Leach TB Chap14 Ed3

Leach TB Chap14 Ed3 - CHAPTER 14 HARVESTING THE BUSINESS...

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CHAPTER 14 HARVESTING THE BUSINESS VENTURE INVESTMENT True–False Questions T. 1. The process of exiting the privately held business venture to unlock the owners’ investment value is known as harvesting. T. 2. When harvesting a venture, the methodical distribution of assets directly to the owners is known as a systematic liquidation. F. 3. When harvesting a venture, the outright purchase of the going concern by managers, employees, or external buyers is known as going public. F. 4. When harvesting a venture, the two-step public equity registration and sale is known as an outright sale. T. 5. When an initial business plan is prepared, attention must be paid to the investors’ and founders’ desire for eventual liquidity by providing a harvest for the venture investors. T. 6. An advantage of an exit strategy that pays out the venture’s investment value over several years can make it more difficult for entrepreneurs to start a new venture because adequate capital has not been released from the existing venture. F. 7. When an industry is in decline, systematic liquidation is typically the most attractive harvest strategy. F. 8. The harvesting process where the purchase price of a firm is financed largely with debt capital is known as management buyout (MBO). F. 9. A special type of harvesting process where the firm’s top management continues to run the firm and has a substantial equity position in the reorganized firm is known as a leveraged buyout. F. 10. In determining a harvest value, non-monetary items such as culture, managerial succession, and employee retention are not factored in. T. 11. An obligatory disclaimer disavowing any intent to act as an offer to sell, or solicit an offer to buy securities is known as a red herring. T. 12. Harvesting is the process of exiting the privately held business venture to unlock the owners’ investment value. 90
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Chapter 14: Harvesting the Business Venture Investment T. 13. One method of harvesting a venture is through systematic distribution of assets directly to the owners. F. 14. Other than when the venture is operating in a declining industry, it is difficult to think of cases where the disadvantages of liquidation outweigh the advantages. T. 15. A leveraged buyout (LBO) takes place when the purchase price of a firm is financed largely with debt financial capital. T. 16. Exit values for many mature ventures are usually determined by (1) discounted cash flow (DCF) methods or (2) relative valuation models based on some form of multiples analysis. F. 17. The two discounted cash flow (DCF) methods covered in this text are the enterprise method and the debt funds method. T. 18. Ultimately for harvesting purposes, we need to decide on the venture’s value at exit and how that exit value pie will be divided up among investors.
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Leach TB Chap14 Ed3 - CHAPTER 14 HARVESTING THE BUSINESS...

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