Question 1

Match the term with its definition.
-The rate of return that could be earned on another investment of similar risk

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 2

A potential buyer for Teresa's business has mentioned a leveraged buyout, which involves a high level of _____ financing.

Accepted Answer

A)  debt 
B)  equity 
C)  strategic 
D)  unsecured 
A)  debt 
B)  equity 
C)  strategic 
D)  unsecured

Question 3

Match the term with its definition.
-Financing in which the seller accepts a note in lieu of cash from a buyer in partial payment for 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 4

Matt owns a car dealership that is very profitable. Because he plans to retire in 5 to 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 of the following harvesting methods does this example illustrate?

Accepted Answer

A)  Sell the firm 
B)  Distribute the cash flows generated by the business to its owners 
C)  Offer stock to the public through an IPO 
D)  Use a private equity recapitalization 
A)  Sell the firm 
B)  Distribute the cash flows generated by the business to its owners 
C)  Offer stock to the public through an IPO 
D)  Use a private equity recapitalization

Question 5

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

Accepted Answer

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

Question 6

For value-creating firms, owners who decide to harvest by withdrawing cash flows should accelerate the process as much as possible for a company with growth needs.

Accepted Answer

A) True 
 B)False

Question 7

Fewer dollars were raised for IPOs from 2008 to 2009, at the height of the Great Recession, and the average size of IPOs has decreased significantly over the past years, signifying that offerings by smaller firms are more prevalent.

Accepted Answer

A) True 
 B)False

Question 8

The sale of a firm is solely about determining the value of a company.

Accepted Answer

A) True 
 B)False

Question 9

Entrepreneurs frequently do not appreciate the difficulty of harvesting a company.

Accepted Answer

A) True 
 B)False

Question 10

An entrepreneur can cash out immediately after the completion of an initial public offering (IPO).

Accepted Answer

A) True 
 B)False

Question 11

Many entrepreneurs successfully grow their firms but fail to develop effective harvest plans.

Accepted Answer

A) True 
 B)False

Question 12

Going public can be beneficial to a firm by helping it

Accepted Answer

A)  create a liquid currency to fund future acquisitions. 
B)  avoid becoming a takeover target in the future. 
C)  erect a shield against the fluctuations of the stock market. 
D)  offer better compensation packages to attract superior management talent. 
A)  create a liquid currency to fund future acquisitions. 
B)  avoid becoming a takeover target in the future. 
C)  erect a shield against the fluctuations of the stock market. 
D)  offer better compensation packages to attract superior management talent.

Question 13

Match the term with its definition.
-The process used by entrepreneurs and investors to reap the value of their investment in a business when they leave it

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 14

A management buyout can contribute significantly to a firm's operating performance by increasing management's focus and intensity.

Accepted Answer

A) True 
 B)False

Question 15

Discuss the importance of having a harvest plan.

Accepted Answer

Harvesting, or exiting, is the method th

Question 16

Paul is approaching retirement and has decided to siphon off funds from his company rather than sell it. From his perspective, the advantage of systematically withdrawing cash from the firm is

Accepted Answer

A)  retaining control. 
B)  preserving cash for later reinvestment. 
C)  greater latitude in seeking out a buyer for the firm. 
D)  increasing long-term returns from the business. 
A)  retaining control. 
B)  preserving cash for later reinvestment. 
C)  greater latitude in seeking out a buyer for the firm. 
D)  increasing long-term returns from the business.

Question 17

Match the term with its definition.
-A trust fund that uses employee retirement contributions to buy stock in the employer's company

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 18

A private equity recapitalization can be more flexible in structure to meet an entrepreneur's needs even though the entrepreneur cannot sell stock immediately.

Accepted Answer

A) True 
 B)False

Question 19

Entrepreneurs should think very carefully about their motives for exiting a business and what they plan to do after the harvest.

Accepted Answer

A) True 
 B)False

Question 20

Sylvia, the owner of a clothing boutique, has agreed to sell her business to one of her buyers. This transaction would likely be described as a sale to a(n) _____ buyer.

Accepted Answer

A)  competing 
B)  employee 
C)  financial 
D)  strategic 
A)  competing 
B)  employee 
C)  financial 
D)  strategic

Exam 13: Planning for the Harvest

Match the term with its definition. -The rate of return that could be earned on another investment of similar risk

A potential buyer for Teresa's business has mentioned a leveraged buyout, which involves a high level of _____ financing.

Match the term with its definition. -Financing in which the seller accepts a note in lieu of cash from a buyer in partial payment for a business

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

For value-creating firms, owners who decide to harvest by withdrawing cash flows should accelerate the process as much as possible for a company with growth needs.

Fewer dollars were raised for IPOs from 2008 to 2009, at the height of the Great Recession, and the average size of IPOs has decreased significantly over the past years, signifying that offerings by smaller firms are more prevalent.

The sale of a firm is solely about determining the value of a company.

Entrepreneurs frequently do not appreciate the difficulty of harvesting a company.

An entrepreneur can cash out immediately after the completion of an initial public offering (IPO).

Many entrepreneurs successfully grow their firms but fail to develop effective harvest plans.

Going public can be beneficial to a firm by helping it

Match the term with its definition. -The process used by entrepreneurs and investors to reap the value of their investment in a business when they leave it

A management buyout can contribute significantly to a firm's operating performance by increasing management's focus and intensity.

Discuss the importance of having a harvest plan.

Paul is approaching retirement and has decided to siphon off funds from his company rather than sell it. From his perspective, the advantage of systematically withdrawing cash from the firm is

Match the term with its definition. -A trust fund that uses employee retirement contributions to buy stock in the employer's company

A private equity recapitalization can be more flexible in structure to meet an entrepreneur's needs even though the entrepreneur cannot sell stock immediately.

Entrepreneurs should think very carefully about their motives for exiting a business and what they plan to do after the harvest.

Sylvia, the owner of a clothing boutique, has agreed to sell her business to one of her buyers. This transaction would likely be described as a sale to a(n) _____ buyer.

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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