Question 1

Which of the following is an example of a put option which is in the money?

Accepted Answer

A)  The option to sell at $11, the stock is worth $12. 
B)  The option to buy at $13, the stock is worth $12. 
C)  The option to buy at $12, the stock is worth $12. 
D)  The option to sell at $13, the stock is worth $12. 
E)  The option to buy at $11, the stock is worth $12.

Question 2

Which of the following is never a component of a preferred stock's security structure?

Accepted Answer

A)  the right to participate in any dividends paid to common stock shareholders 
B)  payment of dividends in the form of additional shares of preferred stock 
C)  the option for the holder to convert preferred stock into common stock 
D)  the option for the venture to call outstanding preferred stock 
E)  none of the above; all of these may be included in the structure ofpreferred stock

Question 3

Warrant valuation as presented in this text) is similar to option valuation except that one applies a dilution factor to the option value to arrive at a warrant value.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is an example of a call option which is out of the money?

Accepted Answer

A)  The option to sell at $11, the stock is worth $12. 
B)  The option to buy at $13, the stock is worth $12. 
C)  The option to buy at $12, the stock is worth $12. 
D)  The option to sell at $13, the stock is worth $12. 
E)  The option to buy at $11, the stock is worth $12.

Question 5

Which of the following is an example of a put option which is out of the money?

Accepted Answer

A)  The option to sell at $11, the stock is worth $12. 
B)  The option to buy at $13, the stock is worth $12. 
C)  The option to buy at $12, the stock is worth $12. 
D)  The option to sell at $13, the stock is worth $12. 
E)  The option to buy at $11, the stock is worth $12.

Question 6

A European-Style Option may only be exercised on a specific date.

Accepted Answer

A) True 
 B)False

Question 7

A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share.

Accepted Answer

A) True 
 B)False

Question 8

Convertible debt is debt that converts into preferred stock.

Accepted Answer

A) True 
 B)False

Question 9

To calculate the enterprise valuation cash flow, one begins with which of the following items from the income statement?

Accepted Answer

A)  net sales 
B)  operating profit 
C)  earnings before interest and taxes) × 1 - enterprise tax rate) 
D)  net income 
E)  net income times the enterprise tax rate

Question 10

Generally speaking, warrants are call options that allow the holder to purchase what type of security at a specific price?

Accepted Answer

A)  common stock 
B)  preferred stock 
C)  convertible debt 
D)  none of the above

Question 11

The Black and Scholes model requires an exercise price as an input.

Accepted Answer

A) True 
 B)False

Question 12

By issuing preferred stock, and thus forfeiting bankruptcy rights from the use of debt, the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization.

Accepted Answer

A) True 
 B)False

Question 13

The right to buy a specified asset at a specified price on a specified date is called:

Accepted Answer

A)  a forward contract 
B)  an American-style put option 
C)  an American-style call option 
D)  a European-style call option 
E)  a European style put option

Question 14

For preferred noncumulative stock, all previously unpaid preferred dividends must be paid before any common stock dividend is paid.

Accepted Answer

A) True 
 B)False

Question 15

The Black and Scholes model is intended to be used to value

Accepted Answer

A)  stocks 
B)  bonds 
C)  options 
D)  futures contracts

Question 16

in the Black and Scholes model involves the use of

Accepted Answer

A)  the number of shares issued 
B)  the next time that a venture capitalist will invest money 
C)  the normal distribution cumulative density function 
D)  the number of times that the venture will have to raise money

Question 17

An alternative approach to the Enterprise Valuation method adds the tax shield from paying interest back into the flows and discounts at a before-tax weighted average cost of capital.

Accepted Answer

A) True 
 B)False

Question 18

A round of financing where shares sell for a lower price than previous rounds is known as a:

Accepted Answer

A)  down round 
B)  recessive round 
C)  reset round 
D)  a and c

Question 19

As the underlying stock price increases in value, a put option to sell it becomes more valuable.

Accepted Answer

A) True 
 B)False

Exam 14: Security Structures and Determining Enterprise Values

Which of the following is an example of a put option which is in the money?

Which of the following is never a component of a preferred stock's security structure?

Warrant valuation as presented in this text) is similar to option valuation except that one applies a dilution factor to the option value to arrive at a warrant value.

Which of the following is an example of a call option which is out of the money?

Which of the following is an example of a put option which is out of the money?

A European-Style Option may only be exercised on a specific date.

A preemptive right is a right for existing owners to buy sufficient shares to preserve their ownership share.

Convertible debt is debt that converts into preferred stock.

To calculate the enterprise valuation cash flow, one begins with which of the following items from the income statement?

Generally speaking, warrants are call options that allow the holder to purchase what type of security at a specific price?

The Black and Scholes model requires an exercise price as an input.

By issuing preferred stock, and thus forfeiting bankruptcy rights from the use of debt, the venture and its investors can benefit by committing to an internal reorganization as opposed to bankruptcy reorganization.

The right to buy a specified asset at a specified price on a specified date is called:

For preferred noncumulative stock, all previously unpaid preferred dividends must be paid before any common stock dividend is paid.

The Black and Scholes model is intended to be used to value

in the Black and Scholes model involves the use of

An alternative approach to the Enterprise Valuation method adds the tax shield from paying interest back into the flows and discounts at a before-tax weighted average cost of capital.

A round of financing where shares sell for a lower price than previous rounds is known as a:

As the underlying stock price increases in value, a put option to sell it becomes more valuable.