Entrepreneurial Finance 6th Edition By J. Chris Leach - Test Bank

Entrepreneurial Finance 6th Edition By J. Chris Leach – Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

CHAPTER 5

 

EVALUATING OPERATING AND FINANCIAL PERFORMANCE

 

True-False Questions

 

1. 1. Showing the relationships between two or more financial variable and/or time, financial ratios are useful means of summarizing large amounts of financial data for comparative purposes.

 

2. 2. Second-round, mezzanine, and liquidity-stage financing generally occur during a venture’s survival stage.

 

3. 3. Commercial banks are important users of financial ratios and measures during the development and startup stages of ventures.

 

4. 4. Investment bankers are users of financial ratios and measures of ventures primarily during the rapid-growth stage relative to the development and startup stages.

 

5. 5. Trend analysis is used to examine a venture’s performance over time.

 

6. 6. Cross-sectional analysis is used to examine a venture’s performance over time.

 

7. 7. “Cash burn” is the cash a venture expends on its operating, financing, and depreciation expenses.

 

8. 8. “Net cash burn” occurs when cash burn exceeds cash build in a specified time period.

 

9. 9. The “cash burn rate” is the cash burn for a fixed period of time, typically a month.

 

10. 10. The term “cash build” as used in Chapter 5 is equal to net sales minus the change in receivables.

 

11. 11. Liquidity ratios indicate the venture’s ability to pay short term assets from short-term liabilities.

 

12. 12. Net working capital reflects current assets deducted from current liabilities.

 

13. 13. “Net working capital” is calculated as fixed assets minus current liabilities.

 

14. 14. A venture’s cash, marketable securities, and receivables comprise the venture’s “liquid assets”.

 

15. 15. The current ratio and the quick ratio differ only because average inventories are subtracted in the numerator of the quick ratio.

 

16. 16. For a venture with inventories, the quick ratio will always be greater than the current ratio.

 

17. 17. Net working capital is a dollar amount measure of the cushion between current assets and current liabilities.

 

18. 18. Leverage ratios indicate the extent to which the venture has used debt and its ability to meet debt obligations.

 

19. 19. Total debt includes current liabilities, long-term debt, and retained earnings.

 

20. 20. How efficiently a venture controls its expenses and uses its assets and debt is evaluated with profitability and efficiency ratios.

 

21. 21. During the development and startup stages of a venture’s life cycle, important financial ratios and measures include cash burn rates and liquidity ratios.

 

22. 22. During the development and startup stages of a venture’s life cycle, important users of financial ratios and measures include the entrepreneur, business angels, and venture capitalists (VCs).

 

23. 23. Leverage ratios are generally considered to be more important during the survival and rapid-growth stages compared to the development and startup stages.

 

24. 24. The equity multiplier is considered an efficiency ratio.

 

25. 25. The extent to which a venture is in debt and in its ability to repay its debt obligations is indicated by leverage ratios.

 

26. 26. The equity multiplier shows the extent by which assets are supported by equity and debt.

 

27. 27. Accounting rules require that the current maturities of long-term debt obligations be classified as short-term liabilities.

 

28. 28. Profitability and efficiency ratios are generally considered to be more important during the development and startup stages compared to the survival and rapid-growth stages.

 

29. 29. The part of a venture’s interest payment that is subsidized by the government because of the deductibility of interest is called the interest tax shield.

 

30. 30. How efficiently a venture controls its expenses and uses its assets and debt is evaluated with profitability and efficiency ratios.

 

31. 31. The Return on Assets model states: ROA = net profit margin × asset turnover × the equity multiplier.

 

32. 32. If a firm has positive net income, a drop in a venture’s asset intensity ratio will increase its ROE.

 

33. 33. The type of financing used during the survival life cycle stage is second-round, mezzanine, and liquidity-stage financing.

 

34. 34. Cash burn and liquidity ratios are important during the development and startup life cycle stages.

 

Multiple-Choice Questions

 

1. 1. Investment bankers and commercial banks are important users of financial ratios and measures during which of the following life cycle stages?
2. Development stage
3. Startup stage
4. Survival stage
5. Rapid-growth stage
6. All four stages

 

2. 2. The entrepreneur, angels, and VCs are important users of financial ratios and measures during which of the following life cycle stages?
3. Development stage
4. Startup stage
5. Survival stage
6. Rapid-growth stage
7. All four stages

 

3. 3. Which of the following is used to examine a venture’s performance over time?
4. qualitative analysis
5. trend analysis
6. cross sectional analysis
7. industry comparable analysis

 

4. 4. Which of the following is used to compare a venture’s performance against another firm at the same point in time?
5. qualitative analysis
6. trend analysis
7. cross sectional analysis
8. industry comparable analysis

 

5. 5. Which of the following is used to compare a venture’s performance against the average performance of other firms in the same industry?
6. qualitative analysis
7. trend analysis
8. cross sectional analysis
9. industry comparable analysis

 

6. 6. Which one of the following is not a basic ratio techniques used to conduct financial analysis?
7. trend analysis
8. sensitivity analysis
9. cross-sectional analysis
10. industry comparables analysis

 

7. 7. The term “cash build” is measured as:
8. net income plus depreciation
9. net sales minus expenses minus (plus) an increase (decrease) in inventories
10. net sales minus (plus) an increase (decrease) in receivables
11. net income plus depreciation minus (plus) an increase (decrease) in payables

 

8. 8. “Net cash burn” is calculated as:
9. cash burn plus cash build
10. cash build minus cash burn
11. cash burn minus cash build
12. cash burn minus cash build squared

 

9. 9. Using the following information, determine the average monthly net cash burn rate:  annual net income = $20,000; annual interest = $10,000; annual cash build = $150,000; and annual cash burn = $186,000.
10. $1,000
11. $3,000
12. $4,000
13. $6,000
14. $7,000

 

10. 10. Use the following information to determine a firm’s “cash build:” net sales = $150,000; net income = $15,000; beginning-of-period accounts receivable = $60,000; end-of-period accounts receivable = $90,000; and interest = $10,000.
11. $10,000
12. $15,000
13. $30,000
14. $60,000
15. $120,000

 

11. 11. Average current assets minus average inventories when divided by average current liabilities is called which of the following ratios?
12. current ratio
13. quick ratio
14. net working capital ratio
15. current liabilities to total debt ratio

 

12. Dividing the average total assets by the average owners’ equity is called which of the following ratios?
13. equity multiplier
14. debt to equity ratio
15. current liabilities to total debt ratio
16. current ratio

 

13. Net sales minus cost of goods sold when divided by sales is called which of the following ratios?
14. gross profit margin
15. operating profit margin
16. net profit margin
17. net operating profit after taxes margin

 

14. Net income divided by net sales is called which of the following ratios?
15. net operating profit after taxes margin
16. net profit margin’
17. operating profit margin
18. gross profit margin

 

15. 15. The difference between a venture’s ability to generate cash to pay interest and the amount of interest it has to pay is determined by which of the following ratios?
16. fixed charges coverage
17. debt to asset
18. equity multiplier
19. debt to equity
20. interest coverage

 

16. 16. Which of the following is not a profitability and efficiency ratio?
17. sales-to-total-assets
18. return on equity
19. return on assets
20. inventory-to-total assets
21. NOPAT profit margin

 

17. 17. Which of the following is true?
18. ROA is always greater than or equal to ROE
19. an increase in the asset turnover ratio implies a decrease in the asset intensity ratio
20. a and b
21. none of the above

 

18. 18. A firm has the following balance sheet information: total assets = $100,000; current assets = $30,000; inventories = $10,000; cash = $5,000; total liabilities = $30,000; current liabilities = $15,000; notes payable = $2,000. What are the firm’s quick and NWC-to-Total-Assets ratios?
19. 1.00 and .13
20. 1.33 and .13
21. 1.00 and .15
22. 1.33 and .15

 

19. 19. Last year, Nemo’s Fish ‘n Chips recorded the following financial data: sales = $85,000; cost of goods sold = $45,000; selling and administrative expenses = $25,000; depreciation and amortization = $7,000; interest expense = $12,000. The tax rate was 30%. Find Nemo’s interest coverage for last year.
20. -.29 times
21. .66 times
22. .86 times
23. 1.25 times
24. 3.33 times

 

20. A venture has net sales of $400,000, cost of goods sold of $200,000, operating expenses (selling, general, and administrative) of $100,000, and interest expenses of $50,000. What is the operating profit margin?
21. 0%
22. 75%
23. 25%
24. 40%

 

21. 21. Last year, Lenny’s Lemonade had $3,500 in sales, and cost of goods sold was $2,000. Depreciation expenses totaled $500 and interest expense was $700. If the tax rate is 25%, what is the net profit margin for Lenny’s Lemonade? What is its NOPAT margin?
22. 6.43% and 21.43%
23. 20.7% and 21.43%
24. 2.14% and 32.14%
25. 22.86% and 32.14%

 

Note: The following information should be used for the next eleven (22 through 32) problems.

In its closing financial statements for its first year in business, the Runs and Goses Company, had cash of $242, accounts receivable of $850, inventory of $820, net fixed assets of  $3,408, accounts payable of $700, short-term notes payable of $740, long-term liabilities of $1,100, common stock of $1,160, retained earnings of  $1,620, net sales of $2,768, cost of goods sold of $1,210, depreciation of $360, interest expense of $160, taxes of $312, addition to retained earnings of $508, and dividends paid of $218.

 

 

 

22. 22. What is the return on equity for Runs and Goses?
23. 26.1%
24. 44.7%
25. 62.6%
26. 18.4%
27. 7.9%

 

23. 23. What is Runs and Goses’ return on total assets?
24. 9.6%
25. 13.6%
26. 19.1%
27. 37.9%
28. 22.5%

 

24. 24. What is the net profit margin for Runs and Goses?
25. 60.0%
26. 22.7%
27. 7.9%
28. 18.4%
29. 26.2%

 

25. 25. Runs and Goses operating profit margin is?
26. 26.2%
27. 56.3%
28. 43.3%
29. 30.3%
30. 60.0%

 

26. 26. The gross profit margin for Runs and Goses is?
27. 26.2%
28. 30.3%
29. 43.3%
30. 56.3%
31. 60.0%

 

27. 27. What is Runs and Goses’ sales to total asset ratio?
28. 1.91
29. 0.25
30. 0.52
31. 0.23
32. 0.57

 

28. 28. What is the current ratio for Runs and Goses?
29. 1.46
30. 1.33
31. 1.23
32. 1.21
33. 1.13

 

29. 29. The total-debt-total-asset ratio for Runs and Goses is?
30. 0.48
31. 0.71
32. 0.27
33. 0.53
34. 0.82

 

30. 30. What is Runs and Goses’ debt-to-equity ratio?
31. 0.91
32. 2.15
33. 0.48
34. 1.12
35. 2.32

 

31. 31. What is the equity multiplier for Runs and Goses?
32. 4.59 times
33. 2.35 times
34. 0.48 times
35. 1.12 times
36. 1.91 times

 

32. 32. The interest coverage ratio for Runs and Goses is:
33. 6.5 times
34. 4.5 times
35. 9.7 times
36. 3.5 times
37. 1.5 times

 

33. 33. The type of financing used during the rapid-growth life cycle stage include:
34. second-round financing
35. mezzanine financing
36. liquidity-stage financing
37. all of the above

 

34. 34. First-round financing occurs primarily during which of the following life cycle stages?
35. development stage
36. startup stage
37. survival stage
38. rapid-growth stage

 

35. 35. Investment bankers often play an important role in which of the following life cycle stages?
36. development stage
37. startup stage
38. survival stage
39. rapid-growth stage