Chapter 01: Introduction to Finance for Entrepreneurs

Chapter 01: Introduction to Finance for Entrepreneurs

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Indicate whether the statement is true or false.

• It is estimated that more than one million new businesses are started in the United States each year.
• True
• False

• Reasonable estimates place nonemployer (e.g., single person or small family) businesses started each year at less than

100,000.

• True
• False

• The entrepreneurial process involves: developing opportunities, gathering resources, and managing and building

operations, all with the goal of creating value.

• True
• False

• A market-oriented economic system provides an environment that fosters the formation, development, and

transformation of ideas into useful products and services.

• True
• False

• Capitalism is a market-oriented system that prohibits private ownership of physical and financial assets.
• True
• False

• Democratic capitalism exists where a country or state organized as a democracy adopts a capitalistic economic system.
• True
• False

• Entrepreneurs provide the financing to individuals who think, reason, and act to convert ideas into commercial

opportunities and create opportunities.

• True
• False

• Entrepreneurship is the process of changing ideas into commercial opportunities and creating value.
• True
• False

• An entrepreneur is an individual who thinks, reasons, and acts to convert ideas into commercial opportunities and to

create value.

• True
• False

• Mark Twain once said, “I was always able to see an opportunity before it became one.”
• True
• False

(Entrepreneurial Finance, 7e Chris Leach, Ronald Melicher ) (Test Bank, Answer at the end of each Chapter) 1 / 4

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Chapter 01: Introduction to Finance for Entrepreneurs

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• Around two-thirds of new employers survive at least two years, and only about one-half survive for at least five years.
• True
• False

• A study of the U.S. Census Bureau's Characteristics of Business Owners database suggests that about two-thirds of

closed businesses were successful at closure.

• True
• False

• Nearly half of business failures are due to economic factors such as inadequate sales, insufficient profits, and industry

weakness.

• True
• False

• Financial causes, such as excessive debt and insufficient financial capital, are not major contributors to business

failures.

• True
• False

• Although the risks associated with starting a new entrepreneurial venture are large, there is always room for one more

success.

• True
• False

• Fads are large societal, demographic, or technological trends or changes that are slow in forming but, once in place,

continue for many years.

• True
• False

• Fads are not predictable, have short lives, and do not involve macro changes.
• True
• False

• Three of the major megatrends discussed in Chapter 1 include: societal trends or changes, demographic trends or

changes, and technological trends or changes.

• True
• False

• In Chapter 1, five megatrend categories are identified as sources of entrepreneurial opportunities.
• True
• False

• Entrepreneurial opportunities can occur only when there are societal changes in the world.
• True
• False

• In the broadest context, societal change reflects the evolution of humanity over time. 2 / 4

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• True
• False

• In the early 1970s, Harry Dent recognized that the U.S. economy centered on the creation and distribution of

information.

• True
• False

• The gig economy involves individuals working as independent contractors and accepting short-term jobs or

assignments, rather than being full-time employees.

• True
• False

• The sharing economy refers to the cross-referencing of innovations for record-keeping purposes.
• True
• False

• The me-first economy reflects the willingness of individuals to share their assets with others to provide a new way of

distributing goods and services.

• True
• False

• The boomers generation applies to people born in the United States during the 1946–1964 time period.
• True
• False

• The millennials generation consists of people born in the United States after 1996.
• True
• False

• Technological change may be the most important source of entrepreneurial opportunities.
• True
• False

• Perhaps the most important invention in shuttling us from an industrial society to an information society was the

computer chip.

• True
• False

• Environmental commerce, or e-commerce, involves the use of electronic means to conduct business online.
• True
• False

• “Crises and "'bubbles'” and “emerging economies and global change” are considered to be sources of entrepreneurial

opportunities.

• True 3 / 4

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• False

• The “dot.com” or Internet bubble burst in 2008.
• True
• False

• The housing asset bubble burst in 2006.
• True
• False

• Disruptive innovation is an innovation that creates a new market or network that disrupts and displaces an existing

market or network.

• True
• False

• Nine principles of entrepreneurial finance are identified and explored in this textbook.
• True
• False

• The time value of money is an important component of the rent one pays for using someone else's financial capital.
• True
• False

• One principle of entrepreneurial finance is “risk and expected reward go hand in hand."
• True
• False

• While cash is the language of business, accounting is the currency.
• True
• False

• Private financial markets are a place where standardized contracts or securities are traded on organized securities

exchanges with restrictions on how they can be transferred.

• True
• False

• A venture's financial objective is to survive.
• True
• False

• Free cash flow is the net income forecasted to be available to the venture's owners over time.
• True
• False

• Free cash flows are adjusted for risk and the time value of money when used to calculate the value of a venture.
• True
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