Straight from the quizzes ENTSP ACCT

Playing roulette at a casino

Knightian risk

founding a high tech company with a new product for which no market exists yet

knightian uncertainty

selling life insurance

both

purchasing a new honda to drive

neither

Gilbert and Eyring would call a deal-killer risk one that _________?

would undermine the launching of a new venture if left unaddressed

Imagine you are concerned with access privileges, and the risks of an unwanted intruder gaining access. Your team members tend to leave their passwords around on sticky-notes. What kind of risk are you facing? 

High ROI risks

what was the first reason song, song, & party found ventures succeeded

the ventures first product was “based on radical innovations, serves emerging market needs, and is introduced into markets with an established industry tech standard

what is the main reason new ventures fail

founders and investors carry out their business plans w/o taking the time to realize that key assumptions in those plans are wrong

what are the stages of the new venture in order (6)

1. the founders have an idea but no product revenue 2. considerable expenses, but no rev 3. alpha and beta testing 4. first order and shipments 5. key financial milestones met 6. exit or acquisition possible

what are the building blocks of the BMC?

Key partners, key activities, value prop, customer relationship, customer segment, key resource, dist channel, cost structure, revenue stream

Questions for Key Partners

who are the key partners/suppliers? What are the motivations for the partnership?

Questions for Key activites

What key activities does your value proposition require?

Questions for Value Proposition

What core value do you deliver to the customer? Which customer needs are you satisfying?

Customer Relationship

What relationship that the target customer expects you to establish

Questions customer Segment

which classes are you creating values for? Who is your most important customer?

Questions for key resource

what key resources does your value proposition require

Questions Distribution channel

which channel work best? How much do they cost?

Questions cost structure

Which key resources/activities are most expensive?

Questions for revenue stream

What and how do they recently pay? For what value are your customers willing to pay?

What are the three benefits of market segmentation

1. market segmentation allows for the identification of the least and most probable segments, 2. customer segmentation may allow identification of a segment of the market that may currently be overlooked by competitors, 3. it is easier to determine whether there is a need to customize an offering from each type of customer, for customers in different segments

which of following terms refers to “the vision of the company?”

the business concept

which of the following is part of the executive summary?

the nature of the business, the market segment or customer targeted, marketing plan

which of the following terms refers to: the objective of a member of the founding team in leaving the venture at some future date

exit intention

What are the characteristics of a corporation?

It is governed by a board of directors, it allows for transferable shares, it provides limited liability to shareholders, it has a legal personality, it is co-owned by multiple contributions of equity capital

which of the following best describes double taxation of C-corps

c-corporation net income is taxed at the entity level and the owners are taxed for dividend distributions at the shareholder level

Tax flow-thru entity

Partnership, S-corp, sole proprietorship, limited liability corporation

for new ventures that form C-Corps, why is double taxation on dividends less of a concern?

losses are common for new ventures which make dividends much less common, and when the organization is thriving, income is often retained and reinvested for growth

which of the following are not reasons to incorporate in Delaware?

Delaware is second only to Texas for low corp and individual tax rates and Delaware is friendly to shell corporations

which of the following is a non-income tax factor to consider in selecting a form of business organization

continuity of the business

In partnerships, how is a limited partner’s interest classified?

freely transferable in the absence of restrictions listed in the agreement and if there are no registration exemption restrictions by the SEC

What are three common pitfalls of small orgs that may subject them to “the veil doctrine” and reduce their limited liability

1. there was undercapitalization when the corporation was started, or perhaps the corp was nothing but a shell corporation 2. the corp failed to maintain the proper books and records required by state law 3. management abused the corporate form for its benefits just to obtain the protection of limited liability

what is the instrumentality theory

the individual has an “alter ego” which is the organization. To the extent that we consider their actions the same, we cna hold the individual liable.

What is a not-for-profit form of a business organization?

a university that uses fund accounting

what are examples of some for-profit forms of a business organization

limited partnership, s-corp, sole prop

which of the following describes the schools of thought on the treatment of excess capital contributions?

some fair determination should be made of the contribution, and stock should be granted accordingly and additional contributions above what other founders have provided should be treated as convertible debt.

Which of the following is not a risk facing those who give a “reputation contribution?”

damage to external counsel that doesn’t contribute any form of capital to the organization

A founder is granted 500,000 shares of restricted stock when the corporation is formed and the value of those shares on the grant date is equal $.0002 (par value). What is the value for the shares as of the grant date? (whole number, no dollar sign).

100

A founder is granted 500,000 shares of restricted stock when the corporation is formed and the value of those shares on the grant date is equal $.0002 (par value). What is the taxable amount of income in the year of the grant (assume all shares vest immediately)

100

On Jan 1 of Year 1, a founders’ stock (restricted stock) is awarded totaling 800,000 shares. 200,000 shares vest immediately. The balance of the shares vests uniformly each month over 4 years. The nominal par value is $.001.

What amount is recognized as income immediately? (whole number, no dollar sign). 

200

On Jan 1 of Year 1, a founders’ stock (restricted stock) is awarded totaling 800,000 shares. 200,000 shares vest immediately. The balance of the shares vests uniformly each month over 4 years. The nominal par value is $.001.

What amount is vested after 1 month?

12,500

Continuing from the previous problem, assume that during the first six months, six months of shares vest at the par value of $.001. By the sixth month, the value of the shares is now $.02 for the remainder of the year. What is the total amount of income recognized by the founder for taxes purposes at year end?

1775

Assume the same facts from Questions 7. However, assume that the founder made the Section 83(b) election within the first 30 days of the restricted stock award.

How does the tax treatment differ?

the founder is taxed on the shares that vest immediately, then gains are only taxed as shares are sold (at capital gains)

what is the most common form of equity award used in partnerships

partnership interest, which includes cap interest and profit interests

how does the tax treatment differ for nonqualifed stock option plan and incentive stock option plan

for non-qualified S/O plans, the company MAY deduct the expense for tax expense for tax purposes when grantee exercises the option, but the company may not deduct these expenses for incentive stock options.