Question 1

Match the term with its definition.
-The first sale of shares of a company's stock to the public

Accepted Answer

A)  Build-up LBO
B)  Business broker
C)  Bust-up LBO
D)  Double taxation
E)  Employee Stock Ownership PlanF) HarvestingG) Initial public offeringH) Leveraged buyoutI) Management buyoutJ) Opportunity cost of fundsK) Private equity recapitalizationL) Seller financingM) D) and K)
N) D) and L)

Question 2

A build-up leveraged buyout involves

Accepted Answer

A)   developing the business to make it an attractive takeover target.
B)   acquiring businesses that occupy a higher level in the market channel.
C)   a longer time horizon than a bust-up leveraged buyout.
D)   constructing a larger enterprise to be taken public via an IPO.E) C) and D)
F) A) and B)

Question 3

A management buyout can contribute significantly to a firm's operating performance.

Accepted Answer

A) True 
 B)False

Question 4

After harvesting, many entrepreneurs experience conflicts that are _____ in nature.

Accepted Answer

A)   financial
B)   practical
C)   emotional
D)   tacticalE) B) and C)
F) A) and D)

Question 5

Harvesting owners can be paid in cash or in stock of the acquiring firm, with stock generally being preferred over cash.

Accepted Answer

A) True 
 B)False

Question 6

In most cases of IPOs, the equity capital raised is used for growth as opposed to an immediate exit strategy of the original entrepreneur.

Accepted Answer

A) True 
 B)False

Question 7

Steve wants to sell his business but the bank will not lend the buyer enough money. Between personal savings and the bank loan, the buyer has about 80% of the asking price. Which of the following options would be best for Steve in this situation?

Accepted Answer

A)   Look for a different buyer.
B)   Lower the asking price.
C)   Retain a 20% ownership in the business and a seat on the advisory board.
D)   Offer to finance the remaining 20%, accepting payments over the next few years.E) B) and D)
F) C) and D)

Question 8

An employee stock ownership plan represents

Accepted Answer

A)   a good way for a business founder to build his/her position in the company.
B)   an opportunity for employees to acquire an ownership interest in their company.
C)   a harvest method of choice.
D)   an effort to ease investor concerns.E) A) and B)
F) A) and C)

Question 9

While investors always think ahead about how to exit an enterprise, the entrepreneur should focus on daily operational strategies more than the exit strategy.

Accepted Answer

A) True 
 B)False

Question 10

Match the term with its definition.
-Taxation of income that occurs twice--first as corporate earnings and then as stockholder dividends

Accepted Answer

A)  Build-up LBO
B)  Business broker
C)  Bust-up LBO
D)  Double taxation
E)  Employee Stock Ownership PlanF) HarvestingG) Initial public offeringH) Leveraged buyoutI) Management buyoutJ) Opportunity cost of fundsK) Private equity recapitalizationL) Seller financingM) E) and J)
N) I) and J)

Question 11

The value of a business is determined by

Accepted Answer

A)   what the owner believes the business is worth.
B)   what a valuation formula determines its worth is to the owner.
C)   what a valuation formula determines its worth is to the buyer.
D)   what a buyer with the cash is prepared to pay.E) A) and B)
F) A) and C)

Question 12

Many entrepreneurs, grateful for their past success, feel the need to give something back to society after selling their company.

Accepted Answer

A) True 
 B)False

Question 13

Two years ago, Harold inherited $30,000 and decided to open a coffee shop in his hometown instead of buying stock in Ford Motor Company. The rate of return he could have earned on his investment in Ford stock represents his

Accepted Answer

A)   lost profit.
B)   opportunity cost of funds.
C)   investment opportunity.
D)   potential profit.E) All of the above
F) B) and C)

Question 14

The availability of a company's exit options is an important determinant of the appeal of the firm to

Accepted Answer

A)   suppliers.
B)   investors.
C)   employees.
D)   management.E) B) and D)
F) B) and C)

Question 15

Entrepreneurs who accept stock in payment for the sale of their businesses are usually pleased with the results because they escape a significant tax burden.

Accepted Answer

A) True 
 B)False

Question 16

The opportunity to exit a business is triggered by an interested seller.

Accepted Answer

A) True 
 B)False

Question 17

In earlier years, leveraged buyouts became synonymous with the ____ LBO.

Accepted Answer

A)   bust-up
B)   build-up
C)   owner-financed
D)   publicly-fundedE) A) and D)
F) A) and C)

Question 18

Matt owns a car dealership that is very profitable. Since he plans to retire in 5-10 years, Matt has decided to retain ownership for now, but without continuing to grow the business. This change would also allow him to invest for retirement some of the cash that the business is now generating. Which harvesting method does this example illustrate?

Accepted Answer

A)   A delayed sellout
B)   A strategy to release the firm's free cash flows to the owners
C)   Offering stock to the public through an IPO
D)   Issuing a private placement of stockE) B) and D)
F) A) and D)

Question 19

Which group is always concerned about how to exit a business?

Accepted Answer

A)   Investors
B)   Entrepreneurs
C)   Employees of the firm
D)   Investment bankersE) None of the above
F) A) and B)

Question 20

Nettie's Knits, Inc. paid taxes on its net income then distributed part of the earnings as dividends to investors. These investors paid tax on the dividends they received. This practice is know as:

Accepted Answer

A)   initial public offering.
B)   double taxation.
C)   twice taxation.
D)   harvesting taxation.E) A) and B)
F) A) and C)

Exam 13: Planning for the Harvest

The opportunity to exit a business is triggered by an interested seller.

Correct Answer
verified

Many entrepreneurs, grateful for their past success, feel the need to give something back to society after selling their company.

Correct Answer
verified

Two years ago, Harold inherited $30,000 and decided to open a coffee shop in his hometown instead of buying stock in Ford Motor Company. The rate of return he could have earned on his investment in Ford stock represents his

Correct Answer
verified

Entrepreneurs who accept stock in payment for the sale of their businesses are usually pleased with the results because they escape a significant tax burden.

Correct Answer
verified

The availability of a company's exit options is an important determinant of the appeal of the firm to

Correct Answer
verified

Steve wants to sell his business but the bank will not lend the buyer enough money. Between personal savings and the bank loan, the buyer has about 80% of the asking price. Which of the following options would be best for Steve in this situation?

Correct Answer
verified

An employee stock ownership plan represents

Correct Answer
verified

In earlier years, leveraged buyouts became synonymous with the ____ LBO.

Correct Answer
verified

A build-up leveraged buyout involves

Correct Answer
verified

In most cases of IPOs, the equity capital raised is used for growth as opposed to an immediate exit strategy of the original entrepreneur.

Correct Answer
verified

Which group is always concerned about how to exit a business?

Correct Answer
verified

Nettie's Knits, Inc. paid taxes on its net income then distributed part of the earnings as dividends to investors. These investors paid tax on the dividends they received. This practice is know as:

Correct Answer
verified

Correct Answer
verified

A management buyout can contribute significantly to a firm's operating performance.

Correct Answer
verified

Match the term with its definition. -The first sale of shares of a company's stock to the public

Correct Answer
verified

The value of a business is determined by

Correct Answer
verified

Harvesting owners can be paid in cash or in stock of the acquiring firm, with stock generally being preferred over cash.

Correct Answer
verified

While investors always think ahead about how to exit an enterprise, the entrepreneur should focus on daily operational strategies more than the exit strategy.

Correct Answer
verified

After harvesting, many entrepreneurs experience conflicts that are _____ in nature.

Correct Answer
verified

Match the term with its definition. -Taxation of income that occurs twice--first as corporate earnings and then as stockholder dividends

Correct Answer
verified

Exam 13: Planning for the Harvest

The opportunity to exit a business is triggered by an interested seller.

Correct AnswerverifiedShow Answer

Many entrepreneurs, grateful for their past success, feel the need to give something back to society after selling their company.

Correct AnswerverifiedShow Answer

Two years ago, Harold inherited $30,000 and decided to open a coffee shop in his hometown instead of buying stock in Ford Motor Company. The rate of return he could have earned on his investment in Ford stock represents his

Correct AnswerverifiedShow Answer

Entrepreneurs who accept stock in payment for the sale of their businesses are usually pleased with the results because they escape a significant tax burden.

Correct AnswerverifiedShow Answer

The availability of a company's exit options is an important determinant of the appeal of the firm to

Correct AnswerverifiedShow Answer

Steve wants to sell his business but the bank will not lend the buyer enough money. Between personal savings and the bank loan, the buyer has about 80% of the asking price. Which of the following options would be best for Steve in this situation?

Correct AnswerverifiedShow Answer

An employee stock ownership plan represents

Correct AnswerverifiedShow Answer

In earlier years, leveraged buyouts became synonymous with the ____ LBO.

Correct AnswerverifiedShow Answer

A build-up leveraged buyout involves

Correct AnswerverifiedShow Answer

In most cases of IPOs, the equity capital raised is used for growth as opposed to an immediate exit strategy of the original entrepreneur.

Correct AnswerverifiedShow Answer

Which group is always concerned about how to exit a business?

Correct AnswerverifiedShow Answer

Nettie's Knits, Inc. paid taxes on its net income then distributed part of the earnings as dividends to investors. These investors paid tax on the dividends they received. This practice is know as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

A management buyout can contribute significantly to a firm's operating performance.

Correct AnswerverifiedShow Answer

Match the term with its definition. -The first sale of shares of a company's stock to the public

Correct AnswerverifiedShow Answer

The value of a business is determined by

Correct AnswerverifiedShow Answer

Harvesting owners can be paid in cash or in stock of the acquiring firm, with stock generally being preferred over cash.

Correct AnswerverifiedShow Answer

While investors always think ahead about how to exit an enterprise, the entrepreneur should focus on daily operational strategies more than the exit strategy.

Correct AnswerverifiedShow Answer

After harvesting, many entrepreneurs experience conflicts that are _____ in nature.

Correct AnswerverifiedShow Answer

Match the term with its definition. -Taxation of income that occurs twice--first as corporate earnings and then as stockholder dividends

Correct AnswerverifiedShow Answer

Correct Answer
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