Leach TB Chap10 Ed3

Leach TB Chap10 Ed3 - CHAPTER 10 VENTURE CAPITAL VALUATION...

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CHAPTER 10 VENTURE CAPITAL VALUATION METHODS True–False Questions F. 1. The venture capital valuation method estimates the venture’s value by projecting both intermediate and terminal/exit flows to investors. T. 2. Venture investors returns depend on the venture’s ability to generate cash flows or to find an acquirer for the venture. F. 3. The value of the venture’s equity is equal to the value the financing contributed in the first venture capital round. F. 4. A direct application of the earnings-per-share ratio to venture earnings is known as the direct comparison valuation method. T. 5. The venture capital valuation method which capitalizes earnings using a cap rate implied by a comparable ratio is known as direct capitalization. T. 6. Failure to account for any additional rounds of financing and its accompanying dilution in order to meet projected earnings will result in the investor’s not receiving an adequate number of shares to ensure the required percent ownership at the time of exit. T. 7. Almost without exception, professional venture investors demand that some equity or deferred equity compensation be structured into any valuation. F. 8. If a venture issues debt prior to the exit period, the initial equity investors will still receive first claims on the venture’s net worth at exit time. F. 9. The utopia discount process allows the venture investors to value their investment using only the business plan’s explicit forecasts, discounting it at a bank loan interest factor. F. 10. The internal rate of return is the simple (non-compounded) interest rate that equates the present value of the cash inflows received with the initial investment. T. 11. The venture capital (VC) method estimates the venture’s value using only terminal/exit flows to investors. T. 12. Post-money valuation of a venture is the pre-money valuation plus money injected by new investors. 67
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Chapter 10: Venture Capital Valuation Methods T. 13. Staged financing is financing provided in sequences of rounds rather than all at one time. F. 14. The capitalization rate is the sum of the discount rate and the growth rate of the cash flow in the terminal value period. T. 15. The internal rate of return (IRR) is the compound rate of return that equates the present value of the cash inflows received with the initial investment. T.
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Leach TB Chap10 Ed3 - CHAPTER 10 VENTURE CAPITAL VALUATION...

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