SOLUTION MANUAL For Entrepreneurial Finance, 7th Edition
k k k k k k
by J. Chris Leach, Ronald W. Melicher, Chapters 1 - 16,
k k k k k k k k k k k k
Complete With CAPSTONE CASES
k k k k
,TABLE OF CONTENTS
k k k
Partk1:kTHEkENTREPRENEURIALkENVIRONMENT.
1.kIntroductionktok
FinancekforkEntrepreneurs.
2.kDevelopingkthekBusinesskIdea.
Partk2:kORGANIZINGkANDkOPERATINGkTHEkVENTURE.
3.kOrganizingkandkFinancingkakNewkVenture.
4.kPreparingkandkUsingkFinancialkStatements.
5.kEvaluatingkOperatingkandkFinancialkPerformance.
Partk3:kPLANNINGkFORkTHEkFUTURE.
6.kManagingkCashkFlow.
7.kTypeskandkCostskofkFinancialkCapital.
8.kSecuritieskLawkConsiderationskWhenkObtainingkVenturekFinancing.
Partk4:kCREATINGkANDkRECOGNIZINGkVENTUREkVALUE.
9.kProjectingkFinancialkStatements.
10.kValuingkEarly-StagekVentures.
11.kVenturekCapitalkValuationkMethods.
Partk5:kSTRUCTURINGkFINANCINGkFORkTHEkGROWINGkVENTURE.
12.kProfessionalkVenturekCapital.
13.kOtherkFinancingkAlternatives.
14.kSecuritykStructureskandkDeterminingkEnterprisekValues.
Partk6:kEXITkANDkTURNAROUNDkSTRATEGIES.
15.kHarvestingkthekBusinesskVenturekInvestment.
16.kFinanciallykTroubledkVentures:kTurnaroundkOpportunities?
Partk7:kCAPSTONEkCASES.
Casek1.kEco-Products,kInc.
Casek2.kSpatialkTechnology,k
,Chapterk1
INTRODUCTIONkTOkFINANCEkFORkENTREPRENEURS
FOCUS
Thekpurposekofkthiskfirstkchapterkisktokpresentkankoverviewkofkwhatkentrepreneurialkfinancekiskabout.kInkd
oingksokwekhopektokconveyktokyoukthekimportancekofkunderstandingkandkapplyingkentrepreneurialkfinancek
methodskandktoolsktokhelpkensurekankentrepreneurialkventurekisksuccessful.kWekpresentkaklifekcyclekapproac
hktokthekteachingkofkentrepreneurialkfinancekwherekwekcoverkventurekoperatingkandkfinancialkdecisionskfac
edkbykthekentrepreneurkaskakventurekprogresseskfromkankideakthroughktokharvestingkthekventure.
LEARNINGkOBJECTIVES
LOk1.1:kCharacterizekthekentrepreneurialkprocess.
LOk1.2:kDescribekentrepreneurshipkandksomekcharacteristicskofkentrepreneurs.
LOk1.3:kIndicatekseveralkmegatrendskprovidingkwaveskofkentrepreneurialkopportunities.kLOk1.
4:kListkandkdescribektheksevenkprincipleskofkentrepreneurialkfinance.
LOk1.5:kDiscusskentrepreneurialkfinancekandkthekrolekofkthekfinancialkmanager.kLOk1.
6:kDescribekthekvariouskstageskofkaksuccessfulkventure‘sklifekcycle.
LOk1.7:kIdentify,kbyklifekcyclekstage,kthekrelevantktypeskofkfinancingkandkinvestors.kLOk1.
8:kUnderstandktheklifekcyclekapproachkusedkinkthiskbook.
CHAPTERkOUTLINE
1.1 THEkENTREPRENEURIALkPROCESS
1.2 ENTREPRENEURSHIPkFUNDAMENTALS
A. WhokiskankEntrepreneur?
B. BasickDefinitions
C. EntrepreneurialkTraitskorkCharacteristics
D. OpportunitieskExistkButkNotkWithoutkRisks
1.3 SOURCESkOFkENTREPRENEURIALkOPPORTUNITIES
A. SocietalkChanges
B. DemographickChanges
C. TechnologicalkChanges
D. EmergingkEconomieskandkGlobalkChanges
E. Criseskandk―Bubbles‖
F. DisruptivekInnovation
1
, 1.4 PRINCIPLESkOFkENTREPRENEURIALkFINANCE
A. Real,kHuman,kandkFinancialkCapitalkmustkbekRentedkfromkOwnersk(Principlek#1)
B. RiskkandkExpectedkRewardkgokHandkinkHandk(Principlek#2)
C. WhilekAccountingkiskthekLanguagekofkBusiness,kCashkiskthekCurrencyk(Principlek#3)
D. NewkVenturekFinancingkInvolveskSearch,kNegotiation,kandkPrivacyk(Principlek#4)
E. AkVenture‘skFinancialkObjectivekisktokIncreasekValuek(Principlek#5)
F. ItkiskDangerousktokAssumekthatkPeoplekActkAgainstkTheirkOwnkSelf-
Interestsk(Principlek#6)
G. VenturekCharacterkandkReputationkcankbekAssetskorkLiabilitiesk(Principlek#7)
1.5 ROLEkOFkENTREPRENEURIALkFINANCE
1.6 THEkSUCCESSFULkVENTUREkLIFEkCYCLE
A. DevelopmentkStage
B. StartupkStage
C. SurvivalkStage
D. Rapid-GrowthkStage
E. Early-MaturitykStage
F. LifekCyclekStageskandkthekEntrepreneurialkProcess
1.7 FINANCINGkTHROUGHkTHEkVENTUREkLIFEkCYCLE
A. SeedkFinancing
B. StartupkFinancing
C. First-RoundkFinancing
D. Second-RoundkFinancing
E. MezzaninekFinancing
F. Liquidity-StagekFinancing
G. SeasonedkFinancing
1.8 LIFEkCYCLEkAPPROACHkFORkTEACHINGkENTREPRENEURIALkFINANCEkSUMMA
RY
DISCUSSIONkQUESTIONSkANDkANSWERS
1. Whatkiskthekentrepreneurialkprocess?
Thekentrepreneurialkprocesskcomprises:kdevelopingkopportunities,kgatheringkresources,kandkmanagi
ngkandkbuildingkoperationskwithkthekgoalkofkcreatingkvalue.
2. Whatkiskentrepreneurship?kWhatkareksomekbasickcharacteristicskofkentrepreneurs?
Entrepreneurshipkiskthekprocesskofkchangingkideaskintokcommercialkopportunitieskandkcreatingkvalue.k
Whilektherekisknokprototypicalkentrepreneur,kmanykarekgoodkatkrecognizingkcommercialkopportunitie
s,ktendktokbekoptimistic,kandkenvisionkakplankforkthekfuture.
3. Whykdokbusinesseskclosekorkceasekoperating?kWhatkarekthekprimarykreasonskwhykbusinesseskfail?
k k k k k k
by J. Chris Leach, Ronald W. Melicher, Chapters 1 - 16,
k k k k k k k k k k k k
Complete With CAPSTONE CASES
k k k k
,TABLE OF CONTENTS
k k k
Partk1:kTHEkENTREPRENEURIALkENVIRONMENT.
1.kIntroductionktok
FinancekforkEntrepreneurs.
2.kDevelopingkthekBusinesskIdea.
Partk2:kORGANIZINGkANDkOPERATINGkTHEkVENTURE.
3.kOrganizingkandkFinancingkakNewkVenture.
4.kPreparingkandkUsingkFinancialkStatements.
5.kEvaluatingkOperatingkandkFinancialkPerformance.
Partk3:kPLANNINGkFORkTHEkFUTURE.
6.kManagingkCashkFlow.
7.kTypeskandkCostskofkFinancialkCapital.
8.kSecuritieskLawkConsiderationskWhenkObtainingkVenturekFinancing.
Partk4:kCREATINGkANDkRECOGNIZINGkVENTUREkVALUE.
9.kProjectingkFinancialkStatements.
10.kValuingkEarly-StagekVentures.
11.kVenturekCapitalkValuationkMethods.
Partk5:kSTRUCTURINGkFINANCINGkFORkTHEkGROWINGkVENTURE.
12.kProfessionalkVenturekCapital.
13.kOtherkFinancingkAlternatives.
14.kSecuritykStructureskandkDeterminingkEnterprisekValues.
Partk6:kEXITkANDkTURNAROUNDkSTRATEGIES.
15.kHarvestingkthekBusinesskVenturekInvestment.
16.kFinanciallykTroubledkVentures:kTurnaroundkOpportunities?
Partk7:kCAPSTONEkCASES.
Casek1.kEco-Products,kInc.
Casek2.kSpatialkTechnology,k
,Chapterk1
INTRODUCTIONkTOkFINANCEkFORkENTREPRENEURS
FOCUS
Thekpurposekofkthiskfirstkchapterkisktokpresentkankoverviewkofkwhatkentrepreneurialkfinancekiskabout.kInkd
oingksokwekhopektokconveyktokyoukthekimportancekofkunderstandingkandkapplyingkentrepreneurialkfinancek
methodskandktoolsktokhelpkensurekankentrepreneurialkventurekisksuccessful.kWekpresentkaklifekcyclekapproac
hktokthekteachingkofkentrepreneurialkfinancekwherekwekcoverkventurekoperatingkandkfinancialkdecisionskfac
edkbykthekentrepreneurkaskakventurekprogresseskfromkankideakthroughktokharvestingkthekventure.
LEARNINGkOBJECTIVES
LOk1.1:kCharacterizekthekentrepreneurialkprocess.
LOk1.2:kDescribekentrepreneurshipkandksomekcharacteristicskofkentrepreneurs.
LOk1.3:kIndicatekseveralkmegatrendskprovidingkwaveskofkentrepreneurialkopportunities.kLOk1.
4:kListkandkdescribektheksevenkprincipleskofkentrepreneurialkfinance.
LOk1.5:kDiscusskentrepreneurialkfinancekandkthekrolekofkthekfinancialkmanager.kLOk1.
6:kDescribekthekvariouskstageskofkaksuccessfulkventure‘sklifekcycle.
LOk1.7:kIdentify,kbyklifekcyclekstage,kthekrelevantktypeskofkfinancingkandkinvestors.kLOk1.
8:kUnderstandktheklifekcyclekapproachkusedkinkthiskbook.
CHAPTERkOUTLINE
1.1 THEkENTREPRENEURIALkPROCESS
1.2 ENTREPRENEURSHIPkFUNDAMENTALS
A. WhokiskankEntrepreneur?
B. BasickDefinitions
C. EntrepreneurialkTraitskorkCharacteristics
D. OpportunitieskExistkButkNotkWithoutkRisks
1.3 SOURCESkOFkENTREPRENEURIALkOPPORTUNITIES
A. SocietalkChanges
B. DemographickChanges
C. TechnologicalkChanges
D. EmergingkEconomieskandkGlobalkChanges
E. Criseskandk―Bubbles‖
F. DisruptivekInnovation
1
, 1.4 PRINCIPLESkOFkENTREPRENEURIALkFINANCE
A. Real,kHuman,kandkFinancialkCapitalkmustkbekRentedkfromkOwnersk(Principlek#1)
B. RiskkandkExpectedkRewardkgokHandkinkHandk(Principlek#2)
C. WhilekAccountingkiskthekLanguagekofkBusiness,kCashkiskthekCurrencyk(Principlek#3)
D. NewkVenturekFinancingkInvolveskSearch,kNegotiation,kandkPrivacyk(Principlek#4)
E. AkVenture‘skFinancialkObjectivekisktokIncreasekValuek(Principlek#5)
F. ItkiskDangerousktokAssumekthatkPeoplekActkAgainstkTheirkOwnkSelf-
Interestsk(Principlek#6)
G. VenturekCharacterkandkReputationkcankbekAssetskorkLiabilitiesk(Principlek#7)
1.5 ROLEkOFkENTREPRENEURIALkFINANCE
1.6 THEkSUCCESSFULkVENTUREkLIFEkCYCLE
A. DevelopmentkStage
B. StartupkStage
C. SurvivalkStage
D. Rapid-GrowthkStage
E. Early-MaturitykStage
F. LifekCyclekStageskandkthekEntrepreneurialkProcess
1.7 FINANCINGkTHROUGHkTHEkVENTUREkLIFEkCYCLE
A. SeedkFinancing
B. StartupkFinancing
C. First-RoundkFinancing
D. Second-RoundkFinancing
E. MezzaninekFinancing
F. Liquidity-StagekFinancing
G. SeasonedkFinancing
1.8 LIFEkCYCLEkAPPROACHkFORkTEACHINGkENTREPRENEURIALkFINANCEkSUMMA
RY
DISCUSSIONkQUESTIONSkANDkANSWERS
1. Whatkiskthekentrepreneurialkprocess?
Thekentrepreneurialkprocesskcomprises:kdevelopingkopportunities,kgatheringkresources,kandkmanagi
ngkandkbuildingkoperationskwithkthekgoalkofkcreatingkvalue.
2. Whatkiskentrepreneurship?kWhatkareksomekbasickcharacteristicskofkentrepreneurs?
Entrepreneurshipkiskthekprocesskofkchangingkideaskintokcommercialkopportunitieskandkcreatingkvalue.k
Whilektherekisknokprototypicalkentrepreneur,kmanykarekgoodkatkrecognizingkcommercialkopportunitie
s,ktendktokbekoptimistic,kandkenvisionkakplankforkthekfuture.
3. Whykdokbusinesseskclosekorkceasekoperating?kWhatkarekthekprimarykreasonskwhykbusinesseskfail?
