Question: What are the guidelines to follow when

> Ang Electronics, Inc., has developed a new DVDR. If the DVDR is successful, the present value of the payoff (when the product is brought to market) is $27 million. If the DVDR fails, the present value of the payoff is $9 million. If the product goes dire

> Your firm is contemplating the purchase of a new $530,000 computer-based order entry system. The system will be depreciated straight-line to zero over its five-year life. It will be worth $50,000 at the end of that time. You will save $186,000 before tax

> Suppose you know that a company’s stock currently sells for $67 per share and the required return on the stock is 10.8 percent. You also know that the total return on the stock is evenly divided between a capital gains yield and a dividend yield. If it’s

> What are some of the difficulties that might come up in actual applications of the various criteria we discussed in this chapter? Which one would be the easiest to implement in actual applications? The most difficult?

> Star Mining buys a gold mine, but the cost of extraction is currently too high to make the mine profitable. In option terminology, what type of option(s) does the company have on this mine?

> Music City, Inc., has no debt outstanding and a total market value of $295,000. Earnings before interest and taxes, EBIT, are projected to be $23,000 if economic conditions are normal. If there is strong expansion in the economy, then EBIT will be 25 per

> Describe the difference between systematic risk and unsystematic risk.

> Criteria Discuss the IRS criteria for determining whether a lease is tax deductible. In each case give a rationale for the criterion.

> What are the sources of agency costs of equity?

> If you use the stock beta and the security market line to compute the discount rate for a project, what assumptions are you implicitly making?

> How would you answer in the following debate? Q: Isn’t it true that the riskiness of a firm’s equity will rise if the firm increases its use of debt financing? A: Yes, that’s the essence of MM Proposition II. Q: And isn’t it true that, as a firm increase

> A company is contemplating a long-term bond issue. It is debating whether to include a call provision. What are the benefits to the company from including a call provision? What are the costs? How do these answers change for a put provision?

> Suppose Tom O’Bedlam, president of Bedlam Products, Inc., has hired you to determine the firm’s cost of debt and cost of equity capital. a. The stock currently sells for $50 per share, and the dividend per share will probably be about $5. Tom argues, “It

> In contrast to the CAPM, the APT does not indicate which factors are expected to determine the risk premium of an asset. How can we determine which factors should be included? For example, one risk factor suggested is the company size. Why might this be

> Is it possible that a risky asset could have a beta of zero? Explain. Based on the CAPM, what is the expected return on such an asset? Is it possible that a risky asset could have a negative beta? What does the CAPM predict about the expected return on s

> Is it possible for the risk premium to be negative before an investment is undertaken? Can the risk premium be negative after the fact? Explain.

> Are there any circumstances under which an investor might be more concerned about the nominal return on an investment than the real return?

> Why does traditional NPV analysis tend to underestimate the true value of a capital budgeting project?

> The shareholders of the Stackhouse Company need to elect seven new directors. There are 960,000 shares outstanding currently trading at $48 per share. You would like to serve on the board of directors; unfortunately no one else will be voting for you. Ho

> Suppose a financial manager is quoted as saying, “Our firm uses the stand-alone principle. Because we treat projects like mini firms in our evaluation process, we include financing costs because they are relevant at the firm level.” Critically evaluate t

> If a portfolio has a positive investment in every asset, can the expected return on the portfolio be greater than that on every asset in the portfolio? Can it be less than that on every asset in the portfolio? If you answer yes to one or both of these qu

> Risks In broad terms, why is some risk diversifiable? Why are some risks nondiversifiable? Does it follow that an investor can control the level of unsystematic risk in a portfolio, but not the level of systematic risk?

> What is meant by a firm’s positioning strategy?

> How should a firm go about constructing a product attribute map?

> What is the purpose of having an organized sales process?

> Contrast the advantages of selling direct versus the advantages of selling through an intermediary.

> What is the purpose of writing a blog and establishing a presence on Facebook and Twitter?

> Contrast the roles of advertising and public relations in promoting a firm and its products.

> What is meant by the phrase “price-quality attribution”? How does an understanding of this phrase help an entrepreneur know how to price a product?

> Contrast cost-based pricing and value-based pricing.

> Describe the difference between a core product and an actual product.

> What are the four elements of a firm’s “marketing mix”?

> What are the principal advantages and disadvantages of buying a franchise?

> Justin Coban plans to write an e-mail message to his dad asking for a loan. The purpose of the loan will be to start a company to sell an environmentally friendly line of cleaning supplies that are suitable for light manufacturing facilities. Justin has

> What key insights does the GEM study provide us about entrepreneurship?

> What is a target market? Why is it important for a firm to choose its target market early in the process of launching its venture?

> What is bootstrapping? Provide several examples of how entrepreneurs bootstrap to raise money or cut costs. In your judgment, how important is the art of bootstrapping for an entrepreneurial venture?

> What is a Small Business Innovation Research (SBIR) grant? Why would a firm want to apply for such a grant if it qualifies for it?

> What is meant by the term burn rate? What are the consequences of experiencing a negative burn rate for a relatively long period of time?

> Briefly describe the SBA’s 7(A) Loan Guaranty Program. Do most start-up firms qualify for an SBA guaranteed loan? Why or why not?

> In general, why are commercial banks reluctant to loan money to start-ups?

> What is the purpose of the investment bank in the initial public offering process?

> Describe the purpose of an initial public offering (IPO). Why is an initial public offering considered to be an important milestone for an entrepreneurial firm?

> What are some resources available to you as a prospective franchisee to identify franchise opportunities?

> What is meant by the term venture capital? Where do venture capital firms get their money? What types of firms do venture capitalists commonly want to fund? Why?

> What are the three steps required to effectively engage potential investors or bankers?

> In general, what effects does entrepreneurship have on economies and societies throughout the world?

> What is the purpose of an elevator speech? Why is preparing an elevator speech one of the first things an entrepreneur should do in the process of raising money?

> Do new ventures started by a team have an advantage over new ventures started by a sole entrepreneur, or is the opposite the case?

> What are the different ways that advisory boards meet and conduct their business?

> What is the purpose of forming an advisory board?

> What is signaling and what is its potential value for a new venture

> How does a firm compute its profit margin? What is the significance of this ratio?

> What are the costs involved in purchasing a business format franchise? Are these costs similar across franchise systems, or do they vary widely? Which costs are one-time costs and which costs continue indefinitely?

> What is the purpose of an income statement? What are the three numbers that receive the most attention when evaluating an income statement? Why are these numbers important?

> What is the purpose of a forecast? What factors does a firm use to create its forecasts of future sales, income, expenses, and capital expenditures?

> What is meant by the percent-of-sales method as it relates to forecasts?

> How is a focus group used to generate new business ideas?

> What is the purpose of an assumptions sheet?

> What is the purpose of financial ratios? Why are financial ratios particularly useful in helping a firm interpret its financial statements?

> What are the three separate categories of activities that are reflected on a firm’s statement of cash flows? Briefly explain the importance of each activity.

> What is the purpose of a statement of cash flows?

> How does a firm compute its current ratio? Is this a relatively important or unimportant financial ratio? Explain your answer.

> What are the major categories of assets and liabilities on a balance sheet? Briefly explain each category.

> What rules of thumb should an entrepreneurial venture follow to successfully sell its products overseas?

> What is a founders’ agreement and why is it important for a team of entrepreneurs to have one in place when launching a venture?

> Is a limited liability company an appropriate form of ownership for an aggressive entrepreneurial firm? Why or why not?

> What are the advantages and disadvantages of a limited liability company?

> What are stock options and why would a corporation offer stock options to its employees?

> What factors favor older entrepreneurs as opposed to young entrepreneurs?

> What are the differences among a public corporation, a closely held corporation, and a private corporation?

> What is meant by the term piercing the corporate veil and what are the implications for the owners of a corporation if the corporate veil is pierced?

> What is the difference between preferred stock and common stock?

> What are the major advantages and disadvantages of a C corporation?

> What are the differences between a general partnership and a limited partnership?

> What are the six foreign market entry strategies and what are the key characteristics of each one?

> Is a sole proprietorship an appropriate form of ownership for an aggressive entrepreneurial firm? Why or why not?

> What are the advantages and disadvantages of organizing a new firm as a sole proprietorship?

> At what point, during the process of starting a firm, does a business need to focus on the business licenses and permits that it needs, and why at that point?

> What are the differences between a summary business plan, a full business plan, and an operational business plan?

> How will investors typically react if they think a business plan is based on estimates and predictions rather than on careful analysis and facts?

> What are the differences between an opportunity and an idea and why are those differences important for entrepreneurs?

> What is the difference between primary research and secondary research?

> What is the purpose of a licensing agreement? What is attractive about a licensing agreement for those leading an entrepreneurial venture?

> Who reads the business plan and what are they looking for when doing so?

> What is the difference between a merger and an acquisition? How can acquisitions help firms fill their needs?

> What is the difference between an internal and an external growth strategy?

> What is a trademark? How can a trademark help a firm establish a competitive advantage in the marketplace?

> What are the six steps in applying for a patent?

> What is the purpose of an assignment of invention agreement? Is it a good idea for firms to ask their employees to sign assignment of invention agreements?

> Give an example of a design patent. How can having a design patent provide a firm a competitive advantage in the marketplace?

> What is a business method patent? Provide an example of a business method patent. How can having such a patent provide a firm a competitive advantage in the marketplace?

> Do all firms have the potential to be aggressive rapid-growth firms? Why or why not?

> What are the two primary purposes of conducting an intellectual property audit? What risks does a company run if it doesn’t periodically conduct an intellectual property audit?

> How would you describe the four areas that a properly executed feasibility analysis explores?

> What are the two primary reasons for those starting a new venture to write a business plan?

> Suppose you became interested in opening a School of Rock franchise (see Case 15.2 for more information about this company). You fly to Philadelphia and visit the company’s headquarters. After learning more about the opportunity, you tell the School of R

> A friend of yours owns a carpet and installation business, which is a full-time job. To increase his income, he’s thinking about buying a 1-800-Water-Damage franchise, which is a franchise that helps homeowners and businesses restore property that has be

> A growing number of franchise organizations, including Wings Over, Great Harvest Bread Company, and Beef O’ Brady’s, are allowing their franchisees to tweak their menus and change the appearances of their facilities, to better compete with local business

> Bill Watts has decided to buy a sub shop franchise called Super Subs. He lives in Cedar Falls, Iowa, and will be the first Super Subs franchisee in the state. Along with buying a Super Subs franchise, Bill would also like to purchase the rights to offer