BUSI 502: Review Practice Final Exam Correctly Answered.
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Module
BUSI.
Institution
BUSI.
BUSI 502: Review Practice Final Exam Correctly Answered.
Three factors that determine external financing need - CORRECT ANSWER 1. underlying profitability
2. asset intensity
3. pace of growth
underlying profitability - CORRECT ANSWER • value of output - value of input
• competition, ...
BUSI 502: Review Practice Final Exam
Correctly Answered.
Three factors that determine external financing need - CORRECT ANSWER 1. underlying profitability
2. asset intensity
3. pace of growth
underlying profitability - CORRECT ANSWER • value of output - value of input
• competition, demand elasticity, economies of scale (high
fixed cost and low variable cost)
asset intensity - CORRECT ANSWER • amount of assets that are "tied up" to generate sales
• wedge between profitability and cash flow
• profitable company can go bankrupt!
• Business models think about TIMING of cash flows
pace of growth - CORRECT ANSWER • first to market /market penetration
companies that need external financing - CORRECT ANSWER - eBay / Amazon /Biotech
• heavy investing in assets and achieving growth/scale
- Social Media (user acquisition to value proposition)
- Most young, high-growth businesses
companies that don't need external financing - CORRECT ANSWER - Personal consulting
- Independent game developers?
bootstrapping - CORRECT ANSWER - using personal savings, small loans, credit cards, company's
retained earnings
- Majority of new firms in America are small
, businesses and don't seek external financing
- Pros: keep all equity and control, pace development, discipline
debt - CORRECT ANSWER - Fixed sum of money for a specific period at a given interest
rate
- debt lenders are more worried about downside risk
- debt interest rate is 10-15%
equity - CORRECT ANSWER - Long-term ownership stake in exchange for capital
- Return is proportionate to the value that can be created using the investment
- Equity wants 50-75% returns
funding for startups occur in financing rounds - CORRECT ANSWER - Incentive compatible: fund in series
of rounds to hit next
milestone
- Seed round: 300K investment
- Series A: 500K - 5Million
investor incentives affect startup strategy - CORRECT ANSWER - Understanding investor interests and
incentives is a key aspect of a successful financing strategy for any entrepreneur
- debt investors often advocate strategies that yield modest yet stable returns
- Equity investors may push for strategies that increase the likelihood of greater returns but also greater
losses
VC firms - CORRECT ANSWER • Invests using other people's money / raise funds (10 year lifespan)
- limited partners (LPs) - investors in the funds
- Pension funds, endowments, wealthy individuals
• Professionally run by a GP
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