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Page 1 Format: True/False Learning Objective: LO 1 Level of Difficulty: Easy 1. Most businesses are started when an entrepreneur is given a vision for a new business or product by institutional investors. A) True B) False Ans: B

Format: True/False Learning Objective: LO 1 Level of Difficulty: Easy 2. The process by which many entrepreneurs raise ―seed‖ money and obtain other resources necessary to start their businesses is often called bootstrapping. A) True B) False Ans: A

Format: True/False Learning Objective: LO 1 Level of Difficulty: Easy 3. The initial ―seed‖ money usually comes from the entrepreneur or other founders. A) True B) False Ans: A

Format: True/False Learning Objective: LO 1 Level of Difficulty: Easy 4. The bootstrapping period usually lasts about five years. A) True B) False Ans: B Page 2

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 5. Venture capitalists are individuals or firms that help privately held businesses go public. A) True B) False Ans: B

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 6. Angel investors are investors who come to the rescue of firms threatened by takeovers. A) True B) False Ans: B

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 7. A significant number of venture capital firms focus on high-technology investments. A) True B) False Ans: A

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 8. A significant number of venture capital firms focus on mature businesses. A) True B) False Ans: B

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 9. Traditional sources of funding work for new or emerging businesses despite the presence of only intangible assets. A) True B) False Ans: B Page 3

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 10. The key idea behind staged funding is that each funding stage gives the venture capitalist an opportunity to reassess the management team and the firm's financial performance. A) True B) False Ans: A

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 11. A principal way for venture capitalists to exit is to sell part of the firm's equity back to the entrepreneur. A) True B) False Ans: B

Format: True/False Learning Objective: LO 2 Level of Difficulty: Easy 12. A venture capitalist may exit an investment by selling common stock in an initial public offering. A) True B) False Ans: A

Format: True/False Learning Objective: LO 3 Level of Difficulty: Easy 13. The amount of equity capital that can be raised in the public equity markets is typically smaller than the amount that can be raised through private sources. A) True B) False Ans: B Page 4

Format: True/False Learning Objective: LO 3 Level of Difficulty: Easy 14. Privately held firms find it easier to attract top management talent and to better motivate current managers. A) True B) False Ans: B

Format: True/False Learning Objective: LO 3 Level of Difficulty: Easy 15. To complete an IPO, a firm will need the services of investment bankers, who are experts in bringing new securities to market. A) True B) False Ans: A

Format: True/False Learning Objective: LO 3 Level of Difficulty: Easy 16. To complete an IPO, a firm will need the services of angel investors, who are experts in bringing new securities to market. A) True B) False Ans: B

Format: True/False Learning Objective: LO 4 Level of Difficulty: Easy 17. Underwriting is the risk-bearing part of investment banking. A) True B) False Ans: A Page 5

Format: True/False Learning Objective: LO 4 Level of Difficulty: Easy 18. In the firm-commitment underwriting, which is more typical, the investment banker guarantees the issuer a fixed amount of money from the stock sale. A) True B) False Ans: A

Format: True/False Learning Objective: LO 4 Level of Difficulty: Easy 19. With a firm-commitment underwriting, the investment banking firm makes no guarantee to sell the securities at a particular price. A) True B) False Ans: B

Format: True/False Learning Objective: LO 4 Level of Difficulty: Easy 20. At the closing of a best-efforts offering, the issuing firm delivers the security certificates to the underwriter and the underwriter delivers the payment for the securities, net of the underwriting fee, to the issuer. A) True B) False Ans: B

Format: True/False Learning Objective: LO 4 Level of Difficulty: Easy 21. Underpricing is defined as offering new securities for sale at a price below their true value. A) True B) False Ans: A