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MGMT 3850 Final Exam With
Complete Solution
Financing needs in the $_____ to $_____ may be there toughest to fill - ANSWER 100, 3 million "secrets" to successful fundraising - ANSWER 1. choosing the right sources of capital
- know where to look for the money
- raising money takes time and effort
- creativity counts
- the world wide web puts vast resources and info @ your finger tips
- be prepared before approaching lenders
- "chemistry" among themselves, their companies, and their funding sources is good layering is - ANSWER piecing together capital from multiple sources capital is - ANSWER any form of wealth employed to produce more wealth for a firm 3 types of capital - ANSWER fixed, working, growth fixed capital - ANSWER used to purchase the permanent or fixed assets of the business (buildings, land, equipment)
working capital - ANSWER used to support the small company's normal short term operations (buy inventory, pay bills, wages or salaries) growth capital - ANSWER used to help the small business expand or change its primary direction debt capital - ANSWER -must be repaid with interest -is a liability on the balance sheet equity capital - ANSWER -personal investment of the owners in the business (20%) -aka "risk capital" because investors are at risk of losing their money if business fails -does not need to be repaid with interest sources of equity financing - ANSWER -personal savings -friends and family members -crowd sourcing -angels -partners -corporations -venture capital companies -public stock sale -simplified registrations and exemptions personal savings - ANSWER -1st place to look for money
-makes an average of 1 investment a year -has invested an average of $80,000 in 3.5 businesses partners - ANSWER -giving up personal control -diluting ownership -sharing profits corporate venture capital - ANSWER -20% of all venture capital investments come from corporations -300 large companies across the world invest in start up companies -may share marketing and technical expertise venture capital companies - ANSWER -more than 1300 venture capital firms operate across the US -high growth and high profit potential -extremely rigorous review (less than 1% accepted) -take active role in company -focus on specific industries with which they are familiar -typically purchase between 20-40% of a company -98% of venture capital goes to early stage investments or expansion stage investments what do venture capital companies look for? - ANSWER -competent management -competitive edge
-growth industry -viable exit strategy -intangible factors Initial public offering (IPO) - ANSWER when a company raises capital by selling shares of its stock to the public for the first time Rule 147 - ANSWER -a simplified registration and exemption -intrastate (can only sell to people in Texas) -500 persons -base of <$10 million successful IPO Candidates - ANSWER high growth earnings audited financial statements growing industry sound management team advantages of "going public" - ANSWER -ability to raise large amts of capital -improved corporate image -improved access to future financing -attracting and retaining key employees -using stock for acquisitions -listing on a stock exchange
asset-based borrowing is when - ANSWER businesses can borrow money by pledging as collateral otherwise idle assets (accounts receivable, inventory, etc) advance rate- - ANSWER the percentage of an asset's value that a lender will lend sources of debt capital - ANSWER -commercial banks -asset-based lenders -vendor financing (trade credit) -equipment suppliers -commercial finance companies -saving and loan associations -stock brokerage houses -insurance companies -credit unions -bonds -private placements -small business investment companies (SBICs) -small business lending companies (SBLCs) sources of debt capital from federally sponsored programs - ANSWER -economic development administration (EDA) -department of housing and urban development (HUD)
-US department of agriculture's rural business-cooperative service -small business innovation research (SBIR) -small business technology transfer programs -small business administration (SBA 7-A) the most popular SBA loan program - ANSWER 7(A) Loan Guaranty Program State and Local loan programs - ANSWER -capital access programs (CAPs) -revolving loan fund (RLFs) capital access programs (CAPs) are - ANSWER designed to encourage lenders to make loans to businesses that do not qualify for traditional financing revolving loan fund (RLFs) - ANSWER combine private and public funds to make small business loans internal methods of financing include - ANSWER -factoring (selling accounts receivable outright) -leasing (assets rather than buying them) -credit cards small business lending companies (SBLCs) - ANSWER -long term (10 yrs) -sub prime loans -owned by other corporations small business investment companies (SBICs) - ANSWER -private firms -longer terms -mix of private and public money
what to look for in a banker - ANSWER -banking knowledge (understands your options) -sense of urgency (works on your time schedule) -teaching talent (help us understand what is required) -industry knowledge (assets and needs are different between businesses) -financial stability (look at return on assets, etc and compare banks) -backbone (sometimes rules need to be rewritten) what the banker wants to know - ANSWER -what are you going to use the money for? -how much do you need? -when and how will you pay it back? -when do you need the money? specific lending criteria for A/R - ANSWER 70-80% if less than 90 days specific lending criteria for inventory - ANSWER 40-60% depending on the condition specific lending criteria for equipment - ANSWER 70-80% of market value specific lending criteria for chattel mortgage - ANSWER 100-150% of auction appraisal value specific lending criteria for conditional sales contracts - ANSWER 60-70% of purchase price specific lending criteria for plant improvement loan - ANSWER 60-80% app.
val interest coverage is calculated as - ANSWER earnings BEFORE interest and taxes divided by interest (EBIT/interest) steady cash flow and earnings should lead to - ANSWER a lower coverage ratio principle sources of borrowed capital - ANSWER -trade credit -commercial banks -fiance companies -factors -leasing companies
what is trade credit? - ANSWER -major sources of short term funds -purchase of goods/services over 30-90 days -accounts payable on balance sheet -dependent upon reputation of management and relationships with suppliers -can negotiate terms
commercial bank financing - ANSWER -primary source of debt capital to existing businesses -rate on: positive cash flows, collateral, and personal guarantees
contracts to a bank of finance company to enable purchase of equipment -short term financing for the manufacturer -long term financing for the entrepreneur
commercial finance companies - ANSWER -loan money to companies without positive cash flow -consider: liquidation value of assets and assets who's value exceed the amount of the loan -major pre-payment penalties
what are leasing companies? - ANSWER -source of medium term financing -generally deal in equipment or specialized equipment -startups usually need personal guarantee -consider: value of equipment, justification of lease, projected cash flow -provides entrepreneurs with flexibility
early stage financing - ANSWER -seed(savings, angels, and family & friends) -start up(to get the business up and going) -first stage(to expand)
expansion financing - ANSWER -second stage(to catch up with cash flow) -mezzanine(beyond break even and headed to high volume) -bridge or VC(short term between mezzanine and IPO)
later stage financing - ANSWER -acquisition -private placement -initial public offering (IPO): road show & red herring
road show - ANSWER a gathering of potential syndicate members sponsored by the managing underwriter for the purpose of promoting a company's IPO
red herring - ANSWER a rough draft of the company's prospectus and includes a description of the company's business, financial condition, strategy, management, litigation and risk factors.
earning valuation - ANSWER -historical method: uses past earning to judge the future; times a factor -future method: based on benchmark firms; uses a price/earnings ratio; uses a specific time frame
asset valuation may use - ANSWER -book value
choosing the state - ANSWER -proximity to markets -proximity it needed raw materials -wage rates and unions -labor supply needs -business climate -tax rates -internet access
choosing the city - ANSWER -popular trends -competition -clustering -compatibility with community -local laws and regulations -transportation networks -police and fire protection -cost of utilities and public services
- quality of life (AARP, fortune magazine ratings)
trade area - ANSWER the region from which a business can expect to draw
customers -retail compatibility -degree of competition -index of retail saturation (IRS) -reilly's law of retail gravitation
Index of Retail Saturation (IRS) = - ANSWER C x RE / RF
c= # of customers in trading area re= retail expenditures rf= retail facilities
retail expenditures= - ANSWER the average expenditure per person for the product in the trading area
retail facilities = - ANSWER the total square feet of the selling space allocated to the product in the trading area
location criteria for retail and service - ANSWER -transportation network -physical and psychological barriers
power centers - ANSWER combine power of a mall with neighborhood shopping center; anchor stores typically occupy 80% of space
theme or festival centers - ANSWER employ a unifying theme often involving entertainment to attract tourists
Outlet Center - ANSWER feature manufacturers' and retailers' outlet stores selling name brand goods at discounted prices (usually follow "open air" design)
lifestyle centers - ANSWER located near affluent residential neighborhoods designed to look more like a central business district than a shopping center or mall (fire wheel)
regional shopping malls - ANSWER 50-100 stores anchor is one or more major department stores draws customers from large trading area often 5-15 miles or more in all directions (Parks Mall)
Super regional shopping malls - ANSWER trade area is 25 miles or more in all
directions (Mall of America)
manufacturing locations - ANSWER -foreign trade zones (alliance air port) -empowerment zones -business incubators (ft worth)
business incubators - ANSWER -organizations that combine low cost, flexible rental space with a multitude of support services for their small business residents -more than 1200 operating in US (at discovery park) -firms that "graduate" from incubators have an 87% success rate
the layout is - ANSWER the logical arrangement of the physical facilities of a business that contributes to efficient operations, increased productivity and higher sales
Gensler Study - ANSWER employees believe that the quantity and quality of their work would increase by 25% with better workplace design
layout guidelines - ANSWER -know your customers buying habits
