SOLUTION MANUAL for Entrepreneurial Fi
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nance 7th Edition by J. Leach & Ronald Melic
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INTRODUCTIONfhTOfhFINANCEfhFORfhENTREPRENEURSfhFOCUS
Thefhpurposefhoffhthisfhfirstfhchapterfhisfhtofhpresentfhanfhoverviewfhoffhwhatfhentrepreneurialfhfinancefhisfhabou
t.fhInfhdoingfhsofhwefhhopefhtofhconveyfhtofhyoufhthefhimportancefhoffhunderstandingfhandfhapplyingfhentrepreneu
rialfhfinancefhmethodsfhandfhtoolsfhtofhhelpfhensurefhanfhentrepreneurialfhventurefhisfhsuccessful.fhWefhpresentfh
afhlifefhcyclefhapproachfhtofhthefhteachingfhoffhentrepreneurialfhfinancefhwherefhwefhcoverfhventurefhoperatingfh
andfhfinancialfhdecisionsfhfacedfhbyfhthefhentrepreneurfhasfhafhventurefhprogressesfhfromfhanfhideafhthroughfhtofh
harvestingfhthefhventure.
LEARNINGfhOBJECTIVES
LOfh1.1:fhCharacterizefhthefhentrepreneurialfhprocess.
LOfh1.2:fhDescribefhentrepreneurshipfhandfhsomefhcharacteristicsfhoffhentrepreneurs.
LOfh1.3:fhIndicatefhseveralfhmegatrendsfhprovidingfhwavesfhoffhentrepreneurialfhopportunities.fhLOfh1.4:fhListfh
andfhdescribefhthefhsevenfhprinciplesfhoffhentrepreneurialfhfinance.
LOfh1.5:fhDiscussfhentrepreneurialfhfinancefhandfhthefhrolefhoffhthefhfinancialfhmanager.fhLOfh1.6:fhDescribefhthe
variousfhstagesfhoffhafhsuccessfulfhventure‗sfhlifefhcycle.
LOfh1.7:fhIdentify,fhbyfhlifefhcyclefhstage,fhthefhrelevantfhtypesfhoffhfinancingfhandfhinvestors.fhLOfh1.8:fhUnderst
andfhthefhlifefhcyclefhapproachfhusedfhinfhthisfhbook.
CHAPTERfhOUTLINE
1.1 THEfhENTREPRENEURIALfhPROCESS
1.2 ENTREPRENEURSHIPfhFUNDAMENTALS
A. WhofhisfhanfhEntrepreneur?
B. BasicfhDefinitions
C. EntrepreneurialfhTraitsfhorfhCharacteristics
D. OpportunitiesfhExistfhButfhNotfhWithoutfhRisks
1.3 SOURCESfhOFfhENTREPRENEURIALfhOPPORTUNITIES
A. SocietalfhChanges
B. DemographicfhChanges
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,C. TechnologicalfhChanges
D. EmergingfhEconomiesfhandfhGlobalfhChanges
E. Crisesfhandfh―Bubbles
F. DisruptivefhInnovation
1
1.4 PRINCIPLESfhOFfhENTREPRENEURIALfhFINANCE
A. Real,fhHuman,fhandfhFinancialfhCapitalfhmustfhbefhRentedfhfromfhOwnersfh(Principlefh#1)
B. RiskfhandfhExpectedfhRewardfhgofhHandfhinfhHandfh(Principlefh#2)
C. WhilefhAccountingfhisfhthefhLanguagefhoffhBusiness,fhCashfhisfhthefhCurrencyfh(Principlefh#3)
D. NewfhVenturefhFinancingfhInvolvesfhSearch,fhNegotiation,fhandfhPrivacyfh(Principlefh#4)
E. AfhVenture‗sfhFinancialfhObjectivefhisfhtofhIncreasefhValuefh(Principlefh#5)
F. ItfhisfhDangerousfhtofhAssumefhthatfhPeoplefhActfhAgainstfhTheirfhOwnfhSelf-Interestsfh(Principlefh#6)
G. VenturefhCharacterfhandfhReputationfhcanfhbefhAssetsfhorfhLiabilitiesfh(Principlefh#7)
1.5 ROLEfhOFfhENTREPRENEURIALfhFINANCE
1.6 THEfhSUCCESSFULfhVENTUREfhLIFEfhCYCLE
A. DevelopmentfhStage
B. StartupfhStage
C. SurvivalfhStage
D. Rapid-GrowthfhStage
E. Early-MaturityfhStage
F. LifefhCyclefhStagesfhandfhthefhEntrepreneurialfhProcess
1.7 FINANCINGfhTHROUGHfhTHEfhVENTUREfhLIFEfhCYCLE
A. SeedfhFinancing
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, B. StartupfhFinancing
C. First-RoundfhFinancing
D. Second-RoundfhFinancing
E. MezzaninefhFinancing
F. Liquidity-StagefhFinancing
G. SeasonedfhFinancing
1.8 LIFEfhCYCLEfhAPPROACHfhFORfhTEACHINGfhENTREPRENEURIALfhFINANCEfhSUMMARY
DISCUSSIONfhQUESTIONSfhANDfhANSWERS
1. Whatfhisfhthefhentrepreneurialfhprocess?
Thefhentrepreneurialfhprocessfhcomprises:fhdevelopingfhopportunities,fhgatheringfhresources,fhandfhmanagingfh
andfhbuildingfhoperationsfhwithfhthefhgoalfhoffhcreatingfhvalue.
2. Whatfhisfhentrepreneurship?fhWhatfharefhsomefhbasicfhcharacteristicsfhoffhentrepreneurs?
Entrepreneurshipfhisfhthefhprocessfhoffhchangingfhideasfhintofhcommercialfhopportunitiesfhandfhcreatingfhvalue
.fhWhilefhtherefhisfhnofhprototypicalfhentrepreneur,fhmanyfharefhgoodfhatfhrecognizingfhcommercialfhopportuniti
es,fhtendfhtofhbefhoptimistic,fhandfhenvisionfhafhplanfhforfhthefhfuture.
3. Whyfhdofhbusinessesfhclosefhorfhceasefhoperating?fhWhatfharefhthefhprimaryfhreasonsfhwhyfhbusinessesfhfail?
Nearlyfhone-
halffhoffhbusinessesfhthatfhfailfhdofhsofhbecausefhoffheconomicfhfactorsfhincludingfhinadequatefhsales,fhinsuffici
entfhprofits,fhandfhindustryfhweakness.fhManyfhoffhthefheconomicfhfactorsfharefhdirectlyfhtiedfhtofhfinancingfhco
ncernsfh(e.g.,fhinsufficientfhprofitsfhforfhinvestors).fhAlmostfh40fhpercentfhoffhbusinessfhfailuresfhnotfhcitingfhec
onomicfhfactorsfhcitefhspecificallyfhfinancialfhcausesfhlikefhexcessivefhdebtfhandfhinsufficientfhfinancialfhcapital.
fhThefhremainingfhcitedfhreasonsfhforfhfailurefhincludefhafhlackfhoffhbusinessfhandfhmanagerialfhexperience,fhbus
inessfhconflicts,fhfamilyfhproblems,fhfraud,fhandfhdisasters.fhManyfhbusinessesfhclosefhandfhfailfhduefhtofhfinanci
alfhtroublefhwhichfhisfhmostlyfhrelatedfhtofhlackfhoffhsalesfhandfhunsatisfactoryfhprofits.
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fh fh fh fh
nance 7th Edition by J. Leach & Ronald Melic
fh fh fh fh fh fh fh fh
her
Chapter 1- fh
16 With Cases Products &Spatial Tech| A+ GRADE
fh fh fh fh fh fh fh
D
1fh|fhPfhafhgfh
e
, Chapterfh1
INTRODUCTIONfhTOfhFINANCEfhFORfhENTREPRENEURSfhFOCUS
Thefhpurposefhoffhthisfhfirstfhchapterfhisfhtofhpresentfhanfhoverviewfhoffhwhatfhentrepreneurialfhfinancefhisfhabou
t.fhInfhdoingfhsofhwefhhopefhtofhconveyfhtofhyoufhthefhimportancefhoffhunderstandingfhandfhapplyingfhentrepreneu
rialfhfinancefhmethodsfhandfhtoolsfhtofhhelpfhensurefhanfhentrepreneurialfhventurefhisfhsuccessful.fhWefhpresentfh
afhlifefhcyclefhapproachfhtofhthefhteachingfhoffhentrepreneurialfhfinancefhwherefhwefhcoverfhventurefhoperatingfh
andfhfinancialfhdecisionsfhfacedfhbyfhthefhentrepreneurfhasfhafhventurefhprogressesfhfromfhanfhideafhthroughfhtofh
harvestingfhthefhventure.
LEARNINGfhOBJECTIVES
LOfh1.1:fhCharacterizefhthefhentrepreneurialfhprocess.
LOfh1.2:fhDescribefhentrepreneurshipfhandfhsomefhcharacteristicsfhoffhentrepreneurs.
LOfh1.3:fhIndicatefhseveralfhmegatrendsfhprovidingfhwavesfhoffhentrepreneurialfhopportunities.fhLOfh1.4:fhListfh
andfhdescribefhthefhsevenfhprinciplesfhoffhentrepreneurialfhfinance.
LOfh1.5:fhDiscussfhentrepreneurialfhfinancefhandfhthefhrolefhoffhthefhfinancialfhmanager.fhLOfh1.6:fhDescribefhthe
variousfhstagesfhoffhafhsuccessfulfhventure‗sfhlifefhcycle.
LOfh1.7:fhIdentify,fhbyfhlifefhcyclefhstage,fhthefhrelevantfhtypesfhoffhfinancingfhandfhinvestors.fhLOfh1.8:fhUnderst
andfhthefhlifefhcyclefhapproachfhusedfhinfhthisfhbook.
CHAPTERfhOUTLINE
1.1 THEfhENTREPRENEURIALfhPROCESS
1.2 ENTREPRENEURSHIPfhFUNDAMENTALS
A. WhofhisfhanfhEntrepreneur?
B. BasicfhDefinitions
C. EntrepreneurialfhTraitsfhorfhCharacteristics
D. OpportunitiesfhExistfhButfhNotfhWithoutfhRisks
1.3 SOURCESfhOFfhENTREPRENEURIALfhOPPORTUNITIES
A. SocietalfhChanges
B. DemographicfhChanges
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,C. TechnologicalfhChanges
D. EmergingfhEconomiesfhandfhGlobalfhChanges
E. Crisesfhandfh―Bubbles
F. DisruptivefhInnovation
1
1.4 PRINCIPLESfhOFfhENTREPRENEURIALfhFINANCE
A. Real,fhHuman,fhandfhFinancialfhCapitalfhmustfhbefhRentedfhfromfhOwnersfh(Principlefh#1)
B. RiskfhandfhExpectedfhRewardfhgofhHandfhinfhHandfh(Principlefh#2)
C. WhilefhAccountingfhisfhthefhLanguagefhoffhBusiness,fhCashfhisfhthefhCurrencyfh(Principlefh#3)
D. NewfhVenturefhFinancingfhInvolvesfhSearch,fhNegotiation,fhandfhPrivacyfh(Principlefh#4)
E. AfhVenture‗sfhFinancialfhObjectivefhisfhtofhIncreasefhValuefh(Principlefh#5)
F. ItfhisfhDangerousfhtofhAssumefhthatfhPeoplefhActfhAgainstfhTheirfhOwnfhSelf-Interestsfh(Principlefh#6)
G. VenturefhCharacterfhandfhReputationfhcanfhbefhAssetsfhorfhLiabilitiesfh(Principlefh#7)
1.5 ROLEfhOFfhENTREPRENEURIALfhFINANCE
1.6 THEfhSUCCESSFULfhVENTUREfhLIFEfhCYCLE
A. DevelopmentfhStage
B. StartupfhStage
C. SurvivalfhStage
D. Rapid-GrowthfhStage
E. Early-MaturityfhStage
F. LifefhCyclefhStagesfhandfhthefhEntrepreneurialfhProcess
1.7 FINANCINGfhTHROUGHfhTHEfhVENTUREfhLIFEfhCYCLE
A. SeedfhFinancing
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, B. StartupfhFinancing
C. First-RoundfhFinancing
D. Second-RoundfhFinancing
E. MezzaninefhFinancing
F. Liquidity-StagefhFinancing
G. SeasonedfhFinancing
1.8 LIFEfhCYCLEfhAPPROACHfhFORfhTEACHINGfhENTREPRENEURIALfhFINANCEfhSUMMARY
DISCUSSIONfhQUESTIONSfhANDfhANSWERS
1. Whatfhisfhthefhentrepreneurialfhprocess?
Thefhentrepreneurialfhprocessfhcomprises:fhdevelopingfhopportunities,fhgatheringfhresources,fhandfhmanagingfh
andfhbuildingfhoperationsfhwithfhthefhgoalfhoffhcreatingfhvalue.
2. Whatfhisfhentrepreneurship?fhWhatfharefhsomefhbasicfhcharacteristicsfhoffhentrepreneurs?
Entrepreneurshipfhisfhthefhprocessfhoffhchangingfhideasfhintofhcommercialfhopportunitiesfhandfhcreatingfhvalue
.fhWhilefhtherefhisfhnofhprototypicalfhentrepreneur,fhmanyfharefhgoodfhatfhrecognizingfhcommercialfhopportuniti
es,fhtendfhtofhbefhoptimistic,fhandfhenvisionfhafhplanfhforfhthefhfuture.
3. Whyfhdofhbusinessesfhclosefhorfhceasefhoperating?fhWhatfharefhthefhprimaryfhreasonsfhwhyfhbusinessesfhfail?
Nearlyfhone-
halffhoffhbusinessesfhthatfhfailfhdofhsofhbecausefhoffheconomicfhfactorsfhincludingfhinadequatefhsales,fhinsuffici
entfhprofits,fhandfhindustryfhweakness.fhManyfhoffhthefheconomicfhfactorsfharefhdirectlyfhtiedfhtofhfinancingfhco
ncernsfh(e.g.,fhinsufficientfhprofitsfhforfhinvestors).fhAlmostfh40fhpercentfhoffhbusinessfhfailuresfhnotfhcitingfhec
onomicfhfactorsfhcitefhspecificallyfhfinancialfhcausesfhlikefhexcessivefhdebtfhandfhinsufficientfhfinancialfhcapital.
fhThefhremainingfhcitedfhreasonsfhforfhfailurefhincludefhafhlackfhoffhbusinessfhandfhmanagerialfhexperience,fhbus
inessfhconflicts,fhfamilyfhproblems,fhfraud,fhandfhdisasters.fhManyfhbusinessesfhclosefhandfhfailfhduefhtofhfinanci
alfhtroublefhwhichfhisfhmostlyfhrelatedfhtofhlackfhoffhsalesfhandfhunsatisfactoryfhprofits.
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