Chapter 12: 1. What is the "underinvestment problem," and when might a new venture face underinvestment?
Answer: Underinvestment occurs when a company has as attractive investment opportunity but lacks sufficient capital to pursue it, and when outside inv
Chapter 16: 1. What is "harvesting" in the context of entrepreneurial finance? A) A seasoned equity offering B) A liquidity event brought about by the investor buying more shares in the venture C) Another name for the underwriting process D) The final sta
Amgen Inc (AMGN)
Income Statement - Annual
Total Revenue ($M)
Cost of Revenue, Total
Selling General & Admin Expenses
Research & Development
Other Indirect Operating Expenses
Operating Income ($M)
Interest Expense (Income), Net
Dorman Products Inc (DORM)
Balance Sheet - Annual
1988 1989 1990
Cash, Cash Equiv. & Short Term Inv. ($M)
Accounts & Notes Receivable
Receivables - Net
Inventories - Net
Other Current Assets
Current Assets - Total
Property, Plant & Equipment - Gro
Finance Theory and Practice
University of West Florida
R. Daniel Pace, Ph.D.
Finance 4414 is an extension of Managerial Finance (FIN3403). Topics such as risk and
return, stock and bond valuation, time value
Chapter 15: 1. Why are there so many alternatives for new venture financing?
Answer: Part of the answer is that the providers have different objectives, capabilities, and constraints. Some, like banks, seek low-involvement, low-risk investments. Others, l
Chapter 14: 1. What are venture capital firms? And what characteristics do they seek in their investments?
Answer: A venture capital firm is a specific type of financial intermediary that has a unique organizational structure and a specific market niche.
Chapter 13: 1. Why does staging reduce the outside ownership share of ventures that ultimately are successful?
Answer: Staging of outside investment reduces the ownership interest of the investor. For a singlestage investment, once made, the investor's co
Chapter 2: 1. What are some considerations in deciding on the legal form for a new venture? Answer: The tax implications associated with the legal form of the venture The effect of the legal form on the venture's ability to raise capital The effect of the
Chapter 3: 1. How is the business plan of a new venture different from the plan of an established business?
Answer The precision of the future projections. New ventures are surrounded by uncertainty, which affects the accuracy of the assumptions about the
Chapter 4: 1. What makes a decision "strategic?"
Answer: Strategic decisions are consequential, meaning they involve substantial commitments of time and resources. Strategic decisions are both active and reactive: they consider possible reactions of other
Chapter 5: 1. A) What is the rationale for using simulation? B) What are the steps to a simulation? Answer: A) The reason for using simulation is to evaluate strategic alternatives. B) The steps are: First: identify the strategies to be evaluated Second:
Chapter 6: 1. What is minimum efficient scale? A) the point in the production cycle where the firm has the lowest cash flow needs. B) the smallest scale that the firm needs to achieve profitability. C) the minimum level of production that achieves the low
Chapter 7: 1. "For the entrepreneur to undertake a new venture as safely and successfully as possible, she should raise more money than she needs before starting the venture." Comment.
Answer: This is not a good idea. An entrepreneur who is excessively ca
Chapter 8: 1. Why are the hurdle rates that venture capital firms use to value investment opportunities generally higher than cost of capital of the investment opportunities?
Answer: Venture capital firms normally base their valuations on cash flow projec
Chapter 9: 1. For a well-diversified investor, based on the CAPM, what information is needed to estimate the cost of capital of a venture financial claim by the RADR method?
Answer: You need estimates of the risk-free rate of return, the market rate or ma
Chapter 10: 1. An artistic entrepreneur has invested $10,000 of his savings in developing a line of gold jewelry and he has produced prototype rings. He has not foregone any explicit wages as he worked on his jewelry designs during the evenings. His day j
Chapter 11: 1. If a venture has a constant return to scale, and there is no outside investment, how do you determine the portion of the entrepreneur total investment that maximizes her NPV of the venture?
Answer: With no outside investors, the larger the
Chapter 1: 1. A sound investment decision is to seek out and acquire assets that are worth more than they cost. Ultimately, the worth, or value, of an investment depends on: A) the expected future prices of the investment's assets. B) the current market p