Jen and Larry’s frozen yogurt venture described in Problem 3 required some investment in bricks and mortar. Initial specialty equipment and the renovation of an old warehouse building in Lower Downtown, referred to as LoDo, cost $450,000 at the beginning of 2013. At the same time, $50,000 was invested in inventories. In early 2014, an additional $100,000 was spent on equipment to support the increased frozen yogurt sales in 2014. Use information from Problem 3 and this problem to answer the following questions. A. Calculate the return on assets in both 2013 and 2014. B. Calculate the asset intensity or asset turnover ratios for 2013 and 2014. C. Apply the ROA Business Model to Jen and Larry’s frozen yogurt venture. D. Briefly describe what has occurred between the two years. E. Show how you would position Jen and Larry’s frozen yogurt venture in terms of the relationship between net profit margins and asset turnovers
> This problem is a continuation of Problem 3. Assume you ramp up production to 1,000 units per month in April, May, and June. Sales are expected to be 800 units in April and 1,100 units in each of May and June. Repeat the calculations requested in Problem
> Assume you have developed and tested a prototype electronic product and are about to start your new business. You purchase pre-programmed computer chips at $70 per unit. Other component costs include: plastic casings at $15 per unit and assembly hardware
> Identify the seven principles of entrepreneurial finance.
> Assume you are starting a new business involving the manufacture and sale of a new product. Raw materials costs are $40 per product. Direct labor costs are expected to be $30 per product. You expect to sell each product for $110. You plan to produce 100
> The owners of a new venture have decided to organize as a corporation. The initial equity investment is valued at $100,000 reflecting contributions of the entrepreneur and her family and friends. One hundred thousand shares of stock were initially issued
> From the Headlines -- “Competing to Let the Light Shine”: Describe three financial performance measures that d.light’s venture investors might use to examine whether d.light is measuring up financially as it achieves its “lives touched” goals.
> What is meant by the statement that a balance sheet provides a “snapshot” of a venture’s financial position as of a point in time? Why must a balance sheet be in “balance?”
> Describe the types of resources (assets) needed for a new product venture during its development and startup stages. Comment on the likely revenues and expenses during these early life cycle stages.
> A. Calculate the dollar amount of NOPAT if Jen and Larry’s venture achieves her forecasted $1.2 million in sales in year 2017. What would NOPAT be as a percent of sales? B. Calculate the NOPAT breakeven point for year 2017 in terms of NOPAT breakeven re
> A. Calculate Salza’s NOPAT breakeven in terms of NOPAT breakeven revenues for year 2016. B. Calculate the NOPAT breakeven point for 2017 for Salza in terms of NOPAT breakeven revenues.
> A. Estimate the NOPAT breakeven amount in terms of revenues necessary for the SubRay Corporation to break even next year. B. Assume that the product selling price is $50 per unit. Calculate the NOPAT breakeven point in terms of the number of units that
> Identify and explain the formula for finding the NOPAT breakeven revenues. Relate this to breakeven in terms of EBIT.
> Define the terms EVA and NOPAT and describe the meaning of NOPAT breakeven and NOPAT breakeven revenues.
> Assume that you have been working on a first-generation “prototype” for a new product. An angel investor is waiting in the “wings” wanting to invest in a second-generation model or prototype. Unfortunately, you have run out of money and aren’t able to fi
> Now let’s assume that Francine Delgado (see Problem 10) organizes the HairCare Products Company as a proprietorship, is married, and files a joint tax return with her husband, Franco. A. Calculate the tax liability (using tax tables presented in the chap
> Francine Delgado has developed a business plan for producing and selling a new hair care product that emits nutrients to the scalp when used and the product residues have been judged to be environmentally safe. Following are her projected partial financ
> The organizers for Dick and Barbara’s cooperative had great success and many inquiries from other neighborhoods on how to organize and operate. After helping several other groups organize, the time commitment grew to the point where the organizers decide
> Several years ago, Dick and Barbara Harris were asked to attend an organizational meeting for a newly-forming neighborhood baby-sitting cooperative. The idea was simple. Concerned and caring parents would join together in the cooperative and exchange bab
> Interact Systems, Inc. has developed software tools that help hotel chains solve application integration problems. Interact’s Application Integration Server (AIS) provides a two-way interface between central reservations systems (CRS) and property manage
> Francine Delgado, founder of the HairCare Products Company, has developed HairCarePlus which is a shampoo product containing healthy nutrients that are absorbed through the scalp when the product is used. She also believes that preliminary tests of HairC
> Rolf Lee is also considering organizing the Capital-Ideas Company as a limited liability company. A. Use information contained in Problem 6 to estimate the federal income tax liability in the second year of operation if Capital-Ideas is an LLC. B. What w
> Rolf Lee is now exploring whether it might be better to organize the Capital-Ideas Company as a subchapter S corporation. A. Calculate the amount of federal income tax that Capital-Ideas Company would pay next year. B. What would be the marginal tax rate
> In the second year of operation, the Capital-Ideas Company forecasts revenues to grow to $5 million dollars, and expenses before income tax to be 70 percent of revenues. A. Earnings before taxes = $5,000,000 x (1 - 0.70) = $1,500,000. Taxed as a proprie
> The Capital-Ideas Company is in its development stage and is deciding how to formally organize its business venture. The founder, Rolf Lee, is considering organizing as either a proprietorship or as a corporation. He expects revenues to be $2 million n
> What is e-commerce? Why are the Internet economy and e-commerce here to stay?
> As your venture has moved from the development stage to the startup stage, a number of trade secrets have been developed along with an extensive client list. You are in the business of developing and installing computer networks for law firms. A. Your ma
> In addition to your venture’s taxable income of $50,000, you expect to personally earn another $10,000 from a second job. A. Filing as a single individual: B. Married filing jointly: C. Taxed as a Corporation plus personal taxable income:
> Assume your new venture, organized as a proprietorship, is in its first year of operation. You expect to have taxable income of $50,000. Use the income tax rate information contained in Figure 3.6 to estimate the amount of income taxes you would have t
> Phil Young, founder of the Pedal Pushers Company, has developed several prototypes of a pedal replacement for children’s bicycles. The Pedal Pusher will replace existing bicycle pedals with an easy release stirrup to help smaller children hold their feet
> From the Headlines – The Fantasticks: Describe the fundraising tactic for the producers of The Fantasticks. What were the driving motivations for the angel investors?
> Describe some major characteristics of business angels.
> What is seed and startup financing?
> What are confidential disclosure agreements? What are employment contracts?
> What are copyrights and how are they used?
> What are trademarks? Identify the four types of “marks” used to protect intellectual property.
> What asset and financial bubbles have occurred recently? How can bubbles and financial crises lead to entrepreneurial opportunities?
> What are trade secrets? How are they used to protect valuable intangible assets?
> What are the benefits and costs of having a patent?
> What was the purpose of the Leahy-Smith America Invents Act of 2011? Why is the U.S. Congress working on possible passage of an “Innovation Act?”
> Identify and briefly describe the types of patents used to protect valuable intangible assets.
> Describe the major characteristics of a limited liability company.
> How does a subchapter S corporation differ from a regular corporation?
> Briefly describe the corporate form of business organization. What is meant by limited liability?
> Ricardo Martinez, the founder of the Martinez Products Corporation (see Problem 8), projects sales to double to $400,000 in the second year of operation. A. If the financial ratios calculated for Year 1 remain the same in Year 2, what would be Martinez’s
> Ricardo Martinez has prepared the following financial statement projections as part of his business plan for starting the Martinez Products Corporation. The venture is to manufacture and sell electronic components that make standard overhead projectors
> Refer to the information on the three ventures. A. If each venture had net sales of $10 million, calculate the dollar amount of net profit and total assets for Venture XX, Venture YY, and Venture ZZ. B. Which venture would have the largest dollar amount
> 4. Explain how you would choose between the following situations. Develop your answers from the perspective of the principles of entrepreneurial finance presented earlier in the chapter. You may arrive at your answers with or without making actual calc
> LearnRite.com offers e-commerce service for children’s “edutainment” products and services. The word edutainment is used to describe software that combines “educational” and “entertainment” components. Valuable product information and detailed editorial
> Assume that you have just “run-out-of-money” and are unable to move your “idea” from its development stage to production and the startup stage. However, you remain convinced that with a reasonable amount of additional financial capital you will be a succ
> In early 2013, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larry’s Frozen Yogurt Company, which was based on the idea of applying the microbrew or micro batch strategy to the production and sale of frozen yogurt. They began producing small quanti
> Following is financial information for three ventures: Venture XX Venture YY Venture ZZ After-tax Profit Margins………………….5%............................15%..............................25% Asset Tu
> What are the major elements of a typical business plan?
> How do the concepts of operating cash flow and free cash flow to equity differ?
> Describe return on assets (ROA). What are the two major components of the ROA model?
> Describe the factor categories used by venture capitalists and other venture investors when they screen venture opportunities for the purpose of deciding to invest.
> Describe the characteristics of a viable venture opportunity. What is a VOS Indicator?
> Why do businesses close or cease operating? What are the primary reasons why businesses fail?
> When conducting a qualitative screening of a venture opportunity, whom should you interview? What topics should you cover?
> Describe how a SWOT analysis can be used to conduct a first-pass assessment of whether an idea is likely to become a viable business opportunity.
> Time to market is generally important, but being first to market does not necessarily ensure success. Explain.
> Describe and discuss some of the best financial practices of high growth, high performance firms. Why is it also important to consider production or operations practices?
> Identify some of the best marketing and management practices of high growth, high performance firms.
> Describe the differences between entrepreneurial ventures and other entrepreneurial firms.
> Identify three types of startup firms.
> From the Headlines—Diluting the Angels’ Share: Briefly describe how the idea of a shortened aging process can be the basis of financial profitability for Cleveland Whiskey.
> What are real options? What types of real option opportunities are available to entrepreneurs?
> From the Headlines—Ice Energy: Briefly describe the “ice battery” market and how Ice Energy’s Ice Bear system addresses that market. Give some examples of how Ice Energy can expand its market and tap additional sources of capital.
> Web-surfing exercise: Develop your own list of the five most important societal or economic trends currently shaping our society and providing major business opportunities. Use the Web to generate potential venture ideas related to the trends and to gat
> What is a business plan? Why is it important to prepare a business plan?
> Identify the major sources, as well as the players, associated with each type of financing for each life cycle stage.
> How do asset intensity and asset turnover differ? What is implied by a high asset intensity?
> Let’s assume that Phil Young does indeed develop and successfully market the Pedal Pusher product discussed in Problems 1 and 6. Phil’s venture will purchase materials for making the product from others, assemble the products at the Pedal Pusher venture
> Phil Young, founder of Pedal Pushers, expects to spend the next one-half year developing and testing prototypes for a pedal replacement for children’s bicycles. (See Part A of Problem 1 for a description of the proposed product.) Phil anticipates payin
> What is entrepreneurial finance and what are the responsibilities of the financial manager of an entrepreneurial venture?
> Access the Nolo Press Web site at http://www.nolo.com, and other publishers’ Web sites, and identify software products designed to help the young venture with its legal and accounting problems.
> Access the Small Business Administration Web site at http://www.sba.gov and find information on estimating start-up costs, preparing financial statements, and conducting breakeven analysis.
> A number of Web sites are available to help young ventures to measure their financial performance and to help them when they are growing and “ramping up” revenues. Access the http://money.cnn/magazines/business2/ Web site and identify sources helpful to
> LeAnn Sands wants to conduct operating breakeven analyses of the Salza Technology Corporation for year 2016. Income statement information is shown in Problem 8. For year 2016, the firm’s cost of goods sold is considered to be variable costs and operati
> LeAnn Sands has reason to believe that year 2017 will be a replication of year 2016 except that cost of goods sold are expected to be 65 percent of the estimated $450,000 in revenues. Other income statement relationships are expected to remain the same
> What are the three internal operating schedules that most firms must prepare?
> Define the term “EBIT.” How does EBIT differ from a firm’s net income or net profit?
> Briefly discuss the likely importance of an entrepreneur’s character and reputation on the success of a venture. What role does social responsibility plan in the operation of an entrepreneurial venture?
> What does an income statement measure or track over time?
> What types of liabilities might show up on a venture’s balance sheet?
> What is meant by the terms “depreciation” and “accumulated depreciation”?
> Briefly describe the typical types of accounts that are found in the current assets of a new venture.
> What is accrual accounting? What are generally accepted accounting principles (GAAP)?
> What is meant by breakeven drivers? Identify two important drivers affecting the amount of revenues needed for ventures to break even.
> Describe and illustrate how an EBDAT (survival) breakeven chart is constructed.
> Describe the meaning of EBDAT breakeven and survival revenues.
> Define the term EBDAT.
> What is a venture’s contribution profit margin?
> From an agency relationship standpoint, describe the possible types of problems or conflicts of interest that could inhibit maximizing a venture’s value.
> Define the term EBITDA.
> Describe the differences between variable expenses and fixed expenses.
> What is meant by net cash build and net cash burn?
> Briefly describe what is meant by a statement of cash flows.
> Access the Web sites of http://www.angeldeals.com, http://gatheringofangels.com, and http://www.vcfodder.com. Determine the scope and focus of these sites in terms of matchmaking financing services that are available for entrepreneurs.
> Access the http://www.garage.com Web site. Identify the angel matchmaking services that are provided. Determine the site’s focus in terms of early stage versus later stage financing, as well as the typical range of financing that is provided.
> Access the Inc. magazine Web site at http://www.inc.com. Identify a list of recent articles that relate to how to finance new ventures.
