BA109 Quiz 7 Latest 2023 with complete solution
The due diligence process in analyzing and evaluating an existing business can
be just as time consuming as the development of a comprehensive business plan
for a start-up.
True
Goodwill is the difference between an established successful business and one
that has yet to prove itself.
True
When evaluating a business as a potential candidate for purchase, an
entrepreneur should determine the real reason the current owner wants to sell.
True
A toy manufacturer is sued based on the claim of injuries caused by a product it
makes. This is an example of a:
product liability lawsuit.
Important factors to investigate regarding the business to be purchased include:
All of these
If a business has a lien against any of its assets at the time of the sale, the buyer
must assume them and is financially responsible for them.
True
se the following information to answer the question(s) below.
Baubles and Bells, a small business, is up for sale. The book value of its assets is
$397,650, and its liabilities have a book value of $148,500. After adjusting for
market value, total assets are worth $386,475, and total liabilities are $153,600.
The business is considered to be a "normal risk" venture. The new owner (if he
buys) plans to draw a salary of $28,000. Estimated earnings for the upcoming
year are $88,400. Complete net earnings estimates for the next five years are:
Using the excess earnings method, what is the company's "goodwill"?
$6,543
The best method for determining a business's worth is the discounted future
earnings approach.
False
The discounted future earnings approach to valuing an existing business
involves estimating the company's net income for several years into the future
and then discounting those future earnings back to their present value.
True
An entrepreneur who is considering purchasing a business is analyzing a
company's accounts receivable. The following table summarizes her findings.
, How much should this potential buyer be willing to pay for these accounts
receivable?
$17,877
Skimming is the act of taking money from sales without reporting it as income
and it is an illegal and unethical practice.
True
An entrepreneur should never purchase a business that is losing money.
False
The reliability of the discounted future earnings approach to valuing a business
depends on making accurate forecasts of future earnings and on choosing a
realistic present value rate.
True
A letter of intent is a nonbinding document stating that a business buyer and a
seller have reached a sufficient "meeting of the minds" to justify the time and the
expense of negotiating a final agreement.
True
Which of the following valuation techniques is best suited for determining the
value of service businesses?
Discounted future earnings approach
If a business buyer estimates that 20 percent is a reasonable rate of return for an
existing business expected to produce a profit of $27,000, its capitalized value
would be:
$135,000.
A creditor's claim against an asset is referred to as lien.
True
Business evaluation based on balance sheet methods offers one key advantage:
it considers the future earning potential of the business.
False
Use the following information to answer the question(s) below.
Baubles and Bells, a small business, is up for sale. The book value of its assets is
$397,650, and its liabilities have a book value of $148,500. After adjusting for
market value, total assets are worth $386,475, and total liabilities are $153,600.
The business is considered to be a "normal risk" venture. The new owner (if he
buys) plans to draw a salary of $28,000. Estimated earnings for the upcoming
year are $88,400. Complete net earnings estimates for the next five years are:
The valuation approach that considers the value of goodwill is the:
excess earnings method.
Neither the balance sheet method nor the adjusted balance sheet method of
valuing a business considers the future earning power of the business.
True
To ensure a smooth transition when buying an existing business, a buyer should:
The due diligence process in analyzing and evaluating an existing business can
be just as time consuming as the development of a comprehensive business plan
for a start-up.
True
Goodwill is the difference between an established successful business and one
that has yet to prove itself.
True
When evaluating a business as a potential candidate for purchase, an
entrepreneur should determine the real reason the current owner wants to sell.
True
A toy manufacturer is sued based on the claim of injuries caused by a product it
makes. This is an example of a:
product liability lawsuit.
Important factors to investigate regarding the business to be purchased include:
All of these
If a business has a lien against any of its assets at the time of the sale, the buyer
must assume them and is financially responsible for them.
True
se the following information to answer the question(s) below.
Baubles and Bells, a small business, is up for sale. The book value of its assets is
$397,650, and its liabilities have a book value of $148,500. After adjusting for
market value, total assets are worth $386,475, and total liabilities are $153,600.
The business is considered to be a "normal risk" venture. The new owner (if he
buys) plans to draw a salary of $28,000. Estimated earnings for the upcoming
year are $88,400. Complete net earnings estimates for the next five years are:
Using the excess earnings method, what is the company's "goodwill"?
$6,543
The best method for determining a business's worth is the discounted future
earnings approach.
False
The discounted future earnings approach to valuing an existing business
involves estimating the company's net income for several years into the future
and then discounting those future earnings back to their present value.
True
An entrepreneur who is considering purchasing a business is analyzing a
company's accounts receivable. The following table summarizes her findings.
, How much should this potential buyer be willing to pay for these accounts
receivable?
$17,877
Skimming is the act of taking money from sales without reporting it as income
and it is an illegal and unethical practice.
True
An entrepreneur should never purchase a business that is losing money.
False
The reliability of the discounted future earnings approach to valuing a business
depends on making accurate forecasts of future earnings and on choosing a
realistic present value rate.
True
A letter of intent is a nonbinding document stating that a business buyer and a
seller have reached a sufficient "meeting of the minds" to justify the time and the
expense of negotiating a final agreement.
True
Which of the following valuation techniques is best suited for determining the
value of service businesses?
Discounted future earnings approach
If a business buyer estimates that 20 percent is a reasonable rate of return for an
existing business expected to produce a profit of $27,000, its capitalized value
would be:
$135,000.
A creditor's claim against an asset is referred to as lien.
True
Business evaluation based on balance sheet methods offers one key advantage:
it considers the future earning potential of the business.
False
Use the following information to answer the question(s) below.
Baubles and Bells, a small business, is up for sale. The book value of its assets is
$397,650, and its liabilities have a book value of $148,500. After adjusting for
market value, total assets are worth $386,475, and total liabilities are $153,600.
The business is considered to be a "normal risk" venture. The new owner (if he
buys) plans to draw a salary of $28,000. Estimated earnings for the upcoming
year are $88,400. Complete net earnings estimates for the next five years are:
The valuation approach that considers the value of goodwill is the:
excess earnings method.
Neither the balance sheet method nor the adjusted balance sheet method of
valuing a business considers the future earning power of the business.
True
To ensure a smooth transition when buying an existing business, a buyer should:
