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Leach TB Chap09 Ed3 - CHAPTER 9 VALUING EARLY-STAGE...

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CHAPTER 9 VALUING EARLY-STAGE VENTURES True–False Questions F. 1. The valuation approach involving discounting present value cash flows for risk and delay is called discounted cash flow (DCF). F. 2. The stepping stone year is the first year before the explicit forecast period. T. 3. The explicit forecast period is the two to ten year period in which the venture’s financial statements are explicitly forecast. F. 4. The maximum dividend valuation method involves explicitly forecasted dividends to provide surplus cash which is positive. T. 5. The easiest way to value a venture is to discount the projected maximum dividend/issue stream. T. 6. The pseudo dividend valuation method implies zero explicitly forecasted dividends and an adjustment to working capital to strip any surplus cash. T. 7. The pseudo dividend method treats surplus cash as a free cash flow to equity. F. 8. A venture’s reversion value is the present value of ongoing expenses. T. 9. The pseudo dividend method treats equity infusions and withdrawals in a “just in time” fashion. T. 10. The pseudo dividend method treats surplus cash either as stripped out while not in use or as employed outside the venture and stored in a zero NPV investment. T. 11. The terminal or horizon value is the value of a venture at the end of its explicit forecast period. F. 12. The “stepping stone” year is the second year after the explicit forecast period when valuing a venture. T. 13. Surplus cash is the cash remaining after required cash, all operating expenses, and reinvestments are made. 59
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Chapter 9: Valuing Early-Stage Ventures T. 14. The capitalization or “cap” rate is the spread between the discount rate and the growth rate of cash flow in the terminal value period. F. 15. The “reversion value” is the future value of the terminal value. T. 16. Pre-money valuation is the present value of a venture prior to a new money investment. F. 17. Post-money valuation is the pre-money valuation of a venture plus all monies previously contributed by the venture’s founders. T. 18. “Net operating working capital” is current assets other than surplus cash less non-interest-bearing current liabilities. F. 19. “Equity valuation cash flow” is defined as: net sales + depreciation and amortization expense – change in net operating working capital (excluding surplus cash) – capital expenditures + net debt issues. T. 20. The “pseudo dividend method” (PDM) is a valuation method involving zero explicitly forecasted dividends and an adjustment to working capital to strip surplus cash. F. 21. The “terminal” value is the value of the venture at the beginning of the explicit forecast period. T. 22. As used in this textbook, the “terminal” value is the same as the “horizon” value.
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