Planning Your Exit Chapter 12 Exam Questions

Chapter 12: Planning Your Exit

True/ False

1. Before making an IPO decision, you should ask yourself, “Am I ready to share ownership of this company with the public?”
2. One of the benefits of going public is that the company can then issue stock options to management and employees.
3. Loss of control is an advantage of going public.
4. Fortunately, when going public there are no added fiduciary responsibilities.
5. Going public is a cheap process.
6. Before going public, a company needs to take out a personal liability insurance policy.
7. The first step in discounting cash flow is to forecast the next 5 years of sales.
8. When establishing an alliance, the first step is to identify the objective of the alliance.
9. A selling memorandum normally includes information about the company’s history, the market, company’s products, operations and strengths.
10. In the “employees” section of a selling memorandum, it should specify whether a union represents them or not.
11. Potential buyers include personal contacts, trade associations, investment and commercial bankers and accountants.
12. When selling an equity share, an entrepreneur identifies the most appropriate assets that will be valued by the buyer.

Fill in the blank

1. The time and date the company agrees with the investment firm to offer the securities to the public until twenty-five days after the securities become available to the public is known as the ____________.
2. The SEC places restrictions on what a company can do while in _______________.
3. ______________ are meetings that give perspective members of the underwriting syndicate to meet the management team and ask questions.
4. When the IPO is completed and finalized, the entrepreneur and the management team must begin meeting the shareholders and _______________.
5. _____________ is more suitable for a company with an established track record.
6. ____________ is based on the worth of the business’s assets.
7. The final step in calculating discounted cash flow is estimating when the firm will reach _______________ and what characteristics it will have when it does.
8. The ______________ company is a concept that can help you identify the most appropriate assets.
9. For a company that has established a history of operations, the sale is more likely to be for a _______________.
10. A(n)____________agreement is an agreement that requires the seller to only negotiate with the identified potential buyer for a certain period of time, such as 90 or 120 days.

Multiple Choice

1. A “liquidity event” is:
   1. bankruptcy.
   2. shareholders selling their stock to the public or another company for cash.
   3. obtaining a bank loan.
   4. having at least three months’ cash on hand.
2. An “exit strategy” is:
3. a liquidity event.
4. being able to retire with sufficient funds.
5. paying a dividend to angels to keep them happy.
6. paying down your bank loan.
7. It is necessary to provide an exit strategy for:
8. angel investors or venture capitalists.
9. state governments.
10. bankers.
11. employees.
12. The most common method for a private equity investor to get a return is:
13. Receiving a regular dividend on earnings from the company.
14. Outright sale to another company.
15. Partial sale to another company.
16. An initial public offering.
17. An ESOP provides an exit strategy for:
18. Angels and Venture Capitalists.
19. Employees.
20. Lenders.
21. Founders.
22. An MBO provides an exit strategy for:
23. Employees.
24. Banks.
25. Managers.
26. Founders.
27. Planning a merger requires calculating values of both the business and all:
28. existing resources.
29. the other business.
30. the management salaries.
31. goodwill.
32. A selling memorandum need not have which of the following items?
33. Historical financial statements
34. Executive Summary
35. Expected sales price of the company
36. Full description of the business
37. A road show is:
38. Pitching the sale of stock to government agencies.
39. Exhibiting at a trade show.
40. A recruiting drive at colleges.
41. A dog-and-pony show.
42. MBO stands for:
43. Major buyout.
44. Multi buyout.
45. Management buyout.
46. Majority buyout.
47. ____________is the most widely used method of valuing a business, which provides the investor with the best estimate of the probable return on investment.
48. Dividends.
49. Historical earnings.
50. Discounted cash flow valuation
51. Future earnings.
52. Which of the following is NOT a part of a selling memorandum:
53. Management
54. Marketing and sales
55. Earn-out agreements
56. Employees
57. In a selling memorandum, financial projections should be prepared for the next:
58. 1 Year.
59. 3-5 years.
60. 10-15 years.
61. 20 years.
62. Which of the following is NOT included in the letter of intent?
63. What is being purchased
64. The structure
65. Government’s role
66. Due diligence
67. Asking “what are the timing and extent,” in the letter of intent, is part of:
68. the structure.
69. due diligence.
70. exclusivity agreement.
71. bust-up fees.
72. Which of the following is NOT a typical condition of a sale?
73. Maintenance of minimum net worth requirements
74. Transfer of material agreements
75. Delivery of financial statements
76. Acceptance of ESOP
77. Before going public, a company needs to take out ­­­­­­­­­­­­­­­­­­­­­ _________________­­_that will protect the officers and directors from being held personally liable if a shareholder suit is brought based on incorrect information in the Registration Statement.
78. workers compensation
79. a personal liability insurance policy
80. an underwriter’s policy
81. business insurance
82. Before making an IPO decision, all but which one of the following questions need to be addressed?
83. Can the family business survive through the third generation?
84. Are you ready to share the ownership of your company with the public?
85. Can you live with the continued scrutiny of investors and market analysts?
86. Are you prepared to disclose your company’s most closely held secrets?
87. Which of the following is a benefit of going public?
88. You solely own the company
89. No one can tell you how to run your business
90. You have greater access to capital
91. You can hire all your closest friends
92. Which of the following is a disadvantage of going public?
93. Management and employee incentives
94. Access to capital
95. Improved financial condition
96. Upfront expenses
97. Which of the following is NOT a benefit of going public?
98. Enhanced corporate reputation
99. Improved opportunities for future financing
100. Sharing success
101. Access to capital
102. Which of the following is NOT a factor to consider when selecting an underwriter?
103. Post-IPO support
104. Distribution
105. Experience
106. His/her personal wealth
107. Which of the following is not a correct matching of exit plan to the description of that plan?
     1. Using an ESOP – selling shares of stock to employees at a reduced price.
     2. Creating a public offering (IPO) – selling shares of ownership via public equity markets.
     3. Using an MBO – managers and/or executives purchase controlling interest from shareholders.
     4. Selling equity stake to partner – borrowing low-interest funds from strategic partner.
108. The benefits of selling an equity stake to a strategic partner can include all of the following except:
     1. Sharing costs and customer relationships.
     2. Reducing the individual companies’ exposure to risk.
     3. Increasing chances of getting the product to market quicker.
     4. All of these benefits can accrue when selling equity stakes to strategic partners.