Venture Capital and Private Equity Practice Questions
Course Introduction
This course offers an in-depth exploration of the world of venture capital (VC) and private equity (PE), examining the vital role these forms of financing play in the growth and development of startups and established firms. Students will learn about the structure and operations of VC and PE funds, investment strategies, fundraising, due diligence, valuation methods, deal structuring, and the unique challenges faced in managing and exiting investments. Through case studies and real-world examples, the course also highlights the entrepreneurial and strategic decision-making processes involved in sourcing deals and adding value to portfolio companies, preparing students for careers in finance, venture investing, and entrepreneurship.
Recommended Textbook
Entrepreneurial Finance 4th Edition by J. Chris Leach
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15 Chapters
1018 Verified Questions
1018 Flashcards
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Chapter 1: Introduction and Overview
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Sample Questions
Q1) About one-half of all newly created businesses in the U.S.are dissolved or cease operations within how many years after being started?
A)two years
B)four years
C)six years
D)eight years
Answer: B
Q2) 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
Answer: B
Q3) Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
A)True
B)False
Answer: True
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Chapter 2: From the Idea to the Business Plan
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82 Flashcards
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Sample Questions
Q1) Ideas that are said to be "ahead of their time" are too early to become viable business opportunities for the inventor or innovator.
A)True
B)False
Answer: True
Q2) A venture's value is determined by
A)the size and timing of its future free cash flows
B)time value of money
C)its net income
D)a and b
E)a and c
Answer: D
Q3) For ventures that first get to market or create intellectual property rights,it's common to price new products or services at high markups or profit margins.
A)True
B)False
Answer: True
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Chapter 3: Organizing and Financing a New Venture
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79 Flashcards
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Sample Questions
Q1) "Patents" are intellectual property rights granted for inventions that are useful,novel,and obvious.
A)True
B)False
Answer: False
Q2) Based on 2009 tax schedules,the first dollar of personal taxable income is taxed at which of the following marginal tax rates:
A)05.0%
B)10.0%
C)15.0%
D)20.0%
E)25.0%
Answer: B
Q3) Confidential disclosure agreements are used to protect intellectual property when disclosure must be made to an outside individual or organization.
A)True
B)False
Answer: True
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Chapter 4: Measuring Financial Performance
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Sample Questions
Q1) How quickly an asset can be converted into cash is called liability.
A)True
B)False
Q2) During the development stage in a new venture's life cycle,the balance sheet reflects the acquisition of initial assets and the obtaining of seed financing.
A)True
B)False
Q3) The balance sheet equation states that total assets =
A)total liabilities + depreciation
B)total liabilities + owners' equity
C)owners' equity + net income
D)owners' equity + current liabilities
E)total liabilities + net income
Q4) Cash or other assets that are expected to be converted into cash in less than one year are known as current liabilities.
A)True
B)False
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Chapter 5: Evaluating Financial Performance
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Sample Questions
Q1) The total-debt-total-asset ratio for Runs and Goses is?
A)0.48
B)0.71
C)0.27
D)0.53
E)0.82
Q2) Which of the following is used to examine a venture's performance over time?
A)qualitative analysis
B)trend analysis
C)cross sectional analysis
D)industry comparable analysis
Q3) The equity multiplier shows the extent by which assets are supported by equity and debt.
A)True
B)False
Q4) Conversion period ratios show the average time in days it takes to convert certain current assets and current liabilities into cash.
A)True
B)False
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Chapter 6: Financial Planning:short Term and Long Term
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Sample Questions
Q1) Determine a venture's sustainable growth rate based on the following information:sales = $1,000,000;net income = $150,000;common equity at the end of last year = $520,000;and the dividend payout percentage = 20%.
A)10%
B)16%
C)20%
D)24%
E)30%
Q2) Increases in accounts payable and notes payable are examples of spontaneously generated funds.
A)True
B)False
Q3) The weighted average of a set of possible outcomes or scenarios is known as expected values.
A)True
B)False
Q4) The sustainable sales growth rate is equal to ROA times the retention ratio.
A)True
B)False
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Chapter 7: Types and Costs of Financial Capital
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Sample Questions
Q1) The risk-free interest rate is the interest rate on debt that is virtually free of inflation risk.
A)True
B)False
Q2) Formal historical accounting procedures include explicit records of debt (interest and principal)and dividend capital costs.
A)True
B)False
Q3) Use the SML model to calculate the cost of equity for a firm based on the following information: the firm's beta is1.5;the risk free rate is 5%;the market risk premium is 2%.
A)4.5%
B)8.0%
C)9.5%
D)10.5%
Q4) Liquidity premiums reflect the risk associated with firms that possess few liquid assets.
A)True
B)False
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Chapter 8: Securities Law Considerations When Obtaining Venture Financing
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Sample Questions
Q1) Regulation A,while technically considered an exemption from registration,is a public offering rather than a private placement.
A)True
B)False
Q2) Rule 501 of Regulation D expands the categories of accredited investors.Which is not one of the categories?
A)any organization formed for the specific purpose of acquiring securities with assets in excess of $5 million
B)any director or executive officer of the issuer of securities being sold
C)any individual whose net worth exceeds$1 million
D)any partnership
E)any trust with total assets greater the $5 million
Q3) According to the Investment Advisers Act of 1940,a bank would not be classified as an "investment advisor".
A)True
B)False
Q4) SEC Regulation D requires the registration of securities with the SEC.
A)True
B)False
10
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Chapter 9: Valuing Early-Stage Ventures
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Sample Questions
Q1) When estimating the terminal value of a venture using an equity valuation method,a perpetuity growth equation is often applied that uses the capitalization rate for discounting purposes.This "cap" rate is measured as the:
A)equity discount rate minus the perpetuity growth rate
B)equity discount rate plus the perpetuity growth rate
C)risk-free rate plus the perpetuity growth rate
D)risk-free rate minus the perpetuity growth rate
Q2) "Just in time" capital injections by equity investors is a reference to
A)sustainable growth
B)the present value of the terminal value
C)equity investors' providing money only when needed
D)dividend payout
Q3) What is the difference between pre-money valuation and post-money valuation?
A)size of the capitalization rate
B)amount of money injected by new investors
C)revision value
D)amount of money previously contributed by founders
E)amount of money previously contributed by venture investors
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Chapter 10: Venture Capital Valuation Methods
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Sample Questions
Q1) Almost without exception,professional venture investors demand that some equity or deferred equity compensation be structured into any valuation.
A)True
B)False
Q2) The basic venture capital method estimates a venture's value using only terminal/exit flows to founders.
A)True
B)False
Q3) The return to venture investors directly depends on which of the following?
A)venture's ability to generate cash flows
B)ability to convince an acquirer to buy the firm
C)the amount ofits short-term liabilities
D)both a and b
E)all of the above
Q4) The DDA and VCSC methods give the same valuation.
A)True
B)False
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Chapter 11: Professional Venture Capital
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Sample Questions
Q1) Created by the Small Business Administration,Small Business Investment Companies possess important tax advantages and were eligible to borrow amounts up to four times their equity base from the government.
A)True
B)False
Q2) The beginning of professional venture capitalists is considered to have begun with the establishment or formation of:
A)Small Business Administration
B)Small Business Investment Companies
C)American Research and Development organization
D)Professional Venture Capitalists organization
Q3) In 1958 the Small Business Administration created Small Business Investment Companies.
A)True
B)False
Q4) The deal flow reflects the flow of business plans and term sheets involved in the venture capital investing process.
A)True
B)False
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Chapter 12: Other Financing Alternatives
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Sample Questions
Q1) When assessing the creditworthiness of new entrepreneurs,lending institutions review the "Five C's".The focus on the intended purpose of the loan is known as:
A)capacity
B)capital
C)collateral
D)conditions
E)character
Q2) Factoring is the sale of payables to a third party at a discount to their face value.
A)True
B)False
Q3) For the 504 loan,the SBA approves and guarantees the development company's portion of the debt but does not guaranteed the debt of the participating commercial bank.
A)True
B)False
Q4) Receivables lending is the use of receivables as collateral for an equity issue.
A)True
B)False
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Chapter 13: Security Structures and Determining Enterprise
Values
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Sample Questions
Q1) Which of the following is an example of a call option which is out of the money?
A)The option to sell at $11,the stock is worth $12.
B)The option to buy at $13,the stock is worth $12.
C)The option to buy at $12,the stock is worth $12.
D)The option to sell at $13,the stock is worth $12.
E)The option to buy at $11,the stock is worth $12.
Q2) A warrant is a type of call option.
A)True
B)False
Q3) Which of the following are components of common equity?
A)common stock
B)preferred stock
C)a and b
D)none of the above
Q4) The Black and Scholes model requires the stock price as an input.
A)True
B)False
Q5) The Black and Scholes model requires an exercise price as an input.
A)True
B)False
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Chapter 14: Harvesting the Business Venture Investment
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Sample Questions
Q1) The sale of used shares of common stock is a secondary market offering.
A)True
B)False
Q2) An initial public offering (IPO)involves:
A)sale of new securities to private investors
B)sale of used securities to the public
C)a venture's first offering of SEC-registered securities to the public
D)all of the above
E)none of the above
Q3) Ultimately for harvesting purposes,we need to decide on the venture's value at exit and how that exit value pie will be divided up among investors.
A)True
B)False
Q4) A venture can be harvested in which of the following ways?
A).systematic liquidation,outright sale,going public
B)outright sale,going public,acquisition
C)going public,acquisition
D)acquisition,systematic liquidation
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Chapter 15: Financially Troubled Ventures: Turnaround Opportunities
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Sample Questions
Q1) During the development stage of a venture's life cycle,which of the following is not a basis for operating or financial decisions?
A)screening business ideas
B)preparing the business plan
C)obtaining seed financing
D)managing the ongoing operations
Q2) When a venture's cash flow is insufficient to met its current contractual debt obligations asset flow insolvency exists.
A)True
B)False
Q3) Balance sheet insolvency occurs when a venture has:
A)negative net worth
B)total liabilities greater than total assets
C)negative retained earnings but positive net worth
D)a and b above
E)a,b,and c above
Q4) A voluntary bankruptcy petition if filed by the venture's management.
A)True
B)False
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