Leach TB Chap02 Ed3


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CHAPTER 2 FROM THE IDEA TO THE BUSINESS PLAN True-False Questions T. 1. For ventures that first get to market or create intellectual property rights, it’s common to price new products or services at high markups or profit margins. F. 2. Lifestyle firms are growth-driven in terms of revenues, profits, and cash flows and also performance-oriented as reflected in rapid value creation over time. F. 3. Entrepreneurial ventures emphasize survival and providing an acceptable living for their owners with growth being a secondary goal. T. 4. Business opportunities, because they exist in real time, have a relatively narrow window of opportunity to become a successful business venture. However being the first to market does not guarantee success. T. 5. A venture opportunity-screening guide, called the VOS Indicator, is used to determine potential attractiveness of venture opportunities as business opportunities. F. 6. Asset intensity is the net after-tax profit divided by total assets. T. 7. The compound rate of return that equates the present value of the cash inflows with the initial investment outlay is called the internal rate of return (IRR). T. 8. Bootstrapping refers to the process of minimizing resources such as the need for financial capital and finding unique sources for financing a new venture. F. 9. In a typical business plan, the section covering the management team does not need to disclose the expertise and experience of the management. T. 10. The non-financial option available to managers as the venture progresses through its lifecycle is known as real options. T. 11. A sound business model should provide a plan to generate revenues, make profits, and produce free cash flows. F. 12. Mark Twain said: “Like I tell anybody, if you fail to plan, you’re planning to fail.” 10
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Chapter 2: From the Idea to the Business Plan T. 13. Ideas that are said to be “ahead of their time” are too early to become viable business opportunities for the inventor or innovator. T. 14. Venture opportunity screening involves assessment of an idea’s commercial potential to produce revenue growth, financial performance, and value. F. 15. Free cash flow to equity is the cash flow from producing and selling a product or providing a service. T. 16. “Salary-replacement” firms provide their owners with income levels comparable top what they could have earned working for much larger firms. F. 17. “Entrepreneurial ventures” are firms that allow owners to pursue specific lifestyles while being paid for doing what they like to do. T. 18. An entrepreneur may start a number of different types of businesses, including salary-replacement firms, lifestyle firms, and entrepreneurial firms or ventures. F.
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