Question

1. A large amount of _________ expenses will lead to a low amount of risk since they will _____ with revenues

a. variable; change

b. variable; not change

c. fixed; change

d. fixed; not change

2. Forecasting cash inflows is

a. important since there may be a time gap when a cash inflow from revenue occurs and when expenses must be paid.

b. important since there may be a time gap in when revenue is earned and when cash inflow from revenue occurs

c. not important since revenue forecasting is sufficient for financial forecasts

d. not important since short term cash can always be raised if there is a cash shortfall between cash inflows and cash outflows.

3. which of the following is not true about traditional finance and entrepreneurial finance?

a. they both still use the same techniques to calculate risk measures and returns

b. they both still focus on the areas of investments, financial markets, and financial management

c. they both still use the same techniques to record financial transactions

d. they both still use the same accounting statements

e. all of the above are true about traditional and entrepreneurial finance

Answer 1

1)

Larger proportion of variable costs in relation to fixed costs ensures that the costs change only with revenues and that there is no large fixed cost to cover. Hence there is lower risk in such operational cost structure.

Answer is a. variable; change

2)

Revenue is recognized on the basis of accounting standards and may not actually capture the cash flow situation which is more important from the investors and other key stakeholder point of view. Hence there is time gap when revenue is actually recognized and cash flow from revenue occurs.

Answer is b. important since there may be a time gap in when revenue is earned and when cash inflow from revenue occurs

3)

While traditional and entrepreneurial finance has many commonalities , the one feature that makes entrepreneurial finance different is the assessment of risk and return parameters. This is because start up finance is a high risk proposition and the returns are concomitant with these risk measures and thus the investor ends up commanding a much higher risk than any traditional finance instrument.

Answer is a. they both still use the same techniques to calculate risk measures and returns