Questions and Answers of Entrepreneurial Finance 7th

10. What factors should be taken into consideration in harvesting decisions?
9. How effective is ESOP as a harvesting option?
8. What is the difference between MBO and LBO and how is MBO used as a form of harvesting?
7. Do M&A’s always create the necessary synergies?
6. Explain the three main types of M&A’s.
5. Explain the various forms of M&A’s.
4. How do entrepreneurs harvest their investment using acquisitions?
3. Discuss the advantages and disadvantages of a small business that decides to go public.
2. What are the functions of investment banks in the IPO process?
1. Identify the forms of harvesting available to an entrepreneur or an initial investor.
10. Explain the POT within the context of MSMEs.
9. Explain the life-cycle theory and how age aff ects the fi nancing choice of fi rms.
8. Examine the factors that infl uence MSMEs’ choice of fi nancing.
7. Discuss what is involved in determining the fi nancing requirement of MSMEs.
6. How diff erent are business angels from venture capital?
5. Discuss the advantages and disadvantages of using equity fi nance.
4. Is debt a good source of fi nancing MSMEs?
3. What are the various fi nancing options available for MSMEs?
2. Explain why MSMEs are said to have a ‘constrained’ fi nancing choice.
1. Identify the various types of capital.
13. The existing capital of a newly found medium-sized firm in South Africa, SFS Enterprise, is divided evenly among its eight founding investors who own at least 250,000 shares each in SFS
12. MGL Limited has EPS of US$7.35 and EBITDA of US$75.23 million.MGL Limited has 11.5 million shares outstanding and debt of US$350 million (net cash). As a financial analyst, you believe VNL
11. As a financial analyst you notice that Samsung has a stock price of US$87.62 and EPS of US$7.80. Its competitor Apple, has an EPS of US$3.85. Estimate the value of Apple stock using only this
10. BSky Products Limited had sales of US$385 million in 2015. As a financial analyst you expect it to grow by 8 % in 2016, but that this growth will slow by 2 % per annum to a long-run growth rate
9. TransValley Properties Limited intends to start a new real estate firm in Kampala, Uganda. The expected free cash flows of the firm for the next four years are given below (Table A.13.2):Consider
8. A small business located in Lagos, Nigeria forecasts the following free cash flows over a five-year period (Table A.13.1):Assuming the free cash flows are expected to grow by 4 % per annum after
7. A project has a forecasted cash flow of US$2100 in year 1, US$3200 in year 2, US$4100 in year 3. Assume the interest rate is 5 % and the risk premium is 11 %. If the project β is 1.15, calculate
6. A factory located in Nairobi, Kenya, costs US$500,000. It will produce an inflow after operating cost of US$120,000 in year 1, US$230,000 in year 2, US$300,000 in year 3, US$350,000 in year 4. The
5. A small business located in New Delhi, India will cost US$750,000. It is expected to produce an operating cost of US$155,000 a year for the next eight years. If the cost of capital is 15 %, what
4. A project cost US$285,000. It generates a cash flow of US$35,400 in year 1, US$18,300 in year 2 and US$25,300 in year 3. If the project pays US$12,500 in perpetuity at an interest rate of 9 %,
3. A project produces cash flows of US$435 in year 1, US$185 in year 2, US$732 in year 3 and US$846 in year 4. If the cost of capital is 16 %, what is the projects PV?
2. What criteria should be used in selecting a valuation model for new businesses?
1. What is valuation? Explain how early-stage businesses are valued.
8. Naxtell Limited is seeking to purchase a major piece of equipment which cost US$20 million.The machine is expected to be sold at scrap by the end of the fifth year for US$5 million. The machine
7. Best World Limited, a small business is considering expanding its area of operation with an initial cost estimation of US$65,000. The entrepreneur intends investing US$26,000 from retained
6. IYA Ltd is considering a project with an initial cash outlay of US$75,000 and a required rate of return of 11 %. The expected annual free cash flows from the project given as:(a) Indicate whether
5. Patosh Ltd, a medium-sized business is considering two independent projects, Project X and Project Y. The initial cost of project X is US$350,000 and that of Project Y is US$600,000. Considering
4. Glax Limited is considering embarking on a bottling water project with the following cash flows. The opportunity cost of capital of the project is 10 %.(a) Assuming the payback period of Glax
3. Consider the following projects:(a) Given an opportunity cost of capital of 8 %, which projects result in a positive NPV?(b) Calculate the payback period for each project, if the cut-off period is
2. Winlett Enterprise, a small business maintains a capital structure of 2:3.The firm is considering expanding its area of operation with an initial cost estimation of US$100,000. The interest rate
1. Ms. Darko is the Finance Officer of Grace Ltd. She has proposed two investment plans to management/Plan A requires a deposit of US$6,000 every six months, with an interest receivable at a 5 %
10. A small business has two offers for a mortgage loan. The first offer is US$300,000 at an interest rate of 15 % for 20 years and the second offer is US$300,000 at an interest rate of 13.5 % for 15
9. What is the present value of a financial instrument that promises to pay US$6,500 annually for 25 years? The yield on other instruments with similar risk is 12 %.
8. An investment offers US$5,800 per annum for 12 years, with the first payment occurring one year from now. If the required return is 8 %, what is the value of the investment? What is the value
7. During 2011, The Durban Art Gallery sold a unique painting at an auction for a price of US$25,000. The value of the painting in 2007 was US$21,500. What was the annual rate of return on this
6. X-Fund pays US$20,000 per year for ten years and P-Fund pays US$35,000 per year for six years. If the discount rate for X-Fund is 12 %per annum, and that of P-Fund is 14 % per annum, indicate
5. An SME has been offered a five-year annuity of US$35,000 per year. The first payment comes at the end of the first year. How much will the firm have in its special account created for this
4. Assuming an entrepreneur invests an amount of US$85,000 in this instrument, how long will it take for this amount of investment to double.
3. Sambot Ltd., a micro-enterprise, will receive US$50,000 five years from now. If the interest rate is 24 %, what is the present value of the amount to be received? Assuming compounding takes place
2. In seeking financing for expansion to meet a growing demand, the financial manager of a fruit processing company based in Beijing, Bright Blue Limited gets the following quotes from three
1. Look for the unknown variables in each of the following (Table A.11.1): Table A.11.1 Looking for unknown variables Present value (US$) 6,000 9,000 20,500 28,500 Years ? Interest rate Future value
10. Samtech requires US$5,500 to take a trade discount within ten days.After ten days, the full invoice amount of US$6,000 is due within 40 days. A bank is ready to lend the firm US$5,500 for 40 days
9. A firm of chartered accountants has rendered taxation and accounting services to Excom Pty Limited on terms of 2/30 net 60, which means Excom Pty may deduct 2 % off the invoice amount if it pays
8. A medium-sized firm has US$6,000 as the firm’s lower cash control limit.Interest rate on investments is 15 per annum. The firm’s standard deviation of daily cash has been measured as US$7,000.
7. A firm experiences a constant demand for cash totalling US$2,000,000 per annum. It replenishes its bank account (which does not pay interest)by selling constant amounts of securities, which are
6. Happy Feet Ltd. has a T-bill that can be sold on the secondary market for cash each time it needs cash. The cost of discounting the T-bill is US$30.The interest rate on T-bills is 14 % per annum.
5. An MSME is saddled with huge accounts receivable. How can it finance such accounts receivable?
4. Explain the inventory management system that is useful for MSMEs operating in the manufacturing sector.
3. Samtel produces 160,000 telephones per annum but uses five units of raw materials to produce each unit. The demand for telephones is stable throughout the year. It costs US$200 each time raw
2. Masnat Enterprise is trying to get a handle on its cash management.Reviewing the books, it was found that over the past year accounts receivable have averaged 75 days. Sales and inventory have
1. What would you describe as efficient working capital management?
9. Grace Enterprise has estimated sales and purchase requirements for the last half of the coming year. Past experience indicates that it will collect 20 %of its sales in the month of sale, 50 % of
8. Use the percent of sales method to prepare a pro forma income statement for Calico Enterprise. Projected sales for next year equal US$20,000. Cost of goods sold is expected to be 70 % of sales,
7. Africagrowth Ltd. expects rapid sales growth next year. Sales for the current year were US$8 million, and are expected to grow by 15 % next year.Africagrowth Ltd. wants to estimate the external
6. After completing the pro forma income statement in Question 5, Mr. Yin now realises he should also complete a pro forma balance sheet. Net sales in 2015 was US$80,000 and his forecasted sales for
5. Mr. Yin owns Sugar Cane Farms’, a small-sized farm. He would like to expand his farms and buy a nearby land. Mr. Yin does not have the capital to undertake this project and would like to borrow
4. Bans Bakery Ltd. has just come out with a new bread flavour that they are sure will cause sales to double between 2015 and 2016. Using the following worksheet, complete Bans Bakery’s pro forma
3. The Happy Ltd.s pro forma balance sheet for 31 December 2015 indicates that total assets will be US$12,000, but total liabilities and equity will be only US$8000. What should Happy Ltd. do to
2. For the last five years, cost of goods sold for Beauty Ltd. has averaged 60 %of sales. This trend is expected to continue for the foreseeable future. If sales for 2016 are expected to be
1. What is the significance of preparing and producing forecasts for MSMEs?
6. Th e following information relates to the fi nancial statements of Rand Limited for the year 31 December 2015 together with comparative fi gures for the year to 31 December 2014:You are required
5. What are the uses and limitations of fi nancial ratios?
4. Prepare an income statement for ABL Limited given the information below: sales US$4,290,000; inventory at start US$378,000; Inventory at end US$249,000; depreciation is 30 % on cost (cost of motor
3. Construct a statement of fi nancial position for Hamza Enterprise Ltd.using the following fi nancial information: land and building US$870,000;motor vehicle US$590,000; plant and equipment
2. What are the problems with fi nancial statements?
1. How relevant are fi nancial statements to the internal and external users of an MSME?
7. Discuss the impact of macro policy areas on entrepreneurship development.
6. Identify some support programmes provided by the international donor agencies to facilitate MSME development.
5. Distinguish between the key policy choices with respect to entrepreneurship and SMEs.
4. Identify some of the government support schemes targeted at assisting MSMEs. How eff ective are these support schemes?
3. Examine some of the important roles played by governments in supporting MSMEs.
2. Why are governments interested in providing support to the small business sector?
1. Discuss some of the channels through which the public sector supports MSMEs in developing countries.
16. Consider the following fi nancial data of Leery Microfi nance Limited:Compute the SDI, OSS and PAR of Leery Microfi nance Limited. What do the numbers represent? Details US$ Operating income
15. What are the challenges confronting banks that wish to enter the microfi nance market in Africa?
14. Identify the factors that infl uence banks’ entry into the microfi nance market. What are the benefi ts to a bank that decides to provide microfi -nance services?
13. Discuss the approaches banks can adopt in operating in the microfi nance market.
12. How can MFI complement the functions of banks?
11. Identify fi ve basic diff erences between banks and MFIs.
10. Th e issue of regulation has been identifi ed as a major challenge confronting MFIs in Africa. Discuss this issue with specifi c examples.
9. Discuss the challenges confronting the growth of MFIs in Africa.
8. Explain the credit risk management mechanisms used by MFIs.
7. Discuss the signifi cance of group lending in microfi nance.
6. Explain the lending models used by MFIs in extending credit to micro-enterprises.
5. Discuss the factors that aff ect the success and sustainability of MFIs.
4. Discuss the functions of MFIs in small business development.
3. Describe the products and services MFIs provide.
2. What are some of the problems associated with microfi nance?
1. Discuss the importance of microfi nance for micro-enterprises.
10. How do venture capitalists harvest their investments?

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