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Test Bank For Entrepreneurial Finance 6th Edition By J. Chris Leach
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Entrepreneurial Finance 6th Edition By J. Chris Leach - Test Bank
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, CHAPTER 1INTRODUCTION TO FINANCE FOR ENTREPRENEURS
True-False Questions
F. 1. Entrepreneurs provide the financing to individuals who think, reason,
and act to convert ideas into commercial opportunities and create
opportunities.
T. 2. Entrepreneurship is the process of changing ideas into commercial
opportunities and creating value.
T. 3. An entrepreneur is an individual who thinks, reasons, and acts to
convert ideas into commercial opportunities and to create value.
F. 4. Mark Twain once said, “I was always able to see an opportunity before
it became one.”
T. 5. Small businesses, those with less than 500 employees, represent over 99
percent of all employers, and account for about one-half of the gross
domestic product in the United States.
F. 6. Small and growing enterprises are critical to the U.S. economy; small
firms provide 20 to 30 percent of net new jobs.
T. 7. Small high-technology firms are responsible for twice as many product
innovations per employee and obtain more patents per sales dollar than
large high-technology firms.
F. 8. Phillips and Kirchhoff, using Dun & Bradstreet data, found that 24
percent of new firms were still in existence after two years of operation.
T. 9. Nearly half of business failures are due to economic factors such as
inadequate sales, insufficient profits, and industry weakness.
T. 10. Although the risks associated with starting a new entrepreneurial
venture are large, there is always room for one more success.
T. 11. Studies by Phillips and Kirchhoff, and by Headd, found that about
38%-40% of new firms survived six years of operation.
F. 12. One study of Inc. magazine’s 500 high-growth firms suggests that
about 88 percent of founders feel their firms’ successes are due to
1
, 2 Chapter 1: Introduction to Finance for Entrepreneurs
extraordinary ideas, while the remaining 12 percent feel their firms’
successes are due to exceptional execution of ordinary ideas.
F. 13. “Fads” are large societal, demographic, or technological trends or
changes that are slow in forming but once in place continue for many years.
T. 14. “Fads” are not predictable, have short lives, and do not involve macro
changes.
T. 15. Three major megatrends discussed in Chapter 1 include: societal trends
or changes, demographic trends or changes, and technological trends or
changes.
F. 16. In 1982, Harry Dent identified several major or megatrends shaping
U.S. society and the world.
T. 17. The so-called “baby boom” generation applies to people born in the
United States during the 1946-1964 time period.
T. 18. Perhaps the most important invention shuttling us from an industrial
society to an information society is the computer chip.
F. 19. Environmental commerce, or e-commerce, involves the use of
electronic means to conduct business online.
T. 20. The Office of Advocacy of the U.S. Small Business Administration
documents that “employer firm births” have exceeded 700,000 annually in
recent years.
F. 21. Reasonable estimates place nonemployer (e.g., single person or small
family) business started each year at less than 100,000.
F. 22. Bill Gates once said: “I was seldom able to see an opportunity, until it
ceased to be one.”
T. 23. A study by Phillips and Kirchhoff using Dun &
Bradstreet data found that about three-fourths of new firms were still in
existence after two years of operation.
T. 24. Studies by Phillips and Kirchhoff, and by Headd, found that one-half
of new firms or new employers were still in existence after four years of
operation.
F. 25. Nine principles of entrepreneurial finance are identified and explored in
this entrepreneurial finance textbook,
, Chapter 1: Introduction to Finance for Entrepreneurs 3
T. 26. The “time value of money” is an important component of the rent one
pays for using someone else’s financial capital.
F. 27. A venture’s financial objective is to survive.
F. 28. Private financial markets are a place where standardized contracts or
securities are traded on organized security exchanges with restrictions on
how they can be transferred.
F. 29. Free cash flow is the net income forecast to be available to the venture’s
owners over time.
T. 30. Free cash flows are adjusted for risk and the time value of money when
used to calculate the value of a venture.
T. 31. Free cash exists when cash exceeds that which is needed to operate, pay
creditors, and invest in assets.
F. 32. Free cash is all the cash available to cover operating expenses.
T. 33. Owner-manager (agency) conflicts are differences between manager’s
self-interest and that of the owners who hired the manager.
F. 34. The owner-debtholder conflict is the divergence of the owners’ and
lenders’ self-interest as the firm gets close to going “public.”
F. 35. The financial objective of increasing value is inconsistent with
developing positive character and reputation.
T. 36. Entrepreneurial finance is the application and adaptation of financial
tools and techniques to the planning, funding, operations, and valuation of an
entrepreneurial venture.
F. 37. Financial distress occurs when cash flow is insufficient to meet current
debt obligations.
T. 38. The second stage in a successful venture’s life cycle is the startup stage.
F. 39. The rapid growth stage directly follows the startup stage.
T. 40. Early-stage ventures include firms in their development,
startup, or survival live cycle stages.
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