NPTEL Online Certification Courses

Indian Institute of Technology Kharagpur

Entrepreneurship Essentials
Assignment- Week 12
TYPE OF QUESTION: MCQ/MSQ
Number of questions: 15 Total mark: 15 X 1 = 15
Instruction: If all the options are correct, choose “All the options are correct” and not any
one individual option.
_____________________________________________________________________________
QUESTION 1:
Which of the following is not correct.
a. Early recruits can fill key knowledge gaps. The human resource experts can help identify
and recruit such persons, and thus, having a dedicated HR department will do wonders
for getting your startup off the ground.
b. HR people can identify great talents, attract them, integrate them with the company, and
can design a combination of a financial and intellectual package that will help in retaining
them.
c. HR personnel have all-round business views and can prepare a wonderful business plan
for presentation before investors and other stakeholders.
d. Startups frequently get embroiled in legal issues that use up a good part of their precious
time. An HR team can help them prevent committing any breach of laws of the land.
Correct Answer: c
Detailed solution
HR personnel is not related to preparing a business plan. Some of them may be able to do a good
job, but that is not true across the board.
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 2:
Which of the following are elements of founders’ mentality?
A. Insurgent mission
B. Frontline obsession
C. Stakeholders’ interest
D. Vision driven
E. Owners’ mindset
Options
a. A, B, & C.
b. B, C, & D.
c. C, D, & E.
d. A, B, & E.
Correct Answer: d
Detailed solution
Insurgent mission, Frontline obsession and Owners’ mindset and the three components of the
founders’ mentality

QUESTION 3:
Which of the following is not part of the four-step recruitment process?
a. Define and identify workforce
b. Conduct supply analysis
c. Conduct and gap analysis
d. Fix the financial package
Correct Answer: d
Detailed solution
Pay-fixation or making a financial package is not part of the recruitment.
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 4:
Which of the following is not an important part of the growth strategy?
Options
a. Upgrade your sales funnel
b. Do not chase vanity metrics
c. Hiving off nonprofitable units.
d. Estimate possible virality effect
Correct Answer: c
Detailed solution
Hiving off will not directly lead to growth. It may unlock capital though. But it is not a
traditional growth strategy.

QUESTION 5:
Metrics to measure growth should be of four major types. Which of the following is not one of
the types?
a. Qualitative.
b. Quantitative.
c. Exploratory.
d. Competitive.
Correct Answer: c
Detailed solution
There is no data type called ‘exploratory’ to measure growth.
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 6:
Which one of the following statements is not correct regarding the startup valuation?

a) The early-stage startup valuation is done based on the discounted cash flow model.
b) The future cash flows for startups lack visibility.
c) Startups mostly are not in profit during the early years.
d) A golden rule or credible method to value startups is missing at present.
e) Financial metrics are not the only value drivers for startups.

Correct Answer: a

Detailed Solution:

Cash flows of the early stage startups are not much visible; therefore, discounted cash flow is
not the method to value them. They are usually valued using future EBITDA multiples.

QUESTION 7:
Which of the following is NOT true about equity capital?

a) The paid-up capital is the portion of the authorized capital that shareholders have
subscribed to by paying for their share of the equity shares in full.
b) When a company requires to raise equity capital beyond the existing authorized capital, it
has to take the permission of the Registrar of Companies after such raising.
c) Owners’ equity is the sum total of ‘Paid-up Equity Capital’ and ‘Reserves & Surplus’.
d) Equity capital consists of the number of equity shares with equal face values of a certain
denomination.

Correct Answer: b

Detailed Solution:

A company has to take permission from the Registrar of Companies before raising capital
beyond what has already been approved.
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

QUESTION 8:
A company has an authorized capital of Rupees 10,000. A, B, and C are the three cofounder
shareholders. A holds 20 shares of Rupees 100 each, B holds 10 shares of Rupees 100 each, and
C holds 20 shares of Rupees 100 each. There is no other shareholder in the company. What are
their percentage holdings in the company?

a) 20%, 10% & 20% respectively

Correct Answer: d

Detailed Solution:

Total paid-up capital consists of 20, 10, and 20 shares of Rupees 100 each, totaling Rupees 500.
A holds 200/500*100 = 40%, C holds 100/500*100 = 20% and C holds 40%.

QUESTION 9:
The company, ‘Your Company’, has an authorized capital of Rupees 1000. A, B, and C are the
three cofounder shareholders. A holds 20 shares of Rupees 10 each, B holds 10 shares of Rupees
10 each, and C holds 20 shares of Rupees 10 each. There is no other shareholder in the company.
‘Your Company’, has negotiated an investment round with an angel. The angel has valued Your
Company at Rupees 10,000 before investment. They agreed to invest Rupees 10,000 for 50% of
the company (equity). How ‘Your Company’ will issue shares to the angel to avail of this
investment?

Choose the most appropriate option.

a. All cofounders give away 50% of their shares to the angel. Therefore, the cofounder
together holds 50%, and the angel holds 50% after the allotment of shares.

b. Your company creates 50 new shares of Rupees 10 and allot to the angel.

c. Your company creates 500 new shares of Rupees 10 and allot to the angel.

d. Your company creates 100 new shares of Rupees 100 and allot to the angel.

Correct Answer: b
 NPTEL Online Certification Courses
Indian Institute of Technology Kharagpur

Detailed Solution:

Post investment, the angel should hold 50% of equity capital, and the three cofounders together should
hold 50%. Therefore, total number of shares after allotment to angel = (20+10+20)*2 = 50*2 = 100.
Therefore, the angel is to receive 50 shares of Rupees 10 each. Alternately, the three cofounders could
give away 25 shares to the angel to have 50:50 holding. But that is never done since the money brought
in by the angel should remain with the company and not with the cofounders.

QUESTION 10:
An angel agrees to invest Rupees 40 million in a startup at a pre-money valuation of Rupees 120
million. All the cofounders together hold 750 shares of Rupees 10 each. This is the first-time investment
for the company and there is no other existing shareholder at present. How many shares are to be
allotted to the angel for this round of investment?

a. 250

b. 360

c. 200

d. 350

Correct Answer: a

Detailed Solution:

Post-money valuation of the company is = 120+40 = Rupees 160 million. The angel should receive
(40/160)*100 % share = 25%. Therefore, the angel should receive 25% of the post-money equity. The
cofounder will hold (100 – 25) % of the post-money equity. Therefore, the angel will receive [750/(100-
75) – 500] = 750/.75 – 750 = 1000 – 750 = 250 shares.