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Chapter: 17 -Problem: 1 >> The first quarter of 2008 had not yet ended and Steve Savage already knew the company would surpass the projected $22 million in revenues for the year. He and the management team had doubled sales expectations to $45 million as consumer demand for environmentally sound products skyrocketed. Retailers and distributors scrambled to source consumer goods like electric hybrid cars, reusable shopping b
Answer Preview: A. Steve Savage and his father founded the company in 1990 with the intent to provide eco-friendly paper and janitorial supplies. They chose to locate the business in Boulder, Colorado, a community kn…

, Chapter: 12 -Problem: 14 >> Is the compensation paid to venture capitalists (e.g., 2 percent management fee and 20 percent carried interest) reasonable? What are a fund’s investors buying with this compensation?
Answer Preview: While the determination of reasonableness of VC compensation …

, Chapter: 3 -Problem: 9 >> What was the purpose of the Leahy-Smith America Invents Act of 2011? Why is the U.S. Congress working on possible passage of an “Innovation Act?”
Answer Preview: The Leahy-Smith America Invents Act of 2011 is the …

, Chapter: 16 -Problem: 27 >> The EnCal Corporation is a small, West Coast€“based power company specializing in power generation methods that use clean-burning fuels and renewable natural resources.However, due to a complex and confusing power-pricing structure, EnCal is reeling from the after effects of the state government€™s attempt at power deregulation. EnCal has been unable to pass its operating costs on to its consumers
Answer Preview: A. B. Under the restructured 2017 projection they can service the debt. Under the original BAU plan, …

, Chapter: 13 -Problem: 19 >> Describe examples of customer funding used to reduce financing needs.
Answer Preview: Depending on the type of business venture, funds from customers may be used to help finance startups…

, Chapter: 13 -Problem: 27 >> In 2016, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2016 and were estimated at $1.2 million in 2017. Because Jen an
Answer Preview: A. Cost of goods sold is: $1 50/$3 00 per unit = 50% of sales. A ventures profits can be measured in a number of different ways: before interest and taxes (EBIT); net profit (or income) after financin…

, Chapter: 6 -Problem: 26 >> A. An analysis of the cash conversion cycle should also help Kaj understand what has been happening to the operations of Scandi. Prepare an analysis of the average conversion periods for the three components of the cash conversion cycle for 2014€“2015 and 2015€“2016. Explain what has happened in terms of each component of the cycle.B. Kaj has been able to obtain some industry ratio data from the h
Answer Preview: A: Ratios are based on the current years income statement amounts and average amounts (past year and current year) for balance sheet items. Inventory-…

, Chapter: 13 -Problem: 3 >> Describe the two major types of crowdfunding.
Answer Preview: There are two types of crowdfunding: rewards-based crowdfunding and equity crowdfu…

, Chapter: 12 -Problem: 30 >> Locate a venture capital–backed firm that recently completed an initial public offering (IPO). Provide a summary of the venture’s history and success through the IPO and to date.
Answer Preview: The Spatial Technology, In…

, Chapter: 1 -Problem: 7 >> What is meant by disruptive innovation? What is the “sharing economy” societal trend?
Answer Preview: Disruptive innovation is an innovation that creates a new m…

, Chapter: 13 -Problem: 1 >> What are business incubators and seed accelerators? How do they differ?
Answer Preview: A business incubator is an organization that helps startup companies develop by providing management…

, Chapter: 9 -Problem: 5 >> Following are two years of income statements and balance sheets for the Munich Exports Corporation.A. Munich has a target dividend payout of 40 percent of net income. Based on the 2019 financial statements relationships, estimate the sustainable sales growth rate for the Munich Corporation for 2020. B. Show how your answer in Part A would change if Munich decided not to pay any dividends in 2020.C
Answer Preview: Part ( a): Calculation of Sustainable Growth Rate of Sales for 2020 We know that; Sustainable Growth Rate = Return on Equity * (1 - Dividend Payout Ratio) Now, (i) Return on Equity = Net Income / Aver…

, Chapter: 6 -Problem: 2 >> For a specific business idea, find labor wage data for the types of employees who will be involved. Examples of relevant Web sites include the Bureau of Labor Statistics Web site at http://www.bls.gov and career information sites like http://www.wetfeet.com.
Answer Preview: Lower interest rates make the cost of borrowing cheaper. It will encourag…

, Chapter: 6 -Problem: 3 >> The PDC Company was described earlier in this chapter. Refer to the PDC Company’s projected monthly operating schedules in Table 6.2. PDC’s sales are projected to be $80,000 in September 2020.A. Prepare PDC’s sales schedule, purchases schedule, and wages schedule for August 2020.B. Prepare a cash budget for August 2020 for PDC and describe how the forecast affects the end-of-month cash balance.  
Answer Preview: ANSWER Sales Schedule Purchases Schedule Wages and Commissions Schedule Aug Sales Forecast 80,000 Cr…

, Chapter: 7 -Problem: 2 >> Access http://www.bloomberg.com for interest rates and financial market news. Summarize the current financial market conditions.
Answer Preview: As a general rule of thumb, when the Federal Reserve cut…

, Chapter: 14 -Problem: 1 >> Web-surfing exercise: Search the Web for a direct offering of a convertible preferred security. Possible search words include “direct public offering” or “small corporate offering registration” (SCOR). Analyze the conversion and dilution clauses offered in the security.
Answer Preview: a. The conversation involves a corporation selling an equity position …

, Chapter: 4 -Problem: 3 >> Access the Nolo Press Web site at http://www.nolo.com and other publishers’ Web sites and identify software products designed to help the young venture with its legal and accounting problems.
Answer Preview: The software products include: i) The "…

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, Chapter: 11 -Problem: 5 >> What is meant by pre-money valuation? What is post-money valuation?
Answer Preview: Pre-money valuation is market capitalization before the funding. …

, Chapter: 10 -Problem: 1 >> Web-surfing exercise: Find a fast-growth publicly traded firm with financial statements posted on the firm’s Web page. Relate that firm’s financial statements to those of the examples in this chapter. Formulate the process by which you would project that firm’s financial statements into the future in order to conduct a valuation.
Answer Preview: The process is simple, though time consuming: Gather relevant publicly available financ…

, Chapter: 8 -Problem: 3 >> Access the Nolo Press Web site at http://www.nolo.com. Develop a list of legal references relating to securities laws.
Answer Preview: (h) securities include (i) shares, scrips, stocks, bonds, debentures, debentu…

, Chapter: 13 -Problem: 2 >> What is meant by the terms business crowdsourcing and crowdfunding?
Answer Preview: Business crowdsourcin refers to the practice of seeking input from potential customers or user…

, Chapter: 2 -Problem: 2 >> Access the Center for Business Planning Web site at http://www.businessplans .org. The site provides examples of business plans prepared by MBA students from top business schools and presented to panels of investors at recent Moot Corp. competitions hosted by the University of Texas at Austin. Review one of the business plans. Write a brief summary comparing the segments or elements included in th
Answer Preview: The brief summary comparing the segments or elements entails comparing the business plan's objectiv…

, Chapter: 9 -Problem: 2 >> Using a Web search, find an industry report for an industry of your choosing. What are that industry’s expected nearterm and longer-term growth rates?
Answer Preview: The industry I have chosen is the "Toiletries & …

, Chapter: 9 -Problem: 1 >> Use a Web search to determine an expected long-term growth rate for the U.S. economy. What are the current and longer-term expectations of inflation?
Answer Preview: Expected long-term growth rate: 2 2% Current and lo…

, Chapter: 8 -Problem: 1 >> Access the SEC Web site at http://www.sec.gov. Identify recent developments and changes in Rule 504 of the SEC’s Reg D.
Answer Preview: The Securities and Exchange Commission ("we" or "Commission") is adopting amendments to Rule 504 of …

, Chapter: 5 -Problem: 5 >> Following are two years of income statements and balance sheets for the Munich Exports Corporation.  A. Calculate the cash build, cash burn, and net cash burn or build for Munich Exports in 2019.B. Assume that 2020 will be a repeat of 2019. If your answer in Part A resulted in a net cash burn position, calculate the net cash burn monthly rate and indicate the number of months remaining “until out
Answer Preview: ANSWER A. To calculate the cash build, cash burn, and net cash burn or build for Munich Exports in 2…

, Chapter: 3 -Problem: 1 >> Access the Inc. magazine Web site at http://www.inc.com. Identify a list of recent articles that relate to how to finance new ventures.
Answer Preview: A cursory glance at the homepage reveals links for ar…

, Chapter: 14 -Problem: 10 >> How do (a) American-style options, (b) European-style options, and (c) Bermudan-style options differ?
Answer Preview: American-style options are the ones in which both a ca…

, Chapter: 5 -Problem: 6 >> The Castillo Products Company was started in 2017. The company manufactures components for personal digital assistant (PDA) products and for other hand-held electronic products. A difficult operating year, 2018, was followed by a profitable 2019. However, the founders (Cindy and Rob Castillo) are still concerned about the venture’s liquidity position and the amount of cash being used to operate th
Answer Preview: A. The current ratio, quick ratio, and NWC-to-total assets ratio for 2018 and 2019 are: 2018: Current ratio = Current assets / Current liabilities = $450,000 / $270,000 = 1 67 Quick ratio = (Current a…

, Chapter: 13 -Problem: 18 >> What are factoring and receivables lending?
Answer Preview: Factoring is a process of selling your busines…

, Chapter: 12 -Problem: 2 >> Visit a venture capital fund’s Web site and summarize the fund’s history and current activities.
Answer Preview: The Seed Enterprise Fund founded in 1991 by David Dietz and George …

, Chapter: 10 -Problem: 6 >> Following are financial statements (historical and forecasted) for the Global Products Corporation. A. Assume that the cash account includes only required cash. Determine the dollar amount of equity valuation cash flow for 2020.B. Now assume that Global Products’ required cash is set at 3 percent of sales. Any additional cash would be surplus cash. Re-estimate the dollar amount of equity valuation
Answer Preview: Answer Part 1 Assume that the cash account includes only required cash. Determine the dollar amount of equity valuation cash flow for 2017 Equity Valu…

, Chapter: 1 -Problem: 20 >> From the Headlines—PopSockets: Briefly describe the market PopSockets seeks to address and how PopSockets’ initial device addresses that market. Give some examples of how PopSockets can expand its market and tap additional sources of capital.
Answer Preview: The examples include: i) PopSockets and other companies collaborate to set up workplaces, such as th…

, Chapter: 5 -Problem: 1 >> The Salza Technology Corporation successfully increased its “top line” sales from $375,000 in 2018 to $450,000 in 2019. Net income also increased as did the venture’s total assets. You have been asked to compare the financial performance between the two years.A. Calculate the net profit margin and the sales-to-total-assets ratio for Salza for 2019 using average total assets. Also calculate the ret
Answer Preview: A. Net Profit margin ratio = NI/sales = 70/450 = 15 56% Sales to Total Assets ratio (Total Assets …

, Chapter: 4 -Problem: 8 >> Salza Technology Corporation increased its sales from $375,000 in 2018 to $450,000 in 2019 as shown in the firm’s income statements presented below. LeAnn Sands, chief executive officer and founder of the firm, expressed concern that the cash account and the firm’s marketable securities declined substantially between 2018 and 2019. Salza’s complete balance sheets are also shown. Ms. Sands is seeki
Answer Preview: CASH FLOW STATEMENT -YEAR2020 CASH FLOW FROM OPERATING ACTIVITIES a Net Income $70 Adjustment t…

, Chapter: 11 -Problem: 1 >> Web-surfing exercise: Using a particular industry as a focus, find an industry report that covers several ventures having various levels of maturity and/or performance. Compare their performances in recent years. Develop a model of how you would conduct a multiple-scenario valuation for a newcomer in that industry. What type of discount rate would be appropriate for your approach?
Answer Preview: a. The model is fairly straight forward. The first step is to project cash …

, Chapter: 15 -Problem: 13 >> What is meant by investment banking due diligence? How does a traditional registration differ from a shelf registration?
Answer Preview: Investment banking due diligence means a series of steps taken to ensure a com…

, Chapter: 4 -Problem: 1 >> A number of Web sites are available to help young ventures measure their financial performance and to help them when they are growing and “ramping up” revenues. Access http://money.cnn.com/magazines/business2/ and identify sources helpful to growing firms.
Answer Preview: The sources helpful to growing firms include: i) Dun & Bradstreet: http://smallbusi…

, Chapter: 15 -Problem: 5 >> Gamma Systems Manufacturing Corporation has reached its maturity stage, and its net sales are expected to grow at a 6 percent compound rate for the foreseeable future. Management believes that, as a mature venture, the appropriate equity discount rate for Gamma Systems is 18 percent.A. Estimate the free cash flows available to the equity investors for 2020.B. Estimate the value of Gamma Systems e
Answer Preview: a. Investment in Fixed assets, net Opening $400,000 Add: Purchases (Balancing figure) $140,000 Less: …

, Chapter: 9 -Problem: 12 >> What is the percent-of-sales forecasting method?
Answer Preview: The percent of sales forecasting method is a financial forecasti…

, Chapter: 10 -Problem: 12 >> What is net operating working capital?
Answer Preview: This is the funds a company needs to operate on a da…

, Chapter: 16 -Problem: 1 >> Go to the Web site for The Wall Street Journal or some other financial publication such as Inc. magazine and identify a venture that has recently filed for reorganization or liquidation with the U.S. bankruptcy courts. Then access the Securities and Exchange Commission’s Web site at http://www.sec.gov/edgar/searchedgar/webusers.htm and find recent financial statements for the venture you identifie
Answer Preview: Whether the venture was suffering from balance sheet insolvency, cash flow insolvenc…

, Chapter: 12 -Problem: 9 >> List ten Web sites or print magazines that contain venture capital investing information that might be of use to entrepreneurs seeking venture capital.
Answer Preview: Venture capital (VC) is a form of private equity and a type …

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, Chapter: 2 -Problem: 3 >> Access the Center for Business Planning Web site at http://www.businessplans.org. Find the reference to Plan Write, which is designed to help an entrepreneur create a business plan. Identify and briefly describe what this software product provides.
Answer Preview: This software product provides: i) A way to organize all the information a busine…

, Chapter: 8 -Problem: 27 >> From the Headlines—Sock It to Me: The “Internet of Feet”: Discuss the role that Indiegogo played in the initial funding of Sensoria. Do you believe it was important in leading up to the $5 million A round?
Answer Preview: When raising a priced round, founders need to find an investor willing to l…

, Chapter: 4 -Problem: 13 >> Define the term EBITDA.
Answer Preview: EBITDA stands for earnings before interest, taxes…

, Chapter: 12 -Problem: 18 >> From the Headlines—Tabula: Describe the role venture capitalists played in the founding and expansion of Tabula. Comment on possible reasons for the involvement of multiple VC firms.
Answer Preview: Professional Venture Capitalists: Intermediaries in the venture investment sector who raise capital …

, Chapter: 4 -Problem: 7 >> The Castillo Products Company described in Problem 6 had a very difficult operating year in 2018, resulting in a net loss of $65,000 on sales of $900,000. In 2019, sales jumped to $1,500,000, and a net profit after taxes was earned. The firm’s income statements are shown in the following table. A. Calculate each income statement item for 2018 as a percentage of the 2018 sales level. Make the same
Answer Preview: ANSWER A. To calculate each income statement item as a percentage of the sales level, we can use the following formulas: Percentage = (Income Statement Item / Net Sales) x 100 2018: Net sales = $900,0…

, Chapter: 5 -Problem: 3 >> What are financial ratios and why are they useful?
Answer Preview: Financial ratios are tools that can help investors and managers to s…

, Chapter: 4 -Problem: 2 >> Access the Small Business Administration Web site at http://www.sba.gov; http://www.nvst.com and find information on estimating start-up costs, preparing financial statements, and conducting breakeven analysis.
Answer Preview: The information include in an application, as well as the history of previous payer characteristics …

, Chapter: 10 -Problem: 18 >> From the Headlines—Foursquare: What ingredients would you need to conduct a traditional equity method valuation for Foursquare? If you had the necessary projections, do you think that Foursquare would qualify as a “Unicorn” with a valuation in excess of $1 billion? Comment on the warnings you would provide to accompany your projections and valuation if you completed them.
Answer Preview: a. The ingredients to be used are revenues and cash flow projections for Foursquare. b. To comprise …

, Chapter: 13 -Problem: 21 >> What is a direct public offering?
Answer Preview: A direct public offering is the act of offering a share of your company's stock to the public …

, Chapter: 13 -Problem: 2 >> Find the Web solicitation for a direct public offering under the new crowdfunding regulations. (You might start at http://www.seedinvest.com/offerings or other similar sites.) Describe the venture and its prospects.
Answer Preview: The venture and its prospects entails a Direct Public Offering (…

, Chapter: 14 -Problem: 2 >> Get a current price for a traded call option on a publicly traded security having publicly traded options (e.g., http:// www.cboe.com). Compare the option price to the value of exercise (stock price ? exercise price) and comment on the difference.
Answer Preview: The comparison of the option price to the value of exercise is that the …

, Chapter: 15 -Problem: 11 >> What is investment banking? What is an underwriting spread?
Answer Preview: Investment banking deals with all issues related to raising …

, Chapter: 3 -Problem: 2 >> What is a limited partnership?
Answer Preview: A limited partnership is an arrangement in which one or more general par…

, Chapter: 5 -Problem: 1 >> Go to the Hoover’s business online Web site at http://www.hoovers.com and click on “Companies A–Z.” Identify a firm such as Google, Inc. (ticker symbol: GOOG) or Applebee’s International, Inc. (ticker symbol: APPB).A. Obtain the most recent three years of income statements and balance sheets. Analyze the changes in operating and financial performance, if any, by applying the ratio analyses covered
Answer Preview: A. The changes in operating and financial performance include: i) Net income increased 8% …

, Chapter: 10 -Problem: 2 >> Using a free stock quoting and research site on the Web (e.g., http://www.bloomberg.com or http://money.cnn .com), examine the current price for an Internet company. Relate the financial data you can find on the firm to the current stock price.
Answer Preview: a 20-year project.) The 10% discount rate is the appropr…

, Chapter: 7 -Problem: 3 >> Access http://www.pwcmoneytree.com for a summary of recent venture capital investment performance. Summarize the return experience for the various venture-investing rounds.
Answer Preview: The National Bureau of Economic Research has stated that a 25 percent return …

, Chapter: 6 -Problem: 6 >> Describe the cash conversion cycle (C3).
Answer Preview: The cash conversion cycle (C 3 ) is a metric that expresses the …

, Chapter: 15 -Problem: 21 >> From the Headlines—Boom Supersonic: Comment on Boom Supersonic’s potential to eventual provide liquidity to its investors through an IPO or a sale. Which one seems more likely to you? Why?
Answer Preview: The comments is that an IPO seems to be the more likely option. This is because an IPO would attract …

, Chapter: 3 -Problem: 2 >> Access the http://www.garage.com Web site. Identify the angel matchmaking services that are provided. Determine the site’s focus in terms of early-stage versus later-stage financing, as well as the typical range of financing that is provided.
Answer Preview: a. The angel matchmaking services that are provided include: i) Meet w…

, Chapter: 10 -Problem: 8 >> The Biometrix Corporation has been in operation for one full year (2019). Financial statements follow. Biometrix’s management is interested in determining the value of the venture as of the end of 2019. Sales are expected to grow at a 20 percent annual rate for each of the next three years (2020, 2021, and 2022) before settling down to a long-run growth rate of 7 percent annually. The cost of good
Answer Preview: Answer for question no A: Particulars 2013 2014(120%*previous year figures) 2015(120%*previous year figures) 2016(120%*previous year figures) 2017(107%*previous) year figures) Remarks Sales $20,000 00 …

, Chapter: 3 -Problem: 3 >> Access the Web sites http://www.angeldeals.com and http://www.gatheringofangels.com. Determine the scope and focus of these sites in terms of matchmaking financing services that are available for entrepreneurs.
Answer Preview: The scope and focus of these sites include: i) Ambition to create an onlin…

, Chapter: 15 -Problem: 7 >> New information for Gamma Systems Manufacturing Corporation has been brought to management’s attention. Use the financial statement information in Problem 5 and take into consideration that sales will grow at a 15 percent rate in 2020 and at a 10 percent rate in 2021 before settling down to a 6 percent perpetuity growth rate in 2022 and thereafter.A. Estimate the free cash flows available to equit
Answer Preview: ANSWER A. To estimate the free cash flows available to equity investors for 2020, 2021, and 2022, we need to calculate the following: Free cash flow to equity (FCFE) = Net Income - (Capital Expenditur…

, Chapter: 4 -Problem: 32 >> LeAnn Sands has reason to believe that 2017 will be a replication of 2016 (see Problem 8) except that cost of goods sold is expected to be 5 percent of the estimated $450,000 in revenues. Other income statement relationships are expected to remain the same in 2017 as they were in 2016. Calculate the EBDAT breakeven point for 2017 for Salza in terms of survival revenues.
Answer Preview: Projected variable cost ratio: 65 …

, Chapter: 5 -Problem: 16 >> From the Headlines—bext 360: Discuss the variable and fixed costs in a single installation and continuing operation of a “bextmachine.” What are the critical factors in getting to “breakeven?”
Answer Preview: The break-even point will increase by any of the following: An increase in the amount of the co…

, Chapter: 8 -Problem: 27 >> The “Internet of Feet”: Discuss the role that Indiegogo played in the initial funding of Sensoria. Do you believe it was important in leading up to the $5 million A round?
Answer Preview: One aspect that crowdfunding plays in the launch of niche products is that of a credible ap…

, Chapter: 7 -Problem: 1 >> Access the Federal Reserve Board of Governors Web site at http://www.federalreserve.gov/releases/to find current interest rates (and foreign exchange rates) relevant to your business venture.
Answer Preview: As the Fed raises interest rates, banks are responding by p…

, Chapter: 7 -Problem: 31 >> A potential venture investment has the following possible outcomes:         A. What is the expected rate of return on the venture? B. Calculate the variance and standard deviation of the rates of return for the venture. C. Calculate the coefficient of variation of the rates of return for the venture. If the coefficient of variation of the rates of return for your prior venture investments is 4.0,
Answer Preview: A. Expected rate of return = (.15)(500 0%) + (.35)(15 0%) + (…

, Chapter: 9 -Problem: 16 >> From the Headlines—Automox: Describe how cash budgets and projected financial statements could be used in estimating how far $9 million could take Automox after its Series A round.
Answer Preview: They are used for 5 different purposes: 1. Suppose Automox needs $10 million in funding to become pr…

, Chapter: 15 -Problem: 4 >> Describe how the relative value method is used to value a firm’s equity.
Answer Preview: The relative value method estimates a firms value by examining ho…

, Chapter: 11 -Problem: 2 >> Visit one of the venture economics data collection services (e.g., http://www .pwcmoneytree.com) and examine a recent report on the short-and long-term performance of venture capital funds. Relate what you find to a typical discount rate of 50 percent.
Answer Preview: The mean return gross of fees for a sample of 112 venture capital funds operating in the U S. during …

, Chapter: 5 -Problem: 16 >> From the Headlines—The Lovely Touch in Raising Cupcake Dough: Discuss the foundations of the itemized cupcake costs for the $3.00 cupcake in relationship to the possible new costs and break even consideration for bite size ($1.35) to jumbo size ($7.50) cupcakes.
Answer Preview: To fund growth internally, profitability (or contri…

, Chapter: 4 -Problem: 2 >> What is accrual accounting? What are generally accepted accounting principles (GAAP)?
Answer Preview: Accrual accounting is the practice of recording econo…

, Chapter: 12 -Problem: 3 >> Interview a local venture capitalist regarding what she looks for in a promising venture seeking funding. Summarize your discussion.
Answer Preview: A local venture capitalist's job is to find promising ventures and fund them. For example, …

, Chapter: 7 -Problem: 23 >> How is a venture’s WACC likely to change as it moves through a successful life cycle?
Answer Preview: Most early-stage financing is high-cost equity cap…

, Chapter: 1 -Problem: 20 >> From the Headlines—Ice Energy: Briefly describe the “ice battery” market and how Ice Energy’s Ice Bear system addresses that market. Give some examples of how Ice Energy can expand its market and tap additional sources of capital.
Answer Preview: The general market would be related to alternative energy sources for air conditioning …

, Chapter: 2 -Problem: 28 >> In early 2013, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. They began producing small quantities of unique flavors and blends in limited editions. Revenues were $600,000 in 2013 and were estimated at $1.2 million in 2014. Because Jen and L
Answer Preview: A. Revenue = Price per unit x units sold, and Revenue / Price per unit = units sold: Units Sold for …

, Chapter: 13 -Problem: 1 >> Locate your state’s small business credit facilitation Web page. Describe the resources your state makes available in broad categories.
Answer Preview: The state of New York has a small business credit facilitation webs…

, Chapter: 13 -Problem: 2 >> What is meant by the terms business crowd sourcing and crowdfunding?
Answer Preview: Business crowdsourcing is the process of obtaining bus…

, Chapter: 1 -Problem: 4 >> Search the Web for recent developments on the part of Airbnb and Uber to disrupt the lodging and taxi industries, respectively. Also search the Web and attempt to identify other possible innovations that may be disrupting existing markets and networks.
Answer Preview: Other possible innovations include: i) Using yo…

, Chapter: 14 -Problem: 8 >> What are convertible notes? Why are convertible notes issued, and who typically issues them?
Answer Preview: Convertible notes are debt allowing for conversion into sto…

, Chapter: 7 -Problem: 4 >> What is an interest rate? What is default risk?
Answer Preview: The interest rate is the amount a lender charges a bo…

, Chapter: 12 -Problem: 1 >> Summarize nationwide venture capital investing by industry for the last available quarter using a data source available on Web sites such as http://www.pwcmoneytree.com or http://www.nvca.org.
Answer Preview: Primary Data Sources Autobiographies and memoirs. Diaries, personal letters, and correspondence. …

, Chapter: 8 -Problem: 2 >> NYPPEX is “one of the world’s leading secondary agents for transfers of large single interests in private funds, unregistered securities in companies. ”Summarize their regulation-related posting at http://nyppex.com/regulatory.php.
Answer Preview: Three main approaches to regulation are command and control, performance-based…

, Chapter: 14 -Problem: 16 >> The Datametrix Corporation has been in operation for one full year (2019). Financial statements are shown below. Sales are expected to grow at a 30 percent annual rate for each of the next three years (2020, 2021, and 2022) before settling down to a long-run growth rate of 7 percent annually. The cost of goods sold is expected to vary with sales. Operating expenses are expected to grow at 75 perce
Answer Preview: ANSWER To calculate Datametrix's enterprise value as of the end of 2019, we will first need to forec…

, Chapter: 16 -Problem: 4 >> Following are the financial statements for the Chenhai Manufacturing Corporation for 2018 and 2019. The venture is in financial distress and hopes to turn around its financial performance in the near future. A. Calculate the sale-to-cash conversion period for Chenhai in both 2018 and 2019.B. Calculate the inventory-to-sale conversion period for Chenhai in both 2018 and 2019.C. Calculate the purch
Answer Preview: ANSWER. A. The sale-to-cash conversion period measures the number of days it takes for a company to collect cash from the sale of its products. It can be calculated by dividing the average accounts re…

, Chapter: 9 -Problem: 4 >> The Minoso Corporation anticipates a 20 percent increase in sales for 2020 over its 2019 level. Minoso is currently operating at full capacity and thus expects to increase its investment in both current and fixed assets in order to support the increase in forecasted sales.A. Estimate Minoso’s sustainable sales growth rate based on the financial data relationships for 2019. In making your estimate,
Answer Preview: Projection of the income statement, balance sheet, and statement of cash flows for 2017 Income Statement ($000) 2016 Proj. Criteria % 2017 2018 2019 Sales 15,000 0 20 00 18,000 0 21,600 0 25,920 0 Ope…

, Chapter: 15 -Problem: 3 >> What are unicorns? How might their exit values be impacted when they go public?
Answer Preview: Unicorns are high-expected-growth companies with valuations in excess of $1 bi…

, Chapter: 2 -Problem: 16 >> Describe return on assets (ROA). What are the two major components of the ROA model?
Answer Preview: The return on assets is a metric calculated by dividing the ventures net …

, Chapter: 12 -Problem: 21 >> List three venture capital firms active in your region and describe their investing style and restrictions.
Answer Preview: As a starting point for this question, students can ac…

, Chapter: 10 -Problem: 1 >> What is meant by sweat equity?
Answer Preview: Sweat equity is an indivi…

, Chapter: 12 -Problem: 17 >> Discuss why it is important to have an exit event for each investment held by a venture investment fund.
Answer Preview: An exit event for each investment is necessary to bring a v…

, Chapter: 4 -Problem: 33 >> In 2016, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. (The reader may recall that we introduced this yogurt venture in the problems section at the end of Chapter 2.) Jen and Larry began producing small quantities of unique flavors and blend
Answer Preview: A. $1,200,000/$3 00 per cup = 400,000 cups B. EBDAT = EBITDA Interest = $220,000 - $15,000 = $205,00…

, Chapter: 3 -Problem: 34 >> Interact Systems, Inc., has developed software tools that help hotel chains solve application integration problems. Interact’s application integration server (AIS) provides a two-way interface between a central reservations system (CRS) and a property management system (PMS). At least two important trends in the hotel industry are relevant. First, hotels are shifting away from the manual booking o
Answer Preview: A. An important advantage relates to investor liability whereby liability is limited to shareholders investments. Although there is high time and legal cost associated with organizing as a corporation, there is the possibility of attracting large amounts of equity capital from venture investors and common shareholders. The corporate form of organization also has an unlimited life and it is usually easy to transfer ownership. B. Interact Systems might also have been organized as a Subchapter S (or just S) corporation …

, Chapter: 16 -Problem: 5 >> What is foreclosure?
Answer Preview: Foreclosure is a legal process used by creditors t…

, Chapter: 2 -Problem: 1 >> Access the Inc. magazine Web site at http://www.inc.com. Identify a list of recent articles that relate to how business opportunities are evaluated by venture investors and/or articles discussing why venture investors chose not to invest in potential business opportunities.
Answer Preview: The list include: i) "I'll build my own company--no venture funds required" by Ron Conw…

, Chapter: 14 -Problem: 21 >> What would you need if you wanted to conduct an enterprise valuation for a hypothetical Round D for Fuel3D? Discuss the relationship between Fuel3D and MakerBot. How might it affect the terminal value used in the enterprise valuation?
Answer Preview: An enterprise valuation of Fuel3D would typically involve projections of th…

, Chapter: 6 -Problem: 25 >> Kaj Rasmussen founded Scandi Home Furnishings as a corporation during mid-2013. Sales during the first full year (2014) of operation reached $1.3 million. Sales increased by 15 percent in 2015 and another 20 percent in 2016. However, after increasing in 2015 over 2014, profits fell sharply in 2016,  ausing Kaj to wonder what was happening to his €œpride-andjoy€ business venture. After all, Kaj wo
Answer Preview: A. Ratios are based on the current years income statement amounts and average amounts (past year and current year) for balance sheet items. Inventory-…

, Chapter: 6 -Problem: 19 >> Two years of financial statement data for the Munich Export Corporation are shown below.A. Calculate the inventory-to-sale, sale-to-cash, and purchase-to-payment conversion periods for Munich Exports for 2016.B. Calculate the length of Munich Exports€™ cash conversion cycle for 2016.        Cash Conversion Cycle Cash conversion cycle measures the total time a business ta
Answer Preview: A. Inventory-to-Sale Conversion Period = Average Inventories / (Cost of Goods …

, Chapter: 12 -Problem: 7 >> Find a recent Wall Street Journal article on venture investing and summarize it.
Answer Preview: Innovation and entrepreneurship are the kernels of a capitalist …

, Chapter: 12 -Problem: 24 >> Determine the three largest venture capital firms in the United States. How much money do they have under management? In what areas, if any, do they specialize? Where are they located? Where are their branch offices?
Answer Preview: The venture capital sites (on the WWW) and annual reports (in libraries) typica…

, Chapter: 15 -Problem: 4 >> Benito Gonzalez founded and grew the BioSystems Manufacturing Corporation over a several-year period. However, Benito has decided to harvest or exit BioSystems now at the end of 2019 with the intention of starting a new entrepreneurial venture. The Fuji Electronics Company is considering acquiring BioSystems, which is 60 percent owned by Benito Gonzalez; the other 40 percent of the equity is held
Answer Preview: ANSWER A BIOSYSTEMS MANUFACTURING CORPORATION INCOME STATEMENT FOR 2022 ($ THOUSANDS) Net sales - $2…

, Chapter: 7 -Problem: 42 >> The Castillo Products Company was started in 2014. The company manufactures components for personal digital assistant (PDA) products and for other handheld electronic products. A difficult operating year, 2015, was followed by a profitable 2016. The founders (Cindy and Rob Castillo) are interested in estimating their cost of financial capital because they are expecting to secure additional externa
Answer Preview: A. 2015 net profit margin = -65,000/900,000 = -.0722 = -7 22% 2016 net profit margin = 75,000/1,500,000 = .500 = 5 00% 2015 total-sales-to-total-assets = 900,000/1,000,000 = .9000 times 2016 total-sal…

, Chapter: 8 -Problem: 4 >> What is securities crowdfunding?
Answer Preview: Securities crowdfunding is a new form of …

, Chapter: 18 -Problem: 1 >> A. Describe Spatial Technology€™s business model in terms of revenues, profits, and cash flows. B. What intellectual properly, if any, does Spatial Technology possess? C. Describe the experience and expertise characteristics of the management team. D. Describe Spatial Technology€™s pricing and marketing strategy. E. Discuss the competition faced by Spatial Technology in conjunction with 3D modelin
Answer Preview: A. Spatial is the originator of a 3D modeling file format (SAT) and object manipulation protocol intended to facilitate general 3D modeling and animation. Its revenues historically have been due to pr…

, Chapter: 6 -Problem: 1 >> Access the U.S. Census Bureau Web site at http://www.census.gov. Find relevant information for trends in U.S. population growth for a specific business idea. Comment on the manufacturing statistics and regional or national statistics relevant for that business.
Answer Preview: Based on historical observation, stock prices and interest …

, Chapter: 8 -Problem: 4 >> What is securities crowdfunding?
Answer Preview: The term crowdfunding is sometimes used to refer to a general set of possible approaches to …

, Chapter: 4 -Problem: 15 >> Define the term EBDAT.
Answer Preview: Earnings before interest, taxes, depreciation, and amortization …

, Chapter: 3 -Problem: 10 >> What are the benefits and costs of having a patent?
Answer Preview: In a tongue-in-cheek sense, having a patent gives the inventor a license to sue to protect his …

, Chapter: 1 -Problem: 2 >> Determine several “resources” available from the Small Business Administration (SBA) for entrepreneurs that might be useful in starting, financing, and managing an entrepreneurial venture. The SBA Web site is http://www.sba.gov.
Answer Preview: The SBA provides information that can help the small business owner in setting up the busines…

, Chapter: 6 -Problem: 1 >> What does short-term financial planning involve?
Answer Preview: Short-term financial planning usually involves projecting monthly financial statements a…

, Chapter: 1 -Problem: 4 >> What are five megatrend sources or categories for finding entrepreneurial opportunities?
Answer Preview: We identify five megatrend categories…

, Chapter: 7 -Problem: 24 >> You have been retained as a consultant for Ecosphere and tasked with assessing the financial viability of their commercial ventures. What types of financial ratios would you enlist in your report to Ecosphere? What approach would you take to determining a relevant cost of capital for those ventures? Cost Of Capital Cost of capital refers to the opportunity cost of makin
Answer Preview: Ecosphere has a great deal of variety in the types of pr…

, Chapter: 1 -Problem: 21 >> Web-surfing exercise: Develop your own list of the five most important societal or economic trends currently shaping our society and providing major business opportunities. Use the Web to generate potential venture ideas related to the trends and to gather commentary and statistics on them.
Answer Preview: They should can be directed to do generic web searches on megatrends …

, Chapter: 11 -Problem: 14 >> Describe how expected present value is calculated when there are two or more scenarios.
Answer Preview: The alternative to a utopian venture valuation approach is a mean venture valuation ap…

, Chapter: 7 -Problem: 36 >> Following is the rate-of-return component information for First Venture investors:Rate                                                                    ReturnComponent                                                  ComponentLiquidity Premium ………………………....               5%Risk-free Rate ……………………………..                6Advisory Premium ………………….....…..                9Market Risk Premium …………....……
Answer Preview: A. Expected rate of retu…

, Chapter: 2 -Problem: 17 >> How do asset intensity and asset turnover differ? What is implied by a high asset intensity? Asset Turnover Asset turnover is sales divided by total assets. Important for comparison over time and to other companies of the same industry. This is a standard business ratio.
Answer Preview: Asset intensity is calculated as total assets divi…

, Chapter: 5 -Problem: 23 >> The Castillo Products Company was started in 2014. The company manufactures components for personal digital assistant (PDA) products and for other handheld electronic products. A difficult operating year, 2015, was followed by a profitable 2016. The founders (Cindy and Rob Castillo) are interested in estimating their cost of financial capital because they are expecting to secure additional externa
Answer Preview: A. Current Ratio = Current Asset/Current Liabilities Year 2015: $650,000/$270,000 = 2 41 Year 2016: …

, Chapter: 4 -Problem: 30 >> Salza Technology Corporation increased its sales from $375,000 in 2015 to $450,000 in 2016 as shown in the firm€™s income statements  resented below. LeAnn Sands, chief executive officer and founder of the firm, expressed concern that the cash account and the firm€™s marketable securities declined substantially between 2015 and 2016. Salza€™s complete balance sheets are also shown. Ms. Sands is se
Answer Preview: a. See spreadsheet calculations below. b. See spreadsheet calculations below. c. See spreadsheet cal…

, Chapter: 9 -Problem: 15 >> What role does the statement of cash flows play in long-term financial planning?
Answer Preview: Most long-term financial planning efforts set cash as a percentage of sales or as a fixed do…

, Chapter: 12 -Problem: 29 >> List seven Web sites or print magazines that contain venture capital investing information that might be of use to entrepreneurs seeking venture capital.
Answer Preview: For example: http:// www pwcmoneytree com http:// …

, Chapter: 2 -Problem: 22 >> From the Headlines—Diluting the Angels’ Share: Briefly describe how the idea of a shortened aging process can be the basis of financial profitability for Cleveland Whiskey.
Answer Preview: The barrel-aging process is extraordinarily time consuming, placing a large gap betwee…

, Chapter: 4 -Problem: 19 >> From the Headlines—Competing to Let the Light Shine: Describe three financial performance measures that d.light could use when  comparing itself to other potential competitors.
Answer Preview: Margins (revenues vs. costs) will be critical in providing the necessary internal capital to f…

, Chapter: 12 -Problem: 22 >> Locate a recent study covering venture capital fundraising (not investing) for the previous year. Determine what the current sources of funds tend to be.
Answer Preview: http:// www nvca org typically …

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