Name:
Class:
Date:
chapter 1
Indicate whether the statement is true or false.
1. The financial objective of increasing value is inconsistent with developing positive character and reputation.
a. True
b. False
2. In Chapter 1, five megatrend categories are identified as sources of entrepreneurial opportunities.
a. True
b. False
3. In the early 1970s, Harry Dent recognized that the U.S. economy centered on the creation and distribution of
information.
a. True
b. False
4. Nearly half of business failures are due to economic factors such as inadequate sales, insufficient profits, and industry
weakness.
a. True
b. False
5. Free cash is all of the cash available to cover operating expenses.
a. True
b. False
6. The second stage in a successful venture’s life cycle is the startup stage.
a. True
b. False
7. Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
a. True
b. False
8. Mezzanine financing is temporary financing needed to keep the venture afloat until the next offering.
a. True
b. False
9. Around two-thirds of new employers survive at least two years, and only about one-half survive for at least five years.
a. True
b. False
10. Early-stage ventures include firms in their development, startup, or survival life cycle stages.
a. True
b. False
Name:
Class:
Date:
chapter 1
11. The entrepreneurial process involves: developing opportunities, gathering resources, and managing and building
operations, all with the goal of creating value.
a. True
b. False
12. Democratic capitalism exists where a country or state organized as a democracy adopts a capitalistic economic system.
a. True
b. False
13. A study of the U.S. Census Bureau’s Characteristics of Business Owners database suggests that about two-thirds of
closed businesses were successful at closure.
a. True
b. False
14. The sharing economy refers to the cross-referencing of innovations for record-keeping purposes.
a. True
b. False
15. The housing asset bubble burst in 2006.
a. True
b. False
16. A venture, if organized as a corporation, may desire to provide venture investor liquidity by establishing a public
market for its equity.
a. True
b. False
17. Reasonable estimates place nonemployer (e.g., single person or small family) businesses started each year at less than
100,000.
a. True
b. False
18. Free cash exists when cash exceeds that which is needed to operate, pay creditors, and invest in assets.
a. True
b. False
19. An initial public offering provides a venture with a source of bridge financing.
a. True
b. False
20. “Crises and “‘bubbles’” and “emerging economies and global change” are considered to be sources of entrepreneurial
opportunities.
a. True
b. False
Name:
Class:
Date:
chapter 1
21. The owner–debtholder conflict is the divergence of the owners’ and lenders’ self-interests as the firm gets close to
going “public.”
a. True
b. False
22. A market-oriented economic system provides an environment that fosters the formation, development, and
transformation of ideas into useful products and services.
a. True
b. False
23. The time value of money is an important component of the rent one pays for using someone else’s financial capital.
a. True
b. False
24. The millennials generation consists of people born in the United States after 1996.
a. True
b. False
25. In the broadest context, societal change reflects the evolution of humanity over time.
a. True
b. False
26. An entrepreneur is an individual who thinks, reasons, and acts to convert ideas into commercial opportunities and to
create value.
a. True
b. False
27. Financial distress occurs when cash flow is insufficient to meet current debt obligations.
a. True
b. False
28. Environmental commerce, or e-commerce, involves the use of electronic means to conduct business online.
a. True
b. False
29. Nine principles of entrepreneurial finance are identified and explored in this textbook.
a. True
b. False
30. Business angels are wealthy individuals, operating as informal or private investors, who provide venture financing for
small businesses.
a. True
b. False
Name:
Class:
Date:
chapter 1
31. Free cash flow is the net income forecasted to be available to the venture’s owners over time.
a. True
b. False
32. Mark Twain once said, “I was always able to see an opportunity before it became one.”
a. True
b. False
33. Owner–manager (agency) conflicts are differences between a manager’s self-interest and that of the owners who hired
the manager.
a. True
b. False
34. A venture’s financial objective is to survive.
a. True
b. False
35. Venture character and reputation can be assets or liabilities.
a. True
b. False
36. Perhaps the most important invention in shuttling us from an industrial society to an information society was the
computer chip.
a. True
b. False
37. Technological change may be the most important source of entrepreneurial opportunities.
a. True
b. False
38. The “dot.com” or Internet bubble burst in 2008.
a. True
b. False
39. Fads are large societal, demographic, or technological trends or changes that are slow in forming but, once in place,
continue for many years.
a. True
b. False
40. While cash is the language of business, accounting is the currency.
a. True
b. False
Name:
Class:
Date:
chapter 1
41. Free cash flows are adjusted for risk and the time value of money when used to calculate the value of a venture.
a. True
b. False
42. Entrepreneurial finance is the application and adaptation of financial tools and techniques to the planning, funding,
operations, and valuation of an entrepreneurial venture.
a. True
b. False
43. Fads are not predictable, have short lives, and do not involve macro changes.
a. True
b. False
44. Although the risks associated with starting a new entrepreneurial venture are large, there is always room for one more
success.
a. True
b. False
45. Capitalism is a market-oriented system that prohibits private ownership of physical and financial assets.
a. True
b. False
46. Disruptive innovation is an innovation that creates a new market or network that disrupts and displaces an existing
market or network.
a. True
b. False
47. The rapid-growth stage directly follows the startup stage.
a. True
b. False
48. Entrepreneurial opportunities can occur only when there are societal changes in the world.
a. True
b. False
49. Three of the major megatrends discussed in Chapter 1 include: societal trends or changes, demographic trends or
changes, and technological trends or changes.
a. True
b. False
50. The boomers generation applies to people born in the United States during the 1946–1964 time period.
a. True
b. False
Name:
Class:
Date:
chapter 1
51. It is estimated that more than one million new businesses are started in the United States each year.
a. True
b. False
52. The gig economy involves individuals working as independent contractors and accepting short-term jobs or
assignments, rather than being full-time employees.
a. True
b. False
53. One principle of entrepreneurial finance is “risk and expected reward go hand in hand.”
a. True
b. False
54. The me-first economy reflects the willingness of individuals to share their assets with others to provide a new way of
distributing goods and services.
a. True
b. False
55. Financial causes, such as excessive debt and insufficient financial capital, are not major contributors to business
failures.
a. True
b. False
56. Private financial markets are a place where standardized contracts or securities are traded on organized securities
exchanges with restrictions on how they can be transferred.
a. True
b. False
57. Entrepreneurs provide the financing to individuals who think, reason, and act to convert ideas into commercial
opportunities and create opportunities.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
58. Which of the following is not a source of entrepreneurial opportunities referred to in this textbook?
a. societal changes
b. political changes
c. demographic changes
d. technological changes
59. Which of the following is not a major source of startup financing for a venture’s startup stage?
a. the entrepreneur’s assets
b. business operations
c. family and friends
Name:
Class:
Date:
chapter 1
d. venture capitalists
60. The type of financing that occurs during the development stage of a venture’s life cycle is typically referred to as:
a. seed financing
b. startup financing
c. second-round financing
d. mezzanine financing
61. Which of the following is considered to be an agency conflict?
a. owner–manager conflict
b. stockholder–manager conflict
c. stockholder–debtholder conflict
d. owner–debtholder conflict
Supplementary Questions (may require basic knowledge of probability and/or prior introductory accounting and
business concepts)
62. Assume that you can sell a new product at $5.00 per unit. Variable costs are $3.00 per unit, and fixed costs are
$20,000. What will be the profit before taxes if you sell 12,000 units next year?
a. $0
b. $2,000
c. $4,000
d. $8,000
63. Which of the following countries engage in democratic capitalism?
a. United States
b. United States, France, and Germany
c. France and Germany
d. United States and France
64. The first three stages of a successful venture’s life cycle occur in the following order:
a. development, startup, survival
b. development, rapid-growth, survival
c. startup, development, rapid-growth
d. survival, rapid-growth, early-maturity
65. Which of the following possible conflicts of interest is usually minimized through the use of equity incentives?
a. owner–manager conflict
b. owner–employee conflict
c. manager–employee conflict
d. owner–debtholder conflict
66. The last three stages of a successful venture’s life cycle occur in the following order:
a. startup, development, rapid-growth
b. startup, survival, rapid-growth
c. survival, rapid-growth, early-maturity
d. development, startup, survival
Name:
Class:
Date:
chapter 1
67. The sharing economy involves:
a. the traditional distribution model
b. peer-to-peer arrangements
c. hierarchical arrangements involving a third intermediary party
d. peer-to-peer and hierarchical arrangements
68. Which stage in the venture life cycle is characterized by creating and building value, obtaining additional financing,
and examining opportunities?
a. survival stage
b. startup stage
c. rapid-growth stage
d. early-maturity stage
Supplementary Questions (may require basic knowledge of probability and/or prior introductory accounting and
business concepts)
69. A project requires an initial investment of $1,000,000. In one year, there is a 40% chance of a $950,000 return; a 50%
chance of a $1,200,000 return; and a 10% chance of a $2,000,000 return. What is the project’s expected return one year
from now?
a. 12.8%
b. 15.5%
c. 18.0%
d. 38.3%
70. You are considering investing in two independent projects: A and B. Project A requires an initial investment of
$12,000. In one year, there is a 30% chance of a $10,500 return; a 50% chance of a $12,500 return; and a 20% chance of a
$14,500 return. Project B requires an initial investment of $1,000. In one year, there is a 25% chance of a $950 return; a
25% chance of a $1,000 return; and a 50% chance of a $1,200 return. If you require a 7% return on your investment after
one year, you should:
a. accept Project A and reject Project B
b. accept Project B and reject Project A
c. accept both projects
d. reject both projects
71. Maximizing the value of the venture for its owners is the common financial goal of which of the following?
a. the entrepreneur
b. the debtholders
c. the venture equity investors
d. the entrepreneur and the venture equity investors
72. The entrepreneurial process involves:
a. developing opportunities
b. gathering resources
c. managing and building operations
d. developing opportunities, gathering resources, and managing and building operations
Name:
Class:
Date:
chapter 1
73. Financial markets where customized contracts or securities are negotiated, created, and held with restrictions on how
they can be transferred are called:
a. private financial markets
b. public financial markets
c. domestic financial markets
d. international financial markets
74. The sharing economy is a(n):
a. developing societal megatrend
b. fad
c. exchange of food at local restaurants
d. demographic bubble
75. Which of the following does not describe activity during the startup stage of a venture’s life cycle?
a. the venture’s organization
b. the venture’s development
c. operating cash flows are generated
d. initial revenue model is put in place
76. An innovation that creates a new market or network that displaces an existing market or network is called a:
a. crisis or “bubble”
b. disruptive innovation
c. fad
d. negative innovation
77. Which of the following is not a life cycle stage of a successful venture?
a. development stage
b. startup stage
c. survival stage
d. declining stage
78. Which of the following would not be considered a type of venture financing?
a. seed financing
b. startup financing
c. mezzanine financing
d. seasoned financing
Supplementary Questions (may require basic knowledge of probability and/or prior introductory accounting and
business concepts)
79. Lindsey and Tobias have the opportunity to invest in a project that requires an investment of $3,000. In one year, there
is a 35% chance of a $2,900 return; a 40% chance of a $3,400 return; and a 25% chance of a $4,500 return. Lindsey
requires a 15% return on the project after the first year, but Tobias requires a return of only 12%. Using the expected rate
of return:
a. Lindsey and Tobias should both invest in the project
b. Only Tobias should invest in the project
c. Only Lindsey should invest in the project
Name:
Class:
Date:
chapter 1
d. Lindsey and Tobias should both reject the project
80. The type of financing that occurs during the survival stage of a venture’s life cycle is typically referred to as:
a. seed financing
b. startup financing
c. first-round financing
d. mezzanine financing
81. During the early-maturity stage of a venture’s life cycle, the primary source of funds is in the form of:
a. mezzanine financing
b. seasoned financing
c. seed financing
d. first-round financing
82. About one-half of all new employers in the United States survive for at least how many years after being started?
a. two years
b. three years
c. five years
d. eight years
83. Which of the following are sources of entrepreneurial opportunities?
a. societal, demographic, and technological trends
b. crises and “bubbles“
c. emerging economies and global changes
d. societal, demographic, and technological trends; crises and “bubbles”; and emerging
e. economies and global changes
84. Obtaining bank loans, issuing bonds, and issuing stock is characteristic of which type of financing during a venture’s
life cycle?
a. seed financing
b. second-round financing
c. mezzanine financing
d. seasoned financing
85. Founder and venture investor shares that are sold to the public after the initial public offering to the public is called a:
a. secondary market transaction
b. secondary stock offering
c. venture offering
d. bridge loan
86. During a venture’s rapid-growth stage, funds for plant expansion, marketing expenditures, working capital, and
product or service improvements is obtained through:
a. seed financing
b. second-round financing
c. mezzanine financing
d. liquidity-stage financing
Name:
Class:
Date:
chapter 1
87. About what percent of all new employers in the United States survive for at least two years?
a. one-fifth
b. one-third
c. one-half
d. two-thirds
88. Successful entrepreneurs do not exhibit which of the following traits?
a. recognize and seize commercial opportunities
b. tend to be doggedly optimistic
c. express conditional optimism
d. are pessimistic about the future
89. Which of the following statements is correct?
a. the development stage occurs between the startup and survival stages of a venture’s life cycle
b. the early-maturity stage is the final stage of a new venture’s life cycle
c. firms typically begin to cover all expenses with internally generated funds during the survival stage
d. during the startup stage, revenues grow much more rapidly than cash expenditures
90. The stage that precedes the survival stage in a successful venture’s life cycle is called the:
a. rapid-growth stage
b. early-maturity stage
c. development stage
d. startup stage
91. Where individuals accept short-term job assignments instead of having full-time employment is called the:
a. sharing economy
b. gig economy
c. make-work economy
d. declining economy
92. The goal of the entrepreneurial process is to:
a. develop opportunities
b. gather resources
c. manage and build operations
d. create value
93. Which of the following generation classifications is associated with births in the 1965–1980 time period?
a. boomers
b. Generation X
c. millennials
d. Generation Z
94. Which of the following is not considered to be a megatrend in this textbook?
a. societal, demographic, and technological changes
b. crises and “bubbles“
Name:
Class:
Date:
chapter 1
c. fads
d. emerging economies and global changes
95. Harry Dent documented major generation waves in the United States during the twentieth century in:
a. 1972
b. 1982
c. 1993
d. 2003
96. What is the number of principles of entrepreneurial finance that are emphasized in this textbook?
a. three
b. five
c. seven
d. nine
97. Entrepreneurial finance involves:
a. planning
b. planning and funding
c. planning, funding, and operations
d. planning, funding, operations, and valuation
98. Mezzanine financing is associated with which of the following life cycle stages?
a. development stage
b. startup stage
c. survival stage
d. rapid-growth stage
99. Fads:
a. are not predictable
b. have short lives
c. do not involve macro changes
d. are not predictable, have short lives, and do not involve macro changes
100. The “dot.com” or Internet bubble burst in:
a. 1990
b. 2000
c. 2006
d. 2008
101. Which of the following possible conflicts of interest increases in divergence at venture gets close to bankruptcy?
a. owner–manager conflict
b. owner–employee conflict
c. manager–employee conflict
d. owner–debtholder conflict
Name:
Class:
Date:
chapter 1
102. Which stage of a venture’s life cycle is best characterized by the period when revenues start to grow and when cash
flows from operations begin covering cash outflows?
a. survival stage
b. startup stage
c. rapid-growth stage
d. early-maturity stage
Supplementary Questions (may require basic knowledge of probability and/or prior introductory accounting and
business concepts)
103. You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $5,000 or
$6,000, with an equal chance of either outcome occurring. What is the expected rate of return?
a. 10%
b. 15%
c. 20%
d. 25%
104. Which of the following individuals once said, “I was seldom able to see an opportunity, until it ceased to be one.”
a. Mark Twain
b. Bill Gates
c. Steve Jobs
d. Jeff Bezos
105. E-commerce refers to:
a. environmental commerce
b. electronic commerce
c. economic commerce
d. exploratory commerce
Supplementary Questions (may require basic knowledge of probability and/or prior introductory accounting and
business concepts)
106. Assume that you can sell a new product at $5.00 per unit. Variable costs are $3.00 per unit, and fixed costs are
$20,000. What is the breakeven point in sales units?
a. 5,000
b. 7,500
c. 10,000
d. 12,500
107. You have the opportunity of making a $5,000 investment. The outcomes one year from now will be either $4,500 or
$6,000, with an equal chance of either outcome occurring. What is the expected outcome?
a. $4,500
b. $6,000
c. $5,250
d. $5,750
108. The last stage in a successful venture’s life cycle is called the:
a. rapid-growth stage
Name:
Class:
Date:
chapter 1
b. early-maturity stage
c. development stage
d. survival stage
109. One study of successful entrepreneurs indicated that a majority felt that the most important factor in the long-term
success of their ventures was:
a. being greedy
b. having high ethical standards
c. working hard
d. taking frequent vacations
110. The time value of money concept is associated with which of the following principles of entrepreneurial finance?
a. real, human, and financial capital must be rented from owners
b. risk and expected reward go hand in hand
c. while accounting is the language of business, cash is the currency
d. it is dangerous to assume that people act against their own self-interests
111. Which of the following advise and assist corporations on the type, timing, and costs of issuing new debt and equity
securities?
a. brokerage firms
b. venture law firms
c. specialist firms
d. investment banking firms
Name:
Class:
Date:
chapter 1
Answer Key
Name:
Class:
Date:
chapter 1
Name:
Class:
Date:
chapter 1
Name:
Class:
Date:
chapter 1
Name:
Class:
Date:
chapter 1