Question 1

Opportunity cost of funds is the rate of return that an investor can earn on another investment of similar risk.

Accepted Answer

A) True 
 B)False  True

Question 2

The harvesting process encompasses more than just selling and leaving a business.

Accepted Answer

A) True 
 B)False  True

Question 3

The effects of the harvesting process often include

Accepted Answer

A)  a reduction in time and energy. 
B)  an increased managerial focus. 
C)  an increase in momentum. 
D)  poor performance. 
A)  a reduction in time and energy. 
B)  an increased managerial focus. 
C)  an increase in momentum. 
D)  poor performance. D

Question 4

Jacob has worked for the past five years to build his business but wants to travel more, so he is thinking it is time to harvest. Harvesting refers to

Accepted Answer

A)  starting a business. 
B)  managing the growth of a business. 
C)  exiting a business. 
D)  diversifying a business. 
A)  starting a business. 
B)  managing the growth of a business. 
C)  exiting a business. 
D)  diversifying a business.

Question 5

What are the potential upsides and downsides of an employee stock ownership plan (ESOP) to both the owner and employees of a company?

Accepted Answer

An owner can sell all of her or his stoc

Question 6

Charles and Nancy have decided to sell their family business and would like to transfer ownership to the next generation. Which of the following harvesting forms would be best?

Accepted Answer

A)  Cash flow distribution 
B)  Initial public offering 
C)  Private equity recapitalization 
D)  Selling to a strategic buyer 
A)  Cash flow distribution 
B)  Initial public offering 
C)  Private equity recapitalization 
D)  Selling to a strategic buyer

Question 7

Whatever the negotiating skills of the respective parties, harvesting a company requires a

Accepted Answer

A)  business broker. 
B)  promise of positive cash flows. 
C)  precise valuation formula. 
D)  willing buyer. 
A)  business broker. 
B)  promise of positive cash flows. 
C)  precise valuation formula. 
D)  willing buyer.

Question 8

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. 
A)  lost profit. 
B)  opportunity cost of funds. 
C)  investment opportunity. 
D)  potential profit.

Question 9

Valerie is beginning to think of harvesting her company. Which of the following questions should be asked first?

Accepted Answer

A)  Why does she want to harvest? 
B)  What is the value of her firm? 
C)  Does the firm have a leadership succession plan in the event that the firm sells? 
D)  What will be the method of payment? 
A)  Why does she want to harvest? 
B)  What is the value of her firm? 
C)  Does the firm have a leadership succession plan in the event that the firm sells? 
D)  What will be the method of payment?

Question 10

Match the term with its definition.
-Provision of debt and equity by private equity investors that allows an entrepreneur to cash out part of his or her investment

Accepted Answer

A) build-up LBO 
B) business broker 
C) bust-up LBO 
D) double taxation 
E) employee stock ownership plan (ESOP)
F)harvesting (exiting)
G)initial public offering (IPO)
H)leveraged buyout (LBO)
I)management buyout (MBO)
J)opportunity cost of funds
K)private equity recapitalization
L)seller financing 
A) build-up LBO 
B) business broker 
C) bust-up LBO 
D) double taxation 
E) employee stock ownership plan (ESOP)
F)harvesting (exiting)
G)initial public offering (IPO)
H)leveraged buyout (LBO)
I)management buyout (MBO)
J)opportunity cost of funds
K)private equity recapitalization
L)seller financing

Question 11

Pat, owner of Pat's Welding, LLC, would like to let someone else run the day-to-day operations while he continues to draw an income from the business. Because the business is an LLC, Pat will not have to be concerned about

Accepted Answer

A)  a reduction in the value of the company. 
B)  seller financing. 
C)  paying a brokerage fee. 
D)  double taxation on his income. 
A)  a reduction in the value of the company. 
B)  seller financing. 
C)  paying a brokerage fee. 
D)  double taxation on his income.

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

Entrepreneurs often do not make good employees at their former company.

Accepted Answer

A) True 
 B)False

Question 14

Match the term with its definition.
-A professional who assists in the buying and selling of a business

Accepted Answer

A) build-up LBO 
B) business broker 
C) bust-up LBO 
D) double taxation 
E) employee stock ownership plan (ESOP)
F)harvesting (exiting)
G)initial public offering (IPO)
H)leveraged buyout (LBO)
I)management buyout (MBO)
J)opportunity cost of funds
K)private equity recapitalization
L)seller financing 
A) build-up LBO 
B) business broker 
C) bust-up LBO 
D) double taxation 
E) employee stock ownership plan (ESOP)
F)harvesting (exiting)
G)initial public offering (IPO)
H)leveraged buyout (LBO)
I)management buyout (MBO)
J)opportunity cost of funds
K)private equity recapitalization
L)seller financing

Question 15

Although advocates maintain that employee ownership improves motivation, the value of increased employee effort resulting from improved motivation varies significantly from firm to firm.

Accepted Answer

A) True 
 B)False

Question 16

Employee education is necessary if an ESOP is to be effective.

Accepted Answer

A) True 
 B)False

Question 17

The build-up leveraged buyout is typically used in industries that are dominated by large firms.

Accepted Answer

A) True 
 B)False

Question 18

Arthur's company is doing well, but he has grown a bit tired of the daily grind. The idea of selling is appealing to him. Which of the following would you recommend that Arthur do next?

Accepted Answer

A)  Ask his advisory board for their opinions. 
B)  Ask a business broker what his business is worth. 
C)  Go public. 
D)  Get advice from someone who has sold a business. 
A)  Ask his advisory board for their opinions. 
B)  Ask a business broker what his business is worth. 
C)  Go public. 
D)  Get advice from someone who has sold a business.

Question 19

As a financial buyer, Ted is likely to evaluate acquisition candidates according to

Accepted Answer

A)  their stand-alone, cash-generating potential. 
B)  synergies he thinks they will create. 
C)  their potential to preserve employment. 
D)  the level of debt they have accumulated. 
A)  their stand-alone, cash-generating potential. 
B)  synergies he thinks they will create. 
C)  their potential to preserve employment. 
D)  the level of debt they have accumulated.

Question 20

Which of the following statements best characterizes business valuation?

Accepted Answer

A)  Valuation is almost a perfect science. 
B)  Because there are so many intangibles, valuation is mostly an art. 
C)  The buyer determines the value of a business. 
D)  Negotiation skills play an important part in valuation. 
A)  Valuation is almost a perfect science. 
B)  Because there are so many intangibles, valuation is mostly an art. 
C)  The buyer determines the value of a business. 
D)  Negotiation skills play an important part in valuation.

Exam 13: Planning for the Harvest

Opportunity cost of funds is the rate of return that an investor can earn on another investment of similar risk.

The harvesting process encompasses more than just selling and leaving a business.

The effects of the harvesting process often include

Jacob has worked for the past five years to build his business but wants to travel more, so he is thinking it is time to harvest. Harvesting refers to

What are the potential upsides and downsides of an employee stock ownership plan (ESOP) to both the owner and employees of a company?

Charles and Nancy have decided to sell their family business and would like to transfer ownership to the next generation. Which of the following harvesting forms would be best?

Whatever the negotiating skills of the respective parties, harvesting a company requires a

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

Valerie is beginning to think of harvesting her company. Which of the following questions should be asked first?

Match the term with its definition. -Provision of debt and equity by private equity investors that allows an entrepreneur to cash out part of his or her investment

Pat, owner of Pat's Welding, LLC, would like to let someone else run the day-to-day operations while he continues to draw an income from the business. Because the business is an LLC, Pat will not have to be concerned about

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

Entrepreneurs often do not make good employees at their former company.

Match the term with its definition. -A professional who assists in the buying and selling of a business

Although advocates maintain that employee ownership improves motivation, the value of increased employee effort resulting from improved motivation varies significantly from firm to firm.

Employee education is necessary if an ESOP is to be effective.

The build-up leveraged buyout is typically used in industries that are dominated by large firms.

Arthur's company is doing well, but he has grown a bit tired of the daily grind. The idea of selling is appealing to him. Which of the following would you recommend that Arthur do next?

As a financial buyer, Ted is likely to evaluate acquisition candidates according to

Which of the following statements best characterizes business valuation?

The Entrepreneurial Lifethe Entrepreneurial Life

Integrity, Ethics, and Social Entrepreneurship

Starting a Small Business

Franchises and Buyouts

The Family Business

The Business Plan: Visualizing the Dream

The Marketing Plan

The Organizational Plan: Teams, Legal Structures, Alliances, and Directors

The Location Plan

Understanding a Firms Financial Statements

Forecasting Financial Requirements

A Firms Sources of Financing

Building Customer Relationships

Product Development and Supply Chain Management

Pricing and Credit Decisions

Promotional Planning

Global Opportunities for Small Businesses

Professional Management and the Small Business

Managing Human Resources

Managing Small Business Operations

Managing the Firms Assets

Managing Risk

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