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51) Which of the following valuation methods requires estimating the value of a business by using
the industry price/earnings ratio?
A) Asset-based valuation
B) Price/earnings valuation
C) Capitalization of earnings valuation
D) Discounted future net cash flow
52) ________ is a relatively straightforward valuation system that uses the industry in which a
start-up operates.
A) Asset-based valuation
B) Market estimation valuation
C) Price/earnings valuation
D) Discounted future net cash flow
53) Which of the following valuation methods simply totals the value of all of the hard assets of an
organization and adds in some value for goodwill?
A) Asset-based valuation
B) Market estimation valuation
C) Price/earnings valuation
D) Capitalization of earnings valuation
54) ________ is performed by taking the earnings (net profit) of an organization; subtracting or
adding any unusual items that the lender or investor believes are not customary, normal, or usual
items; and dividing that figure by a capitalization rate.
A) Price/earnings valuation
B) Capitalization of excess earnings method
C) Discounted future net cash flow
D) Capitalization of earnings valuation
55) Which of the following valuation methods takes the earnings (or projected earnings) of a small
business and multiplies that figure by the market premium of companies in the industry?
A) Asset-based valuation
B) Capitalization of earnings valuation
C) Market estimation valuation
D) Discounted future net cash flow valuation
56) In the context of business valuation, the ________ is determined by examining similar
companies that have been acquired or more often by simply looking at the percentage premium
being offered in general on all new public acquisitions.
A) minority discount
B) equity value
C) control premium
D) goodwill value
57) In the context of business valuation, which of the following methods works best for firms with
hard resources and not an Internet business?
A) Asset-based valuation
B) Price/earnings valuation
C) Discounted future net cash flow
D) Market estimation valuation
58) One reason to hire a certified public accountant (CPA) firm is to
A) audit last year's financial statements.
B) put all of the statements into a standardized format.
C) develop procedures for the accounting of all activities.
D) all of these.
59) A small business founder needs to plan for the type of sale that will ________ their returns.
A) minimize
B) maximize
C) increase
D) decrease
60) Once a decision has been made to sell a business, what choice is available to the small business
owner?
A) Sell the business intact to a third party
B) Sell the business to a competitor
C) Do an initial public offering
D) All of these
61) Which of the following is the initial listing of a firm as a public entity on the public equities
market?
A) Internal price offering (IPO)
B) Initial public offering (IPO)
C) Internal public offering (IPO)
D) Interactive price offering (IPO)
62) Dura Steel Inc. is a steel manufacturing company, and the owners want to sell the company as
most of them are in their early 80s. They do not want to sell it to their competitors as the company
owns a lot of cutting-edge technologies and patents. They decide to list the company as a public
entity in the public equities market. This listing is known as a(n)
A) alternative public offering (APO).
B) reverse merger takeover (RMT).
C) private investment in public equity (PIPE).
D) initial public offering (IPO).
63) Which of the following is the effort to reverse the decline of a business?
A) Turnaround
B) Quick time
C) Fast around
D) Bridge
64) When a company starts to decline, the first step is to ________.
A) file bankruptcy
B) seek more investors
C) retrench
D) stabilize
65) Fit and Fab Company is a boutique in the United States that offers custom-made designer
wears to its customers. It used to source expensive material from the U.S. market. However, this
resulted in huge losses for the company. The owners want to turn around the declining business.
They control the cash outflow by sourcing the material from Asian countries that offer quality
material and fabrics at half the price. Identify the technique used by Fit and Fab Company to
reverse its decline.
A) Selection
B) Repositioning
C) Stabilization
D) Retrenchment
66) What term is used to describe the efforts to reverse the decline of a business?
A) Turnaround
B) Haircut
C) Retrench
D) None of these
67) Hot Tacos Inc. is a start-up business that offers a variety of tacos to its customers. Some bad
strategic and operational decisions result in huge losses for the company. Its owners encourage the
chief chef to try different flavors and launch an innovative taco flavor to attract lost customers.
This new taco proves to be a huge hit, and the firm regains its lost glory and profit. Identify the
effort that Hot Tacos Inc. adopted to reverse its losses.
A) "Workout"
B) "Haircut"
C) "Cramdown"
D) "Turnaround"
68) Why is it so difficult to turn around a small business whose performance is declining?
A) Small businesses have limited slack resources.
B) Government regulations on small businesses limit the ability to innovate.
C) Economic issues, such as the interest rate charged on loans, make it difficult to get the loans
needed to overcome problems.
D) None of these
69) A business that is declining due to operations problems struggles with
A) not selling enough products or services.
B) not being efficient in producing the product.
C) both of these.
D) none of these.
70) Which chapter of bankruptcy allows a firm to be reorganized in 90 days?
A) 7
B) 11
C) 12
D) 13
71) When a firm files a ________ bankruptcy, it receives immediate protection against all lawsuits
and other efforts to collect from the firm.
A) Subchapter S
B) Subchapter C
C) Chapter 7
D) Chapter 11
72) Which of the following statements is true of the fast-track version of Chapter 11 bankruptcy?
A) It shows how back taxes will be brought current over a five-year period.
B) It shows how unsecured creditors will be paid first.
C) It gives creditors far more control than in a larger organization Chapter 11 filing.
D) It is used if a firm's debts are more than $3 million.
73) Richard has invested $5 million in a roof installation company. Because of some bad strategic
decisions made by the company owners, the company runs into losses. It files Chapter 11
bankruptcy. The company owners and Richard reach a resolution, and Richard agrees to accept $3
million in the hope that the firm will regain its glory in the future. This reduction in the amount of
money that Richard accepts is known as a(n)
A) "look up."
B) "haircut."
C) "workout."
D) "slack."
74) Which chapter of bankruptcy provides for selling a business's assets?
A) 7
B) 11
C) 12
D) 13
75) Which chapter of bankruptcy is used by family farming businesses?
A) 7
B) 11
C) 12
D) 13
76) Which chapter of bankruptcy is intended for small firms with limited debts and assets?
A) 7
B) 11
C) 12
D) 13
77) In a successful Chapter 11 bankruptcy, a business owner may be able to do all of the following
EXCEPT
A) terminate leases and other contracts.
B) terminate union agreements.
C) force creditors to accept an equitable plan for reorganization.
D) sell the assets and keep the money for personal expenses.
78) Chapter 12 and Chapter 13 bankruptcies are used by what kinds of businesses that cannot be
turned around?
A) S and C corporations
B) Limited liability corporations
C) Partnerships and limited liability partnerships
D) Family-owned businesses and sole proprietors
79) Which legal form of business best protects an owner's personal assets when he or she must
declare business bankruptcy?
A) Corporation and limited liability corporation
B) Partnership and limited liability partnership
C) Sole proprietor
D) All of these
80) ________ valuation is a method of business valuation that totals all of the hard assets of an
organization and adds in some value for goodwill.
81) A(n) ________ is an option for high-growth businesses to sell their stock as a public entity in
the public equities market.
82) A method of business valuation that takes the earnings of a business and multiplies that figure
by the market premium of companies in its industry is called ________.
83) One way to determine the value of a publicly traded company is to divide the current earnings
per share of stock into the price per share. This is called the ________ ratio.
84) Maintaining an estimate of the value of a business as it grows and develops is the responsibility
of the ________.
85) ________ is the effort to reverse the decline of a business.
86) A business owner who is facing multiple problems that are causing the business to decline may
choose to attempt a(n) ________ to reverse the decline and improve performance.
87) A(n) ________ is invoked when there are instances where a business must simply be closed,
and selling the business consists of selling the "assets" of the business.
88) A valuation of a firm helps the owner to understand the true value of the company. List the five
elements for true valuation.
89) What are the three steps an owner follows when deciding to sell or harvest the business?
90) List the five methods of valuation of a firm.
91) List the four processes of getting the word out that a business is for sale.
92) List and describe the four chapters of bankruptcy.
93) Briefly discuss the characteristics of Chapter 13 bankruptcy.
