Finance Rounds
Which of the following describes the observed or stated interest rate?
a) risk-free rate
b) prime rate
c) real rate
d) nominal rate
d)
nominal rate
Which of the following is not a component in determining the cost of debt?
a) maturity premium
b) interest rate premium
c) inflation premium
d) default risk premium
b)
interest rate premium
The purpose of the stepping-stone year is to:
a) assure that there is sufficient required cash
b) allow for a final year of higher-than-sustainable growth
c) assure that future dividends are constant
d) assure that investment flows are consistent with terminal growth rates
a)
assure that there is sufficient required cash
The right for existing owners to maintain their ownership share by purchasing sufficient shares to keep their percentage share of the firm is called:
a) a stock option
b) participating stock
c) a stock warrant
d) preemptive rights
d)
preemptive rights
The word "risk" developed from the early Italian word "risicare" and means:
a) "to dare"
b) "to gamble"
c) "don't care"
d) "take a chance"
a)
"to dare"
Which of the following financing rounds does not dilute the ownership of founders?
a) incentive ownership round
b) founder's round
c) first round
d) second round
b)
founder's round
Financing provided in sequences of rounds rather than all at one time is known as:
a) staged financing
b) the capitalization rate
c) pre-money valuation
d) post money valuation
a)
staged financing
During the exit period, which of the following will have last crack at the venture's wealth?
a) initial equity investors of the venture
b) participating preferred equity holders
c) banks giving loans to the venture
d) convertible debtholders of the venture
a)
initial equity investors of the venture
The return to venture investors directly depends on the:
a) amount of the venture's short-term liabilities
b) sum of past retained earnings
c) venture's ability to generate cash flows
d) ability to convince a debtholder to buy the venture
c)
venture's ability to generate cash flows
The value of the existing venture without the proceeds from the potential new equity issue is known as:
a) staged financing
b) the capitalization rate
c) pre-money valuation
d) post money valuation
c)
pre-money valuation
Which of the following describes the interest rate charged by banks to their highest-quality customers?
a) risk-free rate
b) prime rate
c) real rate
d) nominal rate
b)
prime rate
Which of the following components is not used when estimating the cost of risky debt capital?
a) default risk premium
b) market risk premium
c) real interest rate
d) inflation premium
b)
market risk premium
Venture investors generally use which of the following target rate ranges to discount the projected cash flows of ventures in the development stage of their life cycles:
a) 25%–35%
b) 40%–60%
c) 12%–15%
d) 20%–30%
b)
40%–60%
For early-stage ventures, which of the following is a strong reason for having an equity component in employee compensation?
a) any dividends received as part of the equity compensation reduces taxable income
b) it reduces the percentage of ownership held by debtholders
c) the expected deferred and tax-preferred compensation allows the venture to pay a lower current compensation to employees
d) it is a way to motivate employees to strive for a goal of low equity value
c)
the expected deferred and tax-preferred compensation allows the venture to pay a lower current compensation to employees
The value of the existing venture plus the proceeds from the potential new equity issue is known as:
a) staged financing
b) the capitalization rate
c) pre-money valuation
d) post money valuation
d)
post money valuation
380 x 15
5,700
Which of the following types of financing would be associated with the highest target compound rate of return on venture equity capital?
a) first-round financing
b) seed financing
c) public and seasoned financing
d) second-round and mezzanine financing
b)
seed financing
Which of the following venture life cycle stages would involve seasoned financing rather than venture financing?
a) rapid-growth stage
b) early-maturity stage
c) development stage
d) startup stage
b)
early-maturity stage
Which of the following provides the option to transform preferred stock into common stock?
a) paid in kind preferred stock
b) convertible preferred stock
c) cumulative preferred stock
d) participating preferred stock
b)
convertible preferred stock
Estimate the value of a privately held firm based on the following information: stock price of a comparable firm = $20; net income of a comparable firm = $20,000; number of shares outstanding for the comparable firm = 10,000; and earnings per share for the target firm = $3.
a) $30
b) $40
c) $10
d) $20
a)
$30
1210 / 10
121
The additional interest rate premium required to compensate the lender for the probability that a borrower will not be able to repay interest and principal on a loan is known as a(n):
a) liquidity premium
b) maturity premium
c) inflation premium
d) default risk premium
d)
default risk premium
What is the difference between pre-money valuation and post-money valuation?
a) the size of the capitalization rate
b) the amount of money previously contributed by founders
c) the amount of money injected by new investors
d) the terminal value
c)
the amount of money injected by new investors
Which of the following is not a variation of the venture capital valuation method?
a) utopian discount process
b) actual dividend payments
c) venture capital method
d) expected present value
b)
actual dividend payments
A round of financing where shares sell for a lower price than previous rounds is known as a(n):
a) reset round
b) anticipation round
c) recessive round
d) angel round
a)
reset round