SOLUTION MANUAL FORj j
EntrepreneurialjFinance,j7thjEditionjJ.jChrisjLeachj(Author),jRonal
djW.jMelicherj(Author)
Chapterj1-
16jWithjCasesjProductsj&SpatialjTechjChapterj1
INTRODUCTIONjTOjFINANCEjFORjENTREPRENEURSjFOCU
S
Thejpurposejofjthisjfirstjchapterjisjtojpresentjanjoverviewjofjwhatjentrepreneurialjfinancejisjabout.j I
njdoingjsojwejhopejtojconveyjtojyoujthejimportancejofjunderstandingjandjapplyingjentrepreneurialjf
inancejmethodsjandjtoolsjtojhelpjensurejanjentrepreneurialjventurejisjsuccessful.jWejpresentjajlifejcy
clejapproachjtojthejteachingjofjentrepreneurialjfinancejwherejwejcoverjventurejoperatingjandjfinanc
ialjdecisionsjfacedjbyjthejentrepreneurjasjajventurejprogressesjfromjanjideajthroughjtojharvestingjth
ejventure.
LEARNINGjOBJECTIVES
LOj1.1:jCharacterizejthejentrepreneurialjprocess.
LOj1.2:jDescribejentrepreneurshipjandjsomejcharacteristicsjofjentrepreneurs.
LOj1.3:jIndicatejseveraljmegatrendsjprovidingjwavesjofjentrepreneurialjopportunities.jL
Oj1.4:jListjandjdescribejthejsevenjprinciplesjofjentrepreneurialjfinance.
LOj1.5:jDiscussjentrepreneurialjfinancejandjthejrolejofjthejfinancialjmanager.jLOj
1.6:jDescribejthejvariousjstagesjofjajsuccessfuljventure‘sjlifejcycle.
LOj1.7:jIdentify,jbyjlifejcyclejstage,jthejrelevantjtypesjofjfinancingjandjinvestors.jLOj
1.8:jUnderstandjthejlifejcyclejapproachjusedjinjthisjbook.
CHAPTERjOUTLINE
1.1 THEjENTREPRENEURIALjPROCESS
1.2 ENTREPRENEURSHIPjFUNDAMENTALS
A. WhojisjanjEntrepreneur?
B. BasicjDefinitions
C. EntrepreneurialjTraitsjorjCharacteristics
D. OpportunitiesjExistjButjNotjWithoutjRisks
1.3 SOURCESjOFjENTREPRENEURIALjOPPORTUNITIES
A. SocietaljChanges
B. DemographicjChanges
C. TechnologicaljChanges
D. EmergingjEconomiesjandjGlobaljChanges
E. Crisesjandj―Bubbles‖
F. DisruptivejInnovation
1
,2 Chapterj6:jManagingjCashjFlow
1.4 PRINCIPLESjOFjENTREPRENEURIALjFINANCE
A. Real,jHuman,jandjFinancialjCapitaljmustjbejRentedjfromjOwnersj(Principlej#1)
B. RiskjandjExpectedjRewardjgojHandjinjHandj(Principlej#2)
C. WhilejAccountingjisjthejLanguagejofjBusiness,jCashjisjthejCurrencyj(Principlej#3)
D. NewjVenturejFinancingjInvolvesjSearch,jNegotiation,jandjPrivacyj(Principlej#4)
E. AjVenture‘sjFinancialjObjectivejisjtojIncreasejValuej(Principlej#5)
F. ItjisjDangerousjtojAssumejthatjPeoplejActjAgainstjTheirjOwnjSelf-
Interestsj(Principlej#6)
G. VenturejCharacterjandjReputationjcanjbejAssetsjorjLiabilitiesj(Principlej#7)
1.5 ROLEjOFjENTREPRENEURIALjFINANCE
1.6 THEjSUCCESSFULjVENTUREjLIFEjCYCLE
A. DevelopmentjStage
B. StartupjStage
C. SurvivaljStage
D. Rapid-GrowthjStage
E. Early-MaturityjStage
F. LifejCyclejStagesjandjthejEntrepreneurialjProcess
1.7 FINANCINGjTHROUGHjTHEjVENTUREjLIFEjCYCLE
A. SeedjFinancing
B. StartupjFinancing
C. First-RoundjFinancing
D. Second-RoundjFinancing
E. MezzaninejFinancing
F. Liquidity-StagejFinancing
G. SeasonedjFinancing
1.8 LIFEjCYCLEjAPPROACHjFORjTEACHINGjENTREPRENEURIALjFINANCEj
SUMMARY
DISCUSSIONjQUESTIONSjANDjANSWERS
1. Whatjisjthejentrepreneurialjprocess?
Thejentrepreneurialjprocessjcomprises:jdevelopingjopportunities,jgatheringjresources,jandjmanagin
gjandjbuildingjoperationsjwithjthejgoaljofjcreatingjvalue.
2. Whatjisjentrepreneurship?j Whatjarejsomejbasicjcharacteristicsjofjentrepreneurs?
Entrepreneurshipjisjthejprocessjofjchangingjideasjintojcommercialjopportunitiesjandjcreatingjva
lue.j Whilejtherejisjnojprototypicaljentrepreneur,jmanyjarejgoodjatjrecognizingjcommercialjopp
ortunities,jtendjtojbejoptimistic,jandjenvisionjajplanjforjthejfuture.
3. Whyjdojbusinessesjclosejorjceasejoperating?j Whatjarejthejprimaryjreasonsjwhyjbusinessesjfai
l?
, Chapterj6:jManagingjCashjFlow 3
Nearlyjone-
halfjofjbusinessesjthatjfailjdojsojbecausejofjeconomicjfactorsjincludingjinadequatejsales,jinsuffi
cientjprofits,jandjindustryjweakness.jManyjofjthejeconomicjfactorsjarejdirectlyjtiedjtojfinancingj
concernsj(e.g.,jinsufficientjprofitsjforjinvestors).j Almostj40jpercentjofjbusinessjfailuresjnotjciti
ngjeconomicjfactorsjcitejspecificallyjfinancialjcausesjlikejexcessivejdebtjandjinsufficientjfinanci
aljcapital.j Thejremainingjcitedjreasonsjforjfailurejincludejajlackjofjbusinessjandjmanagerialjexp
erience,jbusinessjconflicts,jfamilyjproblems,jfraud,jandjdisasters.j Manyjbusinessesjclosejandjfai
ljduejtojfinancialjtroublejwhichjisjmostlyjrelatedjtojlackjofjsalesjandjunsatisfactoryjprofits.
4. Whatjarejfivejmegatrendjsourcesjorjcategoriesjforjfindingjentrepreneurialjopportunities?
Wejidentifyjfivejmegatrendjcategories.j Theyjare:j(1)jsocietaljchanges,j(2)jdemographicjch
anges,j(3)jtechnologicaljchanges,j(4)jemergingjeconomiesjandjglobaljchanges,jandj(5)jcrise
sjandjbubbles.
Underjsocietaljchangesjwejdiscussjthejgigjeconomyjandjthejsharingjeconomy.j Thejgigjeconom
yjisjwherejindividualsjacceptjshort-termjjobjassignmentsjorj―gigs‖jinsteadjofjhavingjfull-
timejemployment.j Thejsharingjeconomyjisjwherejindividualsjsharejtheirjassets,jsuchjasjhomes
,jvehicles,jandjpersonaljtime,jwithjothersjtojprovidejajnewjwayjforjdistributingjgoodsjandjservic
es.
5. Whatjassetjandjfinancialjbubblesjhavejoccurredjrecently?j Howjcanjbubblesjandjfinancialjcri
sesjleadjtojentrepreneurialjopportunities?
Thej―dot.com‖jorjInternetjbubblejburstjinj2000.j Anjeconomicjrecessionjthatjbeganjinj2001jwa
sjexacerbatedjbyjthej9/11jterroristjattack.j Thejhousingjassetjbubble,jfueledjbyjsub-
primejmortgagesjofferedjtojborrowersjwhojcouldjnotjaffordjthem,jburstjinj2006.j Byjthejsecond
jhalfjofj2008,jaj―perfectjfinancialjstorm‖jeruptedjandjpossiblejfinancialjcollapsejbecamejajreal
ity.
Alternativejandjrenewablejenergy,jaccompaniedjbyjprojectjcreditjsubsidies,jproductionjandjinvestm
entjtaxjcredits,jandjloanjguaranteesjbenefitedjasjajresultjofjthejrecentjfinancialjcrisis.jThesejdevelop
mentsjandjotherjeffortsjtojstimulatejeconomicjactivityjprovidedjmanyjnewjentrepreneurialjopportun
ities.
6. Whatjisje-commerce?j WhyjarejthejInternetjeconomyjandje-commercejherejtojstay?
E-
commercejinvolvesjthejusejofjelectronicjmeansjtojconductjbusinessjonline.j Activitiesjinclu
dejmarketingjandjsellingjonlinejandjelectronicjretailing.
Thejinternetjeconomyjandje-
commercejarejherejtojstay.j WejwilljneverjdojbusinessjthejsamejwayjwejdidjbeforejthejInternetja
ndjthejWeb.j Manyjbusinessjplansjwerejfundedjwithjthejbeliefjthatjpartjofjthejbenefitjcouldjbejca
pturedjbyjsellersj(producersjandjretailers).
However,jwejnowjknowjthatjthejWebjsojeffectivelyjfacilitatesjpricejcompetitionjthatjitjisjhardjf
orjsuppliersjandjretailersjtojprotectjmargins.j E-
commercejmayjnotjdeliverjthejmarginsjoncejconjectured,jbutjthejInternetjisjstilljonejofjthejmostj
radicaljinnovationsjinjourjlifetime.
, 4 Chapterj6:jManagingjCashjFlow
7. Whatjisjmeantjbyjdisruptivejinnovation?j Whatjisjthej―sharingjeconomy‖jsocietaljtrend?
Anjinnovationjinvolvesjthejintroductionjofjajnewjidea,jproduct,jorjprocess.j Ajdisruptivejinno
vationjisjanjinnovationjthatjcreatesjajnewjmarketjorjnetworkjthatjdisruptsjandjdisplacesjanjexisti
ngjmarketjorjnetwork.
8. Identifyjthejsevenjprinciplesjofjentrepreneurialjfinance.
Thejsevenjprinciplesjare:
(1) Real,jhuman,jandjfinancialjcapitaljmustjbejrentedjfromjowners
(2) Riskjandjexpectedjrewardjgojhandjinjhand
(3) Whilejaccountingjisjthejlanguagejofjbusiness,jcashjisjthejcurrency
(4) Newjventurejfinancingjinvolvesjsearch,jnegotiation,jandjprivacy
(5) Ajventure‘sjfinancialjobjectivejisjtojincreasejvalue
(6) Itjisjdangerousjtojassumejthatjpeoplejactjagainstjtheirjownjself-interests
(7) Venturejcharacterjandjreputationjcanjbejassetsjorjliabilities
9. Explainjthejstatement:j ―Thejtimejvaluejofjmoneyjisjnotjthejonlyjcostjinvolvedjinjrentingjso
meone’sjfinancialjcapital.‖
Thejtotaljcostjofjrentingjsomeone‘sjfinancialjcapitaljisjtypicallyjsignificantlyjhigherjthanjjustjthe
jtimejvaluejofjmoneyjduejtojthejpossibilityjthatjthejventurejwon‘tjbejablejtojpay.j Thejrentjisjriskyj
orjuncertainjrequiringjanjexpectedjcompensationjinjadditionjtojthejtimejvaluejofjmoneyjforjthejr
entingjagreementjtojbejputjinjplace.
10. Howjdojpublicjandjprivatejfinancialjmarketsjdiffer?
Publicjfinancialjmarketsjarejmarketsjwherejstandardizedjcontractsjorjsecuritiesjarejtradedjonj
organizedjsecuritiesjexchanges.j Privatejfinancialjmarketsjarejmarketsjwherejcustomizedjco
ntractsjorjsecuritiesjarejnegotiated,jcreated,jandjheldjwithjrestrictionsjonjhowjtheyjcanjbejtransf
erred.
11. Whatjisjthejfinancialjgoaljofjthejentrepreneurialjventure?j Whatjarejthejmajorjcomponentsjfor
jestimatingjvalue?
Thejventure‘sjfinancialjgoaljisjtojmaximizejthejvaluejofjthejventurejtojitsjowner(s).j Thejmajorjc
omponentsjofjestimatingjvaluejarejprojectedjfreejcashjflowj(cashjgeneratedjinjajspecifiedjtimejp
eriodjthatjexceedsjfundsjneededjtojoperate,jpayjcreditors,jandjinvestjinjthejassetsjneededjtojgrowj
thejventure)jandjitsjriskj(includingjthejtimingjandjrealizedjamount).
12. Fromjanjagencyjrelationshipjstandpoint,jdescribejthejpossiblejtypesjofjproblemsjorjconflictsjofj
interestjthatjcouldjinhibitjmaximizingjajventure’sjvalue.
Therejarejtwojbasicjtypesjofjconflicts.j Owner-
managerj(agency)jconflictsjoccurjwhenjtherejarejdifferencesjbetweenjmanagers‘jself-
interestsjandjthejinterestsjofjthejownersjwhojhiredjthe
EntrepreneurialjFinance,j7thjEditionjJ.jChrisjLeachj(Author),jRonal
djW.jMelicherj(Author)
Chapterj1-
16jWithjCasesjProductsj&SpatialjTechjChapterj1
INTRODUCTIONjTOjFINANCEjFORjENTREPRENEURSjFOCU
S
Thejpurposejofjthisjfirstjchapterjisjtojpresentjanjoverviewjofjwhatjentrepreneurialjfinancejisjabout.j I
njdoingjsojwejhopejtojconveyjtojyoujthejimportancejofjunderstandingjandjapplyingjentrepreneurialjf
inancejmethodsjandjtoolsjtojhelpjensurejanjentrepreneurialjventurejisjsuccessful.jWejpresentjajlifejcy
clejapproachjtojthejteachingjofjentrepreneurialjfinancejwherejwejcoverjventurejoperatingjandjfinanc
ialjdecisionsjfacedjbyjthejentrepreneurjasjajventurejprogressesjfromjanjideajthroughjtojharvestingjth
ejventure.
LEARNINGjOBJECTIVES
LOj1.1:jCharacterizejthejentrepreneurialjprocess.
LOj1.2:jDescribejentrepreneurshipjandjsomejcharacteristicsjofjentrepreneurs.
LOj1.3:jIndicatejseveraljmegatrendsjprovidingjwavesjofjentrepreneurialjopportunities.jL
Oj1.4:jListjandjdescribejthejsevenjprinciplesjofjentrepreneurialjfinance.
LOj1.5:jDiscussjentrepreneurialjfinancejandjthejrolejofjthejfinancialjmanager.jLOj
1.6:jDescribejthejvariousjstagesjofjajsuccessfuljventure‘sjlifejcycle.
LOj1.7:jIdentify,jbyjlifejcyclejstage,jthejrelevantjtypesjofjfinancingjandjinvestors.jLOj
1.8:jUnderstandjthejlifejcyclejapproachjusedjinjthisjbook.
CHAPTERjOUTLINE
1.1 THEjENTREPRENEURIALjPROCESS
1.2 ENTREPRENEURSHIPjFUNDAMENTALS
A. WhojisjanjEntrepreneur?
B. BasicjDefinitions
C. EntrepreneurialjTraitsjorjCharacteristics
D. OpportunitiesjExistjButjNotjWithoutjRisks
1.3 SOURCESjOFjENTREPRENEURIALjOPPORTUNITIES
A. SocietaljChanges
B. DemographicjChanges
C. TechnologicaljChanges
D. EmergingjEconomiesjandjGlobaljChanges
E. Crisesjandj―Bubbles‖
F. DisruptivejInnovation
1
,2 Chapterj6:jManagingjCashjFlow
1.4 PRINCIPLESjOFjENTREPRENEURIALjFINANCE
A. Real,jHuman,jandjFinancialjCapitaljmustjbejRentedjfromjOwnersj(Principlej#1)
B. RiskjandjExpectedjRewardjgojHandjinjHandj(Principlej#2)
C. WhilejAccountingjisjthejLanguagejofjBusiness,jCashjisjthejCurrencyj(Principlej#3)
D. NewjVenturejFinancingjInvolvesjSearch,jNegotiation,jandjPrivacyj(Principlej#4)
E. AjVenture‘sjFinancialjObjectivejisjtojIncreasejValuej(Principlej#5)
F. ItjisjDangerousjtojAssumejthatjPeoplejActjAgainstjTheirjOwnjSelf-
Interestsj(Principlej#6)
G. VenturejCharacterjandjReputationjcanjbejAssetsjorjLiabilitiesj(Principlej#7)
1.5 ROLEjOFjENTREPRENEURIALjFINANCE
1.6 THEjSUCCESSFULjVENTUREjLIFEjCYCLE
A. DevelopmentjStage
B. StartupjStage
C. SurvivaljStage
D. Rapid-GrowthjStage
E. Early-MaturityjStage
F. LifejCyclejStagesjandjthejEntrepreneurialjProcess
1.7 FINANCINGjTHROUGHjTHEjVENTUREjLIFEjCYCLE
A. SeedjFinancing
B. StartupjFinancing
C. First-RoundjFinancing
D. Second-RoundjFinancing
E. MezzaninejFinancing
F. Liquidity-StagejFinancing
G. SeasonedjFinancing
1.8 LIFEjCYCLEjAPPROACHjFORjTEACHINGjENTREPRENEURIALjFINANCEj
SUMMARY
DISCUSSIONjQUESTIONSjANDjANSWERS
1. Whatjisjthejentrepreneurialjprocess?
Thejentrepreneurialjprocessjcomprises:jdevelopingjopportunities,jgatheringjresources,jandjmanagin
gjandjbuildingjoperationsjwithjthejgoaljofjcreatingjvalue.
2. Whatjisjentrepreneurship?j Whatjarejsomejbasicjcharacteristicsjofjentrepreneurs?
Entrepreneurshipjisjthejprocessjofjchangingjideasjintojcommercialjopportunitiesjandjcreatingjva
lue.j Whilejtherejisjnojprototypicaljentrepreneur,jmanyjarejgoodjatjrecognizingjcommercialjopp
ortunities,jtendjtojbejoptimistic,jandjenvisionjajplanjforjthejfuture.
3. Whyjdojbusinessesjclosejorjceasejoperating?j Whatjarejthejprimaryjreasonsjwhyjbusinessesjfai
l?
, Chapterj6:jManagingjCashjFlow 3
Nearlyjone-
halfjofjbusinessesjthatjfailjdojsojbecausejofjeconomicjfactorsjincludingjinadequatejsales,jinsuffi
cientjprofits,jandjindustryjweakness.jManyjofjthejeconomicjfactorsjarejdirectlyjtiedjtojfinancingj
concernsj(e.g.,jinsufficientjprofitsjforjinvestors).j Almostj40jpercentjofjbusinessjfailuresjnotjciti
ngjeconomicjfactorsjcitejspecificallyjfinancialjcausesjlikejexcessivejdebtjandjinsufficientjfinanci
aljcapital.j Thejremainingjcitedjreasonsjforjfailurejincludejajlackjofjbusinessjandjmanagerialjexp
erience,jbusinessjconflicts,jfamilyjproblems,jfraud,jandjdisasters.j Manyjbusinessesjclosejandjfai
ljduejtojfinancialjtroublejwhichjisjmostlyjrelatedjtojlackjofjsalesjandjunsatisfactoryjprofits.
4. Whatjarejfivejmegatrendjsourcesjorjcategoriesjforjfindingjentrepreneurialjopportunities?
Wejidentifyjfivejmegatrendjcategories.j Theyjare:j(1)jsocietaljchanges,j(2)jdemographicjch
anges,j(3)jtechnologicaljchanges,j(4)jemergingjeconomiesjandjglobaljchanges,jandj(5)jcrise
sjandjbubbles.
Underjsocietaljchangesjwejdiscussjthejgigjeconomyjandjthejsharingjeconomy.j Thejgigjeconom
yjisjwherejindividualsjacceptjshort-termjjobjassignmentsjorj―gigs‖jinsteadjofjhavingjfull-
timejemployment.j Thejsharingjeconomyjisjwherejindividualsjsharejtheirjassets,jsuchjasjhomes
,jvehicles,jandjpersonaljtime,jwithjothersjtojprovidejajnewjwayjforjdistributingjgoodsjandjservic
es.
5. Whatjassetjandjfinancialjbubblesjhavejoccurredjrecently?j Howjcanjbubblesjandjfinancialjcri
sesjleadjtojentrepreneurialjopportunities?
Thej―dot.com‖jorjInternetjbubblejburstjinj2000.j Anjeconomicjrecessionjthatjbeganjinj2001jwa
sjexacerbatedjbyjthej9/11jterroristjattack.j Thejhousingjassetjbubble,jfueledjbyjsub-
primejmortgagesjofferedjtojborrowersjwhojcouldjnotjaffordjthem,jburstjinj2006.j Byjthejsecond
jhalfjofj2008,jaj―perfectjfinancialjstorm‖jeruptedjandjpossiblejfinancialjcollapsejbecamejajreal
ity.
Alternativejandjrenewablejenergy,jaccompaniedjbyjprojectjcreditjsubsidies,jproductionjandjinvestm
entjtaxjcredits,jandjloanjguaranteesjbenefitedjasjajresultjofjthejrecentjfinancialjcrisis.jThesejdevelop
mentsjandjotherjeffortsjtojstimulatejeconomicjactivityjprovidedjmanyjnewjentrepreneurialjopportun
ities.
6. Whatjisje-commerce?j WhyjarejthejInternetjeconomyjandje-commercejherejtojstay?
E-
commercejinvolvesjthejusejofjelectronicjmeansjtojconductjbusinessjonline.j Activitiesjinclu
dejmarketingjandjsellingjonlinejandjelectronicjretailing.
Thejinternetjeconomyjandje-
commercejarejherejtojstay.j WejwilljneverjdojbusinessjthejsamejwayjwejdidjbeforejthejInternetja
ndjthejWeb.j Manyjbusinessjplansjwerejfundedjwithjthejbeliefjthatjpartjofjthejbenefitjcouldjbejca
pturedjbyjsellersj(producersjandjretailers).
However,jwejnowjknowjthatjthejWebjsojeffectivelyjfacilitatesjpricejcompetitionjthatjitjisjhardjf
orjsuppliersjandjretailersjtojprotectjmargins.j E-
commercejmayjnotjdeliverjthejmarginsjoncejconjectured,jbutjthejInternetjisjstilljonejofjthejmostj
radicaljinnovationsjinjourjlifetime.
, 4 Chapterj6:jManagingjCashjFlow
7. Whatjisjmeantjbyjdisruptivejinnovation?j Whatjisjthej―sharingjeconomy‖jsocietaljtrend?
Anjinnovationjinvolvesjthejintroductionjofjajnewjidea,jproduct,jorjprocess.j Ajdisruptivejinno
vationjisjanjinnovationjthatjcreatesjajnewjmarketjorjnetworkjthatjdisruptsjandjdisplacesjanjexisti
ngjmarketjorjnetwork.
8. Identifyjthejsevenjprinciplesjofjentrepreneurialjfinance.
Thejsevenjprinciplesjare:
(1) Real,jhuman,jandjfinancialjcapitaljmustjbejrentedjfromjowners
(2) Riskjandjexpectedjrewardjgojhandjinjhand
(3) Whilejaccountingjisjthejlanguagejofjbusiness,jcashjisjthejcurrency
(4) Newjventurejfinancingjinvolvesjsearch,jnegotiation,jandjprivacy
(5) Ajventure‘sjfinancialjobjectivejisjtojincreasejvalue
(6) Itjisjdangerousjtojassumejthatjpeoplejactjagainstjtheirjownjself-interests
(7) Venturejcharacterjandjreputationjcanjbejassetsjorjliabilities
9. Explainjthejstatement:j ―Thejtimejvaluejofjmoneyjisjnotjthejonlyjcostjinvolvedjinjrentingjso
meone’sjfinancialjcapital.‖
Thejtotaljcostjofjrentingjsomeone‘sjfinancialjcapitaljisjtypicallyjsignificantlyjhigherjthanjjustjthe
jtimejvaluejofjmoneyjduejtojthejpossibilityjthatjthejventurejwon‘tjbejablejtojpay.j Thejrentjisjriskyj
orjuncertainjrequiringjanjexpectedjcompensationjinjadditionjtojthejtimejvaluejofjmoneyjforjthejr
entingjagreementjtojbejputjinjplace.
10. Howjdojpublicjandjprivatejfinancialjmarketsjdiffer?
Publicjfinancialjmarketsjarejmarketsjwherejstandardizedjcontractsjorjsecuritiesjarejtradedjonj
organizedjsecuritiesjexchanges.j Privatejfinancialjmarketsjarejmarketsjwherejcustomizedjco
ntractsjorjsecuritiesjarejnegotiated,jcreated,jandjheldjwithjrestrictionsjonjhowjtheyjcanjbejtransf
erred.
11. Whatjisjthejfinancialjgoaljofjthejentrepreneurialjventure?j Whatjarejthejmajorjcomponentsjfor
jestimatingjvalue?
Thejventure‘sjfinancialjgoaljisjtojmaximizejthejvaluejofjthejventurejtojitsjowner(s).j Thejmajorjc
omponentsjofjestimatingjvaluejarejprojectedjfreejcashjflowj(cashjgeneratedjinjajspecifiedjtimejp
eriodjthatjexceedsjfundsjneededjtojoperate,jpayjcreditors,jandjinvestjinjthejassetsjneededjtojgrowj
thejventure)jandjitsjriskj(includingjthejtimingjandjrealizedjamount).
12. Fromjanjagencyjrelationshipjstandpoint,jdescribejthejpossiblejtypesjofjproblemsjorjconflictsjofj
interestjthatjcouldjinhibitjmaximizingjajventure’sjvalue.
Therejarejtwojbasicjtypesjofjconflicts.j Owner-
managerj(agency)jconflictsjoccurjwhenjtherejarejdifferencesjbetweenjmanagers‘jself-
interestsjandjthejinterestsjofjthejownersjwhojhiredjthe
