step in making assumptions of the pro forma statements? a、revenue and cost assumptions. b、fixed asset assumptions. c、working capital assumptions. d、investment assumptions.
5、how should we do sensitivity analysis in financial forecasting? a、by changing one or more of our assumptions. b、by changing the sales level. c、by changing the investment. d、by changing the source of information.
6、what are the three financial statements in a pro forma statement? a、income statement. b、cash flow statement. c、balance sheet. d、profit statement.
7、what are the two aspects in building the pro forma financial statements? a、generate revenue. b、develop key assumptions. c、building and integrating the three statements. d、predict expenditures.
8、where does beginning cash come from? a、debt. b、equity. c、profits. d、account receivables.
9、what policies in the following could influence working capital? a、credit policy. b、inventory policy. c、purchasing policy. d、wage policy.
10、in order to develop key assumptions, we could use data from... a、personal interviews with famous entrepreneurs. b、databases of publicly listed companies such as sec. c、industry data from commercial databases. d、industry reports and statistics from government institutions.
11、the most generally made mistake in forecasting cash flow is underestimation of the length of operating cycle.
12、in developing assumptions, we could use all the business ratios of a comparable company.
13、we should establish all of the assumptions from one data source.
14、we do not to include uncertainty in financial forecasting if we believe our forecasting is very reasonable.
15、we have to consider both the need for working capital and the need of value maximization in making credit policies.
5. assessing financial needs
quiz-assessing financial needs
1、how does the operating efficiency influence the growth rate of the venture? a、by influencing return on assets (ros). b、by influencing leverage ratio. c、by influencing retention rate. d、by influencing turnover rate.
2、for a venture, what is the merit of setting a rapid growth rate? a、in some industries, survival and profitability depend on rapidly attaining a substaintial market position, such as internet-based industries. b、the venture will be more successful. c、the venture will have less uncertainty in its development. d、the venture will operate more efficiently.
3、when we talk about breakeven analysis in assessing financial needs in new ventures, we mean... a、breakeven time using the accounting approach b、breakeven time using the cash flow approach c、breakeven quantity using the accounting approach d、breakeven quantity using the cash flow approach
4、which statement in the following is true about scenario analysis? a、we need to include as many scenarios as possible. b、we need to change the assumptions of the pro forma statement to establish different scenarios. c、we only need to consider the worst scenarios in scenario analysis. d、we only need to consider the best scenarios in scenario analysis.
5、which of the following statement is not one reason why venture may fail because of unexpected success? a、the entrepreneur may be unable to grow the management team rapidly enough. b、the entrepreneur may not be able to acquire the assets necessary for production. c、the entrepreneur may be unable to develop products as expected. d、the entrepreneur may not able to arrage financing to support the rate of demand growth.
6、according to the sustainable growth model, what are the factors influencing the growth rate? a、return on assets (ros) b、leverage c、turnover rate d、retention rate
7、for a venture, what are the drawbacks of setting a rapid growth rate? a、it may lead to greater risks. b、higher needs of financing may lead to entrepreneur's losing control of the venture. c、it will reduce the possibility of getting investment. d、it will increase administrative expenditures.
8、which statements are true about the principals in answering how much financing a venture could seek for? a、if the business is thriving, the entrepreneur does not need to raise capital now to cover all future funding needs. b、there is no need to seek financing when operating losses are expected to continue and with little prospect of significant improvement. c、if the capital will not be needed until after a significant milestone is achieved, the entrepreneur does not need to raise it now. d、it is necessary for the venture to seek for investments as early as possible and as large as possible.
9、what approaches could be used in assessing financial needs? a、sustainable growth model. b、breakeven analysis. c、scenario analysis. d、simulation analysis.
10、which of the following could bring in serious problems for new venture? a、product development takes longer than expected. b、sales growth is slower than expected. c、sales growth is not enough to generate funds for capital replacement. d、one of the founder team members wants to quit his/her position and leave the venture.
11、the venture's dividend policy won't influence the growth rate of the venture.
12、ventures only fail when they grow too slowly.
13、when we are trying to determine the cash flow breakeven point, we should look at incremental contributions of users to operating profits rather than average contribution to operating profits.
14、when we calculate the financial needs using the cash flow breakeven analysis, we add all the financial shortfalls each year together until the time when the venture reaches the breakeven point.
15、in financial needs assessment, the only thing we need to do is to assess the financial needs of the venture in an expected future with reasonable assumptions.
6. introduction and discounted cash flow valuation
quiz
1、in capm model, the risk-free asset has a beta of ____. a、-1 b、0 c、1 d、0.5
2、the risk-free rate is 3.5%, the expected return on the market portfolio is 10.5%, firm a’s beta is 1.2. using the capm model, the expected return of firm a’s stock is ____. a、16.1% b、11.9% c、14.7% d、11.2%
3、for established private companies, the most widely used valuation method is _____. a、discounted cash flow model b、the first chicago method c、venture capital method d、relative valuation method
4、which of the following risks can be diversified through portfolio investment? _____. a、interest rate risk b、inflation risk c、market risk d、default risk
5、the measure of risk is the _____ of holding-period returns. a、standard deviation b、mean c、median d、mode
6、when a security is added to a portfolio, the appropriate return and risk contributions are_____. a、the expected return of the asset and its standard deviation. b、the expected return and the variance. c、the expected return and the beta. d、the historical return and the beta.
7、when stocks with the same expected return are combined into a portfolio , ______ a、the expected return of the portfolio is less than the weighted average expected return of the stocks. b、he expected return of the portfolio is greater than the weighted average expected return of stocks. c、the expected return of the portfolio is equal to the weighted average expected return of the stocks. d、there is no relationship between the expected return of the portfolio and the expected return the stocks.
8、covariance measures the interrelationship between two securities in terms of_____. a、both expected return and direction of return movement. b、both size and direction of return movement. c、the standard deviation of returns. d、both expected return and size of return movements.
9、the correlation between two stocks a、can take in positive values. b、can be 0. c、can be greater than 1. d、can be less than-1.
10、if the correlation between two stocks is-1,the returns____. a、generally move in the same direction. b、move perfectly opposite one another. c、are unrelated to one another as it is<0. d、have standard deviations of equal size but opposite signs.
11、stock a has an expected return of 20%, and stock b has an expected return of 4%. however, the risk of stock a as measured by its variance is 3 times that of stock b. if the two stocks are combined equally in a portfolio, what would be the portfolio's expected return? a、4% b、12% c、20% d、greater than 20%
12、a portfolio is entirely invested into buzz's bauxite boring equity, which is expected to return 16%, and zum's inc. bonds, which are expected to return 8%.sixty percent of the funds are invested in buzz's and the rest in zum's. what is the expected return on the portfolio? a、6.4% b、9.6% c、12.8% d、24.2%
13、you have plotted the data for two securities over time on the same graph,ie.,the month return of each security for the last 5 years. if the pattern of the movements of the two securities rose and fell as the other did, these two securities would have_____ a、no correlation at all. b、a weak negative correlation. c、a strong negative correlation. d、a strong positive correlation.
14、if you have a portfolio of two risky stocks which turns out to have no diversification benefit. the reason you have no diversification is the returns____ a、are too small. b、move perfectly opposite of one another. c、are too large to offset. d、move perfectly with one another.
15、the variance of stock a is 0.004, the variance of the market is 0.007 and the covariance between the two is 0.0026. what is the correlation coefficient? a、0.9285 b、0.8542 c、0.5010 d、0.4913
16、if the correlation between two stocks is 1, then a portfolio combining these two stocks will have a variance that is _____ a、less than the weighted average of the two individual variances. b、greater than the weighted average of the two individual variances. c、equal to the weighted average of the two individual variances. d、less than or equal to average variance of the two weighted variances, depending on other information.
17、the opportunity set of portfolios is_______ a、all possible return combinations of those securities. b、all possible return combinations of those securities. c、all possible risk-return combinations of those securities. d、the best or highest risk-return combination.
18、when many assets are included in a portfolio or index the risk of the portfolio or index will be _____ a、less than the risk of the securities because the correlations are usually less than 1. b、equal to the risk of the securities because the correlations are equal to 1. c、greater than the risk of the securities because the correlations are greater than 1. d、unaffected by the risk of securities because their correlations are less than 1.
19、the efficient set of portfolios______ a、contains the portfolio combinations with the highest return for a given level of risk. b、contains the portfolio combinations with the lowest risk for a given level of return. c、is the lowest overall risk portfolio. d、both a and b
20、in a radr valuation，the stock price at any point reflects the value of all future dividend cash flows.
21、in a radr valuation，the discount rate is a risk premium that depends on the riskiness of the expected future cash flow.
22、illiquidity does not affect the investors’ valuation of new venture investment.
23、market risk can be eliminated by diversifying the portfolio.
24、by holding more securities, diversifiable risk approaches zero and total risk approaches the market risk.
25、in the ceq approach of dcf valuation, the risk adjustment is adjusting the discount rate.
26、the expected return on a risky asset depends only on the market risk.
27、one drawback of using market comparables to estimate beta is that, it is unlikely to find true comparables for the new venture.
28、the ceq estimate is unbiased, whereas the radr estimate is not.
29、the ceq form of the capm works well if project risk is not too large compared to the expected cash flow and/or if the correlation between project cash flows and the market is not too great.
7. other valuation models and consistency
quiz
1、industry-specific multiples can be used to estimate either equity or enterprise value. the important consideration is________. a、一致性 b、准确性 c、真实性 d、时效性
2、in the vc method, value is estimated based on projected harvest date cash flows under the assumption that. a、the venture is doing its best to meet its performance objectives b、the venture is making profit. c、the venture meets its performance objectives d、we relate the market value of each comparable to the selected factor using ratios.
3、under the first chicago method, a user identifies a small number of discrete scenarios and values them using as a proxy of cost of capital. a、cost b、a discount rate c、both d、none
4、the first chicago method makes fundamental sense because the goal is to _________ a、value expected cash flows at real cost of capital. b、value expected cash flows at opportunity cost of capital. c、others d、none
5、the procedure of the vc method is not include________ a、select a terminal year for the valuation by determining a point where, if the venture is successful, harvesting by acquisition or ipo would be feasible. estimate net income or other cash flow in that year based on the success scenario. b、use the appropriate pe ratio or other multiple and the harvest date earnings or cash flow to compute continuing value. the multiple should reflect the expected capitalization of earnings or cash flow for a company that has achieved in the success scenario. c、convert the continuing value estimate to pv by discounting at a hurdle rate that is high enough to compensate for time value, risk, the probability that the success scenario will not be achieved, and dilution from anticipated future funding rounds. d、select a terminal year for the valuation based on the likely harvest date in the event of success.
6、the procedure of the first chicago method is not include____________ a、select a terminal year for the valuation based on the likely harvest date in the event of success. b、estimate the cash flows during the explicit value period based on a small number of discrete scenarios. c、compute the continuing value by applying a multiplier to the financial projection. the multiplier should reflect the success, sideways, and failure scenario. d、based on estimated pv, compute the minimum fraction of ownership an investor would require for a given amount of capital.
7、the issues of consistency can arise when we use continuing value in a pv calculation. ________is a shortcut way of projecting future cash flows. a、可持续创造 b、continuing value c、others d、both
8、a firm’s value is driven by its ________ a、profitability b、expected growth c、size d、risk
9、accounting-based approaches to valuing equity include: a、price to cash income b、price to levered free cash flow c、price to book value of equity d、price to asset
10、despite these problems and challenges, the vc method continues to be appealing because of its _________ a、simplicity b、intuitiveness c、accuracy d、none
11、usually the first chicago method is based on scenarios: a、“success” b、“sideways” c、“failure” d、none
12、the option pricing model is derived under an assumption of a、market completeness b、continuous trading of assets. c、the venture meets its performance objectives d、others
13、the main differences among the various dcf approaches concern a、the specific cash flows b、discount rates used c、the ways in which uncertainty is considered d、none
14、valuation approaches are complex or difficult to use and so they are sometimes too costly to justify. this is true particularly if a、the project is clearly worth pursuing b、alternative financial contract structures are uncomplicated c、agreements for sharing gains and losses can be reached informally d、none
15、accounting-based valuation multiples’ major probldms are___________ a、they are subject to accounting choices that can make comparison across firms inaccurate. b、the data in public financial statements are based on historical results, while value today depends on expected future performance. c、it’s too simple. d、others.
16、in the rv analysis, we can classify multiples into categories like___________ a、multiples based on the capitalized value of equity b、multiples based on enterprise value c、accounting based d、non-accounting based
17、there are more formal approaches as well to incorporating growth expectations into multiples analysis. commonly used multiples are ______ a、we divide p/e by the growth rate b、we divide enterprise value to ebitda by the growth rate c、we divide mb by the growth rate. d、none of the above
18、relative valuation (rv) uses data from public companies and public and private market transactions to estimate value.
19、in the rv analysis, we can classify multiples into two categories: (1) multiples based on the capitalized value of equity and (2) multiples based on enterprise value.
20、accounting-based valuation multiples have a problem : they are subject to accounting choices that can make comparison across firms inaccurate.
21、the growth-adjusted approaches are used to control the differences in growth expectations between the subject venture and the comparables.
22、we only consider financial metrics for multiples.
23、if the comparables used in the valuation are materially debt financed but the venture is entirely financed with equity, then the comparables ratios need to be based on enterprise value.
24、when we are using relative valuation method, for a new venture, private value and market value are the same.
25、the vc method consider cash flows in the explicit value period.
26、it is impossible to value cash flows by either the vc method or the first chicago method without relying on some asset pricing model to determine the appropriate discount rates.
27、option pricing model hold for most new ventures.
8.the continuing value and dcf
quiz
1、calculate the cash flow multiple if the discount rate and annual growth rate is 11% and 5%, respectively. a、17.5 b、6.56 c、15.83 d、5.94
2、in the ceq form, project risk is the standard deviation of ___, and the correlation is between project cash flows and ___. a、holding-period returns; market returns b、cash flows; market returns c、holding-period returns; cash flows d、cash flows; holding-period returns
3、the cash flow in year 1 would use a rate computed with the ___ treasury bond. a、6-month b、1-year c、5-year d、10-year
4、the easiest way to estimate the market risk premium is ___. a、a consensus estimate b、using the risk premium that is implied by discounting a forecast of future dividends c、using the historical data d、direct observation
5、calculate the expected return and the variance of returns on the market portfolio if 30%, 10%, and -5% are the market return in different scenarios, 0.3, 0.5, and 0.2 are probabilities of the occurrence of each scenario. a、13%;1.46% b、12%;1.46% c、12%;1.56% d、13%;1.56%
6、according (5), assuming the return on investment is 45%, 25% and 0, respectively. compute the covariance between market returns and project returns. a、1.92% b、1.56% c、1.23% d、1.74%
7、assuming a 4% risk-free rate, 6.5% market risk premium and the beta of 1.23, we can estimate the required return on the investment is ___. a、11% b、12% c、13% d、14%
8、assuming the covariance between market returns and project cash flows is $19,200, the covariance between market returns and project returns is 1.92%, and the market variance is 1.56%, then the cash flow beta is ___. a、1.23 b、$1,230,769 c、$1,000,000 d、1.00
9、using the cash flow beta above and assuming a 4% risk-free rate, a 6.5% market risk premium and expected cash flow of $260,000, calculate the pv of cash flow in the ceq model. a、$173,077 b、$180,000 c、$250,000 d、$243,750
10、assuming the annual standard deviation of market returns is 14.5%, the two-year standard deviation is ___. a、53.85% b、20.51% c、29% d、76.26%
11、suppose we can find mature public companies comparable to the venture and that are expected to pay dividends at a constant rate. if the price of the stock is $40, the dividend next year is $5, and the expected growth rate of dividends is $2%, estimate the cost of capital using the dividend discount model. a、14.5% b、10.5% c、12.5% d、16.5%
12、equity beta, a measure of ___, is derived by regressing stock returns on market returns. credit risk a、total risk b、market risk c、idiosyncratic risk d、credit risk
13、the betas of food companies tend to be ___, whereas those of construction firms tend to be ___. a、high;low b、high;high c、low;high d、low;low
14、with no growth, an investor is basically purchasing a perpetual stream of risky earnings. if earnings are expected to be $1 and the current price is $9, the estimated cost of capital is ___ percent. if the company has attractive investment opportunities, then the earnings/price ratio and cost of capital will be ___, depending on the value of the growth opportunities. a、11.1;higher b、11.1;lower c、9;higher d、9;lower
15、which of the following is not the benefit of the ceq form of the capm? a、valuation is based on expected cash flows b、cost of capital is used to value each annual cash flow c、cash flows that differ in terms of total risk are handled easily by the ceq method d、market data can be used to estimate cost of capital
16、explicit cash flows are normally estimated during ___. a、stable growth b、high growth c、negative growth d、positive growth
17、choosing the right multiplier or set of multipliers requires judgment and benefits from practical experience, multiples of which one is not commonly used? a、operating cash flow b、assets c、sales d、debts
18、we need to be cognizant of whether the cash flow projection is in real or nominal terms. if it is in nominal terms, then the appropriate risk-free rate is the ___ rate. a、nominal b、real c、high d、low
19、correlations with the market ___ with firm financial maturity. a、increase b、decrease c、fluctuate d、don’t change
20、a number near ___ is appropriate for a market-sensitive venture such as a financial institution or public utility. a number around ___ is appropriate for early-stage ventures that have characteristics more like lotteries. a、0.5;0.5 b、0.5;0.1 c、0.1;0.1 d、0.1;0.5
21、continuing value relies entirely on explicit forecasts of cash flows.
22、continuing value estimates are most reliable if they are made for a period when there is a change in the growth of the firm.
23、by comparing measures of dispersion of alternative multipliers across a sample of comparable firms, a multiplier with high dispersion, standardized by the mean or median value, yields a better estimate.
24、a higher rate of expected growth would increase the cash flow multiplier.
25、direct application of multipliers from comparable public companies could result in an underestimate of continuing value.
26、in the radr form, project risk is the standard deviation of holding-period returns, and the correlation is between project returns and market returns.
27、in the ceq form, project risk is the standard deviation of cash flows, and the correlation is between project cash flows and market returns.
28、the market risk premium is the expected difference between the return on the market and the project return.
29、if the company has attractive investment opportunities, then the earnings/price ratio and cost of capital will be higher, depending on the value of the growth opportunities.
9.an illustration in practice
quiz
1、supposed a is entirely equity financed, which of the following would be the appropriate discount rate.（） a、current rate on long-term treasury bonds b、market risk premium c、the cost of equity d、s&p 500 yield
2、supposed the current rate on long-term treasury bonds is 6.0%, the market risk premium is 8%, and the discount rate of a entirely equity financed company is 18%, according to capm, the asset beta is （）. a、1.2 b、1.5 c、1.8 d、2.0
3、supposed the equity β of a company is 1.8, mv equity is $21.0, debt is 6.0, the asset beta is （）. a、1.2 b、1.3 c、1.4 d、1.5
4、supposed the asset β of b company is 2.0, mv equity is $20.0, debt is 4.0, the equity beta is （）. a、1.6 b、1.8 c、2.0 d、2.4
5、given the following data, which of the following asset beta would you choose?（） comparable company equity beta mv equity debt a 2.1 $18 $12 b 1.2 $12 $3 c 1.5 $21 $4 a、1.16 b、1.16 c、1.64 d、none of the other three are correct
6、given the following data, please answer the 6th to 10th question. comparable company equity beta mv equity debt a 1.1 $16 $6 b 1.4 $24 $4 c 1.5 $24 $12 project information year continuing value cash flows probability 0 1 2 3 4 success 0.30 ($2,500) ($1,000) $1,000 $2,000 $3,000 $7,200 expected 0.50 ($2,500) ($1,000) $500 $500 $500 $4,500 failure 0.20 ($2,500) ($1,000) $0 $0 $0 $0 market information risk-free rate 4.00% 8.15% 12.50% 17.00% 21.50% market rate 10.50% 22.00% 35.00% 49.00% 65.00% the comparable firm beta is （）. a、0.80 b、1.00 c、1.33 d、1.36
7、the expected cash flow of year 3 is （）. a、850 b、1000 c、1250 d、1500
8、the estimated cost of capital of year 2 is （）. a、8.15% b、22.00% c、26.57% d、26.99%
9、the pv of expected cash flow in year 4 is （）. a、$716.42 b、$771.81 c、$1713.50 d、$1834.94
10、using the radr approach, the value of this project is （）. a、$1100 b、$1120 c、$1130 d、$1140
11、given the following data, please answer the 11th to 13th question. re rd mv equity debt 24.00% 6.40% $18 $6 project information year continuing value cash flows probability 0 1 2 3 4 success 0.40 ($2,500) ($1,000) $1,000 $2,000 $3,000 $7,200 expected 0.50 ($2,500) ($1,000) $500 $500 $500 $4,500 failure 0.10 ($2,500) ($1,000) $0 $0 $0 $0 the wacc is （）. a、6.40% b、15.20% c、19.20% d、24.00%
12、the pv of expected cash flow in year 4 is （）. a、$708.67 b、$1,212.37 c、$1,013.69 d、$1,169.35
13、using the wacc as the cost of capital, the value of this project is （）. a、$30 b、$537 c、$1,186 d、$2,899
14、given the following data, using the ceq form of capm to answer the 14th to 16th question. project information year continuing value cash flows probability 0 1 2 3 4 success 0.3 ($2,500) ($1,000) $1,000 $2,000 $3,000 $7,200 expected 0.5 ($2,500) ($1,000) $500 $500 $500 $4,500 failure 0.2 ($2,500) ($1,000) $0 $0 $0 $0 market information risk-free rate 4.00% 8.15% 12.50% 17.00% 21.50% market rate 10.50% 22.00% 35.00% 49.00% 65.00% market standard deviation 14.50% 20.51% 25.11% 29.00% 32.42% correlation 0.200 0.200 0.200 0.200 0.200 the standard deviation of year 2 is （）. a、$712 b、$507,500 c、$712 d、$507,500
15、the pv of expected cash flow in year 2 is （）. a、$400 b、$420 c、$440 d、$460
16、the value of this project is （）. a、$490 b、$510 c、$490 d、$510
17、given the following data, using the relative value method, please answer the 17th to 18th question. recent ipos company market capitalization @ipo cf to all investors a $118,170 $25,200 b $17,250 $2,830 c $48,440 $15,350 recent m&a transactions company price paid cf to all investors d $96,540 $6,120 e $54,300 $7,000 f $24,110 $6,500 project information year cash flows probability 0 1 2 3 4 5 success 0.3 ($2,500) ($1,000) $1,000 $2,000 $3,000 $3,200 expected 0.5 ($2,500) ($1,000) $500 $500 $500 $500 failure 0.2 ($2,500) ($1,000) $0 $0 $0 $0 using the relative value method, under the “success” scenario, the continuing value at the end of year 5 is （）. a、$10,098.24 b、$14,869.75 c、$15,005.71 d、$19,505.30
18、using the relative value method, under the “expected” scenario, the continuing value at the end of year 5 is （）. a、$1,854.62 b、$3,878.57 c、$4,540.15 d、$7,887.25
19、given the following data, which of the following is nearest to the discount rate if sum of pvs is 0? （） project information year continuing value cash flows probability 0 1 2 3 4 success 0.3 ($3,500) ($2,000) $1,000 $1,800 $2,500 $11,263 expected 0.5 ($3,500) ($2,000) $450 $450 $450 $3,758 failure 0.2 ($3,500) ($2,000) $0 $0 $0 $0 a、50.0% b、55.0% c、57.8% d、60.0%
20、given the discount rate is 45%, which of the following is better? （） project cash flows year continuing value 0 1 2 3 4 a ($5,000) ($500) $650 $800 $1,000 $7,200 b ($3,500) ($2,000) $2,000 $1,500 $1,000 $3,758 a、project a b、project b c、both project a and b d、neither project a or b
21、the difference between the values estimated by radr and ceq method is mainly from the lower discount rate of radr method.
22、using radr method, the value of the project would be overvaluation? （）
23、under the ceq method, the betas in each year stay constant. （）
24、using radr method, it would be hard to identify the separate information of each year.
25、using ceq method, cash flows that differ in terms of total risk are handled easily.
26、as long as the capm assumptions hold, any financial claim can be valued by using radr method.
27、with cv method, the magnitudes of the errors will increase with increases in the variability of cash flows in different years.
28、the vc method would have biases resulted from the choosing discount rate.
29、without guidance to determine the discount rate(s) to be used in the valuation, the first chicago method is unavailable.
30、the opportunity cost of capital implied by the capm for us investors is likely to be similar to the cost of capital implied by well-diversified portfolios throughout the world.
10. deal structure and contract design
quiz-deal structure and contract design
1、which term is used to protect the value of the investors' shares in the event that the company's share price declines in future financing rounds? a、preemptive rights b、anti-dilution provisions c、redemption rights d、drag-along rights
2、preemptive rights means that investors have the right to... a、protect the value of their shares in the event that the company's share price declines in future financing rounds b、purchase a portion of the shares that the venture issues in any financing round so that they can maintain their percentage ownership of the company. c、participate in the sale on a pro-rata basis if the shareholder of the venture is selling some or all of his shares to a third party. d、sell their shares back to the company at some point in the future if the comany has failed to provide any other liquidation options.
3、which of the following is not a suggestion for an entrepreneur in a negotiation with venture capitalists? a、focus on key issues such as valuation, the liquidation preferences, etc. b、if the negotiation doesn't go well with this investor, the entrepreneur should wait for another investor. c、the entrepreneur should go to the negotiation with experts in dealing structuring and negotiation. d、the entrepreneur should know about his or her most concerned objectives.
4、convertible note is essentially a/an... a、equity b、debt c、neither equity or debt d、both equity and debt
5、which one of the following is not a benefit from the outside investor to the venture and entrepreneur? a、outside investment enables the entrepreneur to invest less and increase diverfication. b、outside investment can increase the present value of the venture. c、an outside investor may contribute advice and information that enhance value. d、an outside investment is a chance for entrepreneurs to sell their shares and harvest.
6、what are the commonly seen issues or terms in a term sheet? a、valuation and amount of the investment b、the type of investment c、the closing date d、provisions and investor rights
7、what are the types of investment on new ventures? a、common stocks b、preferred stocks c、convertible note d、safe
8、which of the following statments are true about common stocks? a、common stock is convertible like some other securities are. b、common stock has dividends. c、common stock is generally the easiest and simplest for of equity. d、common stock empower the shareholders with voting rights.
9、which of the following show characteristics of preferres stock? a、preferred stock is a kind of debt. b、preferred stock has liquidition priviledges. c、preferred stock may have attached rights such as anti-dilution provisions. d、preferred stock enpowers the stockholders with voting rights.
10、why investors and entrepreneurs prefer convertible note in early stage financing? a、it is very simple to do. b、it defers the pricing decision to the future. c、it may have arrangements on valuation caps. d、it provides investors with voting rights.
11、a term sheet is equivalent to a contract.
12、safe is different from convertible note because convertible note does not have interest rates while safe has.
13、drag-along right means that if the board of directors and a majority of the shareholders have approved a sales of the company, minor shareholders who are dissenting or who are trying to hold out for a better deal have to go along.
14、weighted average anti-dilution provision is preferable for the entrepreneur than the full ratchet anti-dilution provision.
15、the convertible price of a concertible note is generally the same as the price of the next round equity investment.
12. harvesting
quiz-harvesting
1、which of the following statement is not a pro of going pubic? a、going public could provide credentials to the company. b、going public could provide shareholders with a certain level of liquidity. c、going public could enable the company to use stocks as a currency for acquisitions. d、going public is less costly.
2、which of the following statement is not true about purchasing equity in acquisitions? a、the buyer acquires ownership of the assets and at the same time also assumes the liabilities. b、the buy would not ask for representations and warranties from the seller company. c、the buyer normally hires a third party to take due diligence and assess the value. d、the buyer could use only cash, only stocks or a combination of both in the transaction.
3、is employee stock ownership plan (esop) leveraged or not? a、leveraged. b、not leveraged. c、either is possible. d、not sure.
4、which of the following is not a factor considered by the enterpreneurs and investors on harvesting? a、timing. b、company size. c、ownership and control. d、employees.
5、which of the following statement is not true about esop? a、esop enables employees to invest their retirement funds in equity of the company. b、the employees would not be able to liquidate their investment, they can only get dividends. c、esop could be leveraged. d、the company normally arranges a third party to value the equity of the company.
6、what are the possible alternatives in harvesting for ventures? a、going public b、acquisition c、management buyout (mbo) d、employee stock ownership plan (esop)
7、after going public, what are the possible approaches that shareholders of the venture could use to harvest from their investments? a、by using secondary sale as part of the ipo. b、by selling stocks in the secondary market. c、by sale in seasoned offerings. d、by selling shares privately
8、if the venture chooses to go public, what approaches would the investor choose to harvest if the amount of investment is large? a、sale in the secondary market. b、sale as part of the ipo. c、private sale. d、sale in a seasoned offering.
9、what are the pros for acquisitions as an alternative of harvesting? a、may provide a faster liquidity if the deal is by cash. b、there may be a synergy between the acquirer company and the seller venture. c、the entrepreneur will still has control over the venture. d、can provide entrepreneurs and investors of the venture with a higher price in harvesting.
10、which of the statements on management buyout (mbo) is true? a、mbo is usually financed with debt. b、mbo is feasible only if the venture is reasonabley successful. c、the transaction by using mbo could be quite low. d、conflicts and differet expectations may trigger the necessity of mbo.
11、investors would consider issues on harvesting even before they make the investment decision.
12、if the venture is going public, the investors prefer to sell their shares as a part of the ipo because they could get their invesment back more quickly.
13、the possibility of underpricing is one reason why some ventures do not want to choose going public as a harvesting alternative.
14、the price of only purchasing the assets would be lower than an equity purchase.
15、there is a clear boundary between going public and acquisition.
11. choice of financing
quiz - choice of financing
1、according to the pecking order theory, firm owners prefer to use ( ) first. a、a. short-term debt b、long-term debt c、external equity d、internal financing
2、seed and start-up ventures raising immediate cash can choose all the following except ( ). a、loans from friends and family b、venture capital c、additional investment from existing stakeholders d、personal savings of the entrepreneur
3、when the financing needs are volatile and unpredictable, the venture will seek for ( ) sources. a、short-term financing b、long-term financing c、equity financing d、government programs
4、if venture reputation is important to customers and suppliers, the venture may want to avoid high levels of ( ). a、angel investors b、strategic partner c、debt financing d、venture capital
5、if growth is expected to be high but growth prospects are uncertain, the venture is more likely to need a high level of ( ). a、stretch payables b、accelerate collections c、bootstrapping d、outside financing
6、for the equity financing, the positive aspects of this capital include the following except ( ). a、no personal guarantees b、no collateral is required c、dividends are not tax-deductible d、no regular cash payments are required
7、which of the following may be a negative aspect of angel equity capital ( ). a、the angels have great business experience and therefore are value-added investors b、angel investors can be more patient than institutional investors c、angel investors may exert excessive interference d、angel investors can provide seed capital
8、the basic model of the financing decision process considers the following factors except ( ). a、the stage of the venture b、the industry of the venture c、the timing of the financing need d、the size of the financing need
9、which of the following is not an example of bootstrap financing? ( ) a、government programs b、loans from family and friends c、a mortgage on the entrepreneur's home d、credit cards
10、factors an entrepreneur should consider when seeking venture capital include all the following except ( ). a、the timing of the venture b、the industry sector that is attractive to vc firms c、shorter-term opportunities of the venture d、locating in a region with a large number of firms
11、early-stage r&d ventures have mainly tangible assets, and borrowing could be feasible.
12、a venture that is generating revenue has more ability to link financing to attained revenue.
13、a business that is growing at the inflation rate is normally much more in need of adding financing and can not finance growth from its operations.
14、a venture that is growing rapidly will need to finance its current assets (e.g.cash, accounts receivable, inventory) by increasing current liabilities such as accounts payable, and wages payable.
15、profitability gives the venture the ability to take advantage of the tax deductibility of interest payments.
16、the main drawback of a secured loan is that a rigid schedule of debt service may be required.
17、vc investors will acquire an ownership stake, and may demand board representation but vc firms may not limit the firm’s flexibility.
18、postponing payment of accounts payable usually is an expensive way to finance if it involves foregoing the discount for prompt payment.
19、the pecking order theory assumes that firms would make financing decisions based on the principle of maximizing costs.
20、according to the growth cycle theory, firms use the same forms of financing for different stages of growth.
21、the outside investor’s active involvement brings no costs to the venture.
22、raising capital should be a continuing process for ventures.
23、providers of long-term funds may not restrict future borrowing.
24、short-term sources with high-interest-rate can be attractive for long-term needs.
25、seed and start-up ventures have the most limited set of options for raising immediate cash.
13. introduction to corporate venture capital (cvc)
quiz -introduction to corporate venture capital
1、which of the following is not an example of strategic alliances? ( ) a、merger & acquisition b、cooperative marketing agreements c、joint r&d projects d、long-term supplier contracts
2、the differences between strategic alliance and cvc include all the following except ( ). a、alliance partners mutually commit resources while cvc investment enables one firm to provide funding to another b、the funded venture performs value chain activities on a stand-alone basis in cvc while value chain activities are performed interaclively by both alliance partners. c、their governance are different d、cvc is not strategic activities
3、under which condition established firms are more likely to source innovative ideas through cvc ( ). a、strong intellectual property protection b、high technology industries c、access to complementary assets is not important d、limited cash flow
4、the similarities among cvc, ivc and gvc firms include the following except ( ). a、they invest in growth-oriented ventures b、they conduct pre-investment due-diligence c、they provide value-added services post-investment d、they have similar organizational structures
5、which of the following is not a type of governmental funds? ( ) a、funds-of-funds b、hybrid funds c、direct public funds d、ivc funds
6、the investment goal of ivc is ( ). a、financial returns b、strategic objectives c、economical development d、both a & b
7、cvc fund managers are often compensated by ( ). a、a fixed salary b、corporate bonuses c、both a & b d、part of the funds' profits
8、which of the vc firms can provide unique resources or relationships to universities or public institutions? ( ) a、ivc b、gvc c、cvc d、none of them
9、which of the vc firms are able to provide distribution channels, or production capacity to portfolio companies ? ( ) a、ivc b、gvc c、cvc d、none of them
10、the prevalent cvc structures include all the following except ( ). a、dedicated vc fund b、direct investment c、matrix structure d、wholly owned subsidiary
11、cvc is a minority equity investment by established corporations in entrepreneurial ventures.
12、both alliances and cvc programs enable firms to tap into emerging technology markets, and they are without differences.
13、the primary motivation for cvc is financial.
14、it is accepted that start-ups backed by cvc funding appear to perform at least as well as vc-backed peers.
15、cvc funds are often structured as limited partnerships and are restricted by a contractually enforced ten-year lifespan.
16、cvcs have longer investment horizons than do ivcs.
17、the performance-based compensation structure enjoyed by the ivc fund managers is often found in cvc funds.
18、there are no trade-offs among structures of cvcs.
19、there is substantial variation in program autonomy in terms of capital allocation and decision autonomy in different structures of cvcs.
20、it's clear that many driving investments can advance a corporate strategy, and there are no limits to what they can achieve.
21、in cvc investments, driving investments are more suitable to further the company's current strategy, while emergement investments will become strategically valuable when the market changes.
22、both enabling investments and passive investments would bring losses to their parent companies if their market share were not high enough.
23、tightly structured cvc programs like direct investments are more likely to have a dedicated pool of funds and enjoy decision-making autonomy.
24、loosely structured cvc programs, such as the wholly owned subsidiaries and dedicated funds, are more likely to be subjected to rigorous corporate scrutiny.
25、cvc programs structured as wholly owned subsidiaries are less effective in communicating new opportunities to the business units.