Gompers (1996) argued that smaller, younger VCs often bring their firms public earlier in order to establish a reputation and therefore attract additional capital in the future. He refers to such self-serving behavior on the part of a VC as a. grandstanding. b. boasting. c. reputation building. d. repugnant. ANSWER A
Date: September 19th, 2020
The major shortcoming of the EBIT-EPS approach to capital structure is that ________. A) the technique does not promote the maximization of shareholder wealth B) the technique does not consider the cost of capital C) the technique only considers leverage-related risk D) the technique does not maximize earnings per share ANSWER A
Date: September 19th, 2020
Some pre-IPO shareholders may wish to take the opportunity afforded by the IPO to cash out some or all of their shares in the (i) portion of the IPO. IPO firms also generally raise funds for the firm in the (ii) portion of the offering. (i) (ii) a. primary secondary b. secondary primary c. tertiary […]
Date: September 19th, 2020
Gompers’ (1995) theoretical model of venture financing focused on mitigating principal-agent conflicts between the entrepreneur and an outside financier. His model explains why ventures are developed in stages: the end of each stage is a. a cash-out opportunity. b. an opportunity to harvest parts of the venture. c. a time for management to rest and […]
Date: September 19th, 2020
Assuming a 40 percent tax rate, what is the financial breakeven point for each plan? (See Table 12.1 ) What will be an ideal response? ANSWER Financial breakeven point = Interest + Preferred Dividends / (1 – t) Financing Plan 1: FBP = $25,000 +$ 3,000 / (1 – 0.40 ) = $30,000 […]
Date: September 19th, 2020
Admati and Pfleiderer (1994) argued that by having both inside and outside investors contribute to a venture, , and thus a rational continuation/termination decision would be made at each stage of development. a. both information asymmetry and principal-agent problems are resolved b. taxes and risk are both minimized c. the overinvestment and underinvestment problems are […]
Date: September 19th, 2020
A firm has an operating cycle of 170 days, an average payment period of 50 days, and an average age of inventory of 145 days. The firm’s average collection period is ________ days. A) 25 B) 75 C) 95 D) 120 ANSWER A
Date: September 19th, 2020
A firm has a cash conversion cycle of 60 days and average payment period of 40 days. The firm’s operating cycle is ________ days. A) 20 B) 100 C) 50 D) 30 ANSWER A
Date: September 19th, 2020
Which of the following is NOT considered an advantage of going public? a. Sharing corporate control with outsiders. b. Better access to both equity and debt markets in the future c. Better liquidity for the firm’s shares d. The firm’s entrepreneurs have a chance to liquidate part of their investment and diversify. ANSWER […]
Date: September 19th, 2020
Which plan has a higher degree of financial leverage and financial risk? (See Table 12.1) What will be an ideal response? ANSWER Financing Plan 2 has higher degree of financial leverage and financial risk.
Date: September 19th, 2020
