Deck 13: Exit/Harvest/Turnaround

Question 1

The early start-up time is the best time to develop an exit strategy.

Answer 1

True

Question 2

Perquisites for owners are given to maximize their benefits.

Answer 2

False

Question 3

In the discounted future net cash flow valuation method, it is important that each party accept the underlying assumptions to determine a good estimation of a firm's value.

Answer 3

True

Question 4

Price/earnings ratio is a value derived by public companies that divides the current earnings per share of stock into the price per share of stock.

Question 5

Business valuation is part science and part art; there is no precise formula for determining the price of a company.

Question 6

Bankruptcy is an option for a small business owner if the turnaround effort does not succeed quickly enough.

Question 7

A key retrenchment action that a declining business must make is to attempt an initial public auction.

Question 8

Which of the following methods of valuation takes the earnings (net profit) of an organization, and subtracts or adds in any unusual items that an investor feels are not customary?

A) price/earnings valuation
B) asset-based valuation
C) market estimation valuation
D) capitalization of earnings valuation

Question 9

Maintaining an estimate of value of a business as it grows and develops is the responsibility of the:

A) shareholder
B) owners
C) investors
D) accounting firm

Question 10

Which chapter of bankruptcy is used for a family-owned business?

A) 7
B) 11
C) 12
D) 13

Question 11

A decline in the performance of a business can generally be attributed to what factors?

A) factors both internal and external to the firm
B) internal factors such as a poor inventory management system
C) external factors such as a competitor introducing a new and improved product customers desire
D) all of these

Question 12

The authors of our book advise the owners of a declining business to:

A) pick the one key reason the business is declining and focus on fixing it
B) identify all the problems and hire a consultant to develop a turnaround plan
C) identify all the problems and focus first on the problem that will be the easiest to resolve
D) none of these

Question 13

According to the book, if a business owner's efforts to turn around the business fail, what is the best option?

A) declare bankruptcy of the business
B) personally pay the debts of the business
C) declare personal bankruptcy
D) have a going out of business sale

Question 14

Chapter 11 bankruptcy provides a fast-track option. Which of the following statements is NOT correct about this fast-track option?

A) The fast-track plan provides creditors with far less control than in a larger organization's bankruptcy filing.
B) The fast-track plan must show how back taxes will be paid within five years.
C) The fast-track plan must show how creditors who have pledged collateral behind them will be brought current.
D) The fast-track plan must show that unsecured creditors will be paid first before other creditors.

Question 15

In the Tealuxe case study, the founder:

A) had significant interest in actively managing the operational side of the business
B) had no interest in actively managing the operational side of the business
C) had significant interest in actively managing the storefronts
D) none of these

Question 16

In the Tealuxe case study, the business filed for:

A) Chapter 7
B) Chapter 11
C) Chapter 12
D) Chapter 13

Question 17

In the Friend's Home Health case study, the founders were:

A) caught off-guard when a rehabilitation center offered to buy them out
B) looking for an investor to buy them out
C) caught off-guard when a hospital offered to buy them out
D) none of these

Question 18

In the Friend's Home Health case study, the founders:

A) knew how much their company was worth
B) had to figure out how much their company was worth
C) did not have a need to know how much their company was worth
D) none of these

Question 19

In the Friend's Home Health case study, the buyout offer was:

A) $400,000
B) $500,000
C) $600,000
D) none of these

Question 20

In the Flow Right Brewery & Bar case study, Chris was offered a buyout from:

A) a venture capitalist
B) his ex-wife
C) his former boss
D) none of these

Question 21

Why should a small business owner want to exit a business?