26. T F A small business may be significantly more affected by an environmental change than a larger business would be.

 

27. T F An analysis of the external environment identifies opportunities and threats faced by a business.

 

28. T F External analysis assesses the strengths and weaknesses of a company.

 

29. T F A competitive advantage must be sustainable over time in order to be a benefit to the business.

 

30. T F A company's competitive advantage could be defined as being the two things that the company does best that set it apart from the competition.

 

31. T F A competitive advantage is the advantage that a business has over its competitors.

 

32. T F A competitive advantage need not be sustainable in order to remain an advantage.

 

33. T F A competitive advantage is relative, not absolute.

 

34. T F Competitive advantage must be defined from the customer's perspective.

 

35. T F If a small business cannot sustain a competitive advantage, the best recommendation is to view the business as a short-term investment rather than a long-term enterprise.

 

36. T F Having a competitive advantage is critical. Businesses must do something better than the competition.

 

37. T F Competitive advantage as a core of small business strategy is critical, but the inertia of the marketplace may also be relied on for survival.

 

38. T F When looking for a competitive advantage, one of the best tools for survival is looking at the mistakes of other businesses.

 

39. T F A competitive advantage will cause customers to be more satisfied with one business, resulting in increased market share for that business.

 

40. T F The three generic competitive strategies by which a business can gain competitive advantage are lowering costs, differentiation, and focus strategies.

 

41. T F Focus strategies target a broad segment of the market.

 

42. T F Small businesses concentrate on niches or narrow market segments.

 

43. T F Differentiation means that a product or service is different than the product or service of the competition.

44. T F A single method to continuously differentiate a product will sustain a competitive advantage.

 

45. T F The most difficult part of strategic planning is drafting a list of alternatives.

 

46. T F Planning for the future is an exact science.

 

47. T F Business plans and strategic plans support each other but accomplish different purposes.

48. The obligations of a business to maximize the positive effects it has on society and minimize the negative effects is referred to as

a) Ethics

b) Social responsibility

c) Strategic planning

d) Sustainability

 

49. Which concept refers to the fact that a business has the obligation to impact society on four levels—economic, legal, ethical, and philanthropic?

a) Business responsibility

b) Moral obligation

c) Social responsibility

d) Ethical responsibility

 

50. The obligation of business to maximize the positive impact it has on society while minimizing the negative impact is called

a) Moral obligation

b) Business responsibility

c) Business ethics

d) Social responsibility

51. A summary book for recording all transactions and account balances is referred to as a/an

a) General ledger

b) Balance sheet

c) Journal

d) Income statement

 

52. A method of accounting in which income or expenses are recorded at the time they are incurred, rather than when they are paid, is called

a) Accrual basis

b) Cash basis

c) Time basis

d) Expense basis

 

 

53. A small business owner should not use the cash basis if

a) The business extends credit

b) The business has high debt

c) The business has low sales

d) The business has increasing expenses

 

 

 

54. The accounting standards that have been established so all businesses produce comparable financial statements are known as which of the following?

a) GAAP

b) FASB

c) GANTT

d) GAT

 

 

55. An account number of 13 would represent which of the following accounts?

a) Accounts payable

b) Accrued taxes

c) Insurance expense

d) Accounts receivable

 

 

56. All but which of the following are the three most important financial statements for providing information about a business?

a) Income statement

b) Balance sheet

c) Statement of retained earnings

d) Statement of cash flows

 

 

57. The financial record that summarizes the income and expenses of the business over time is the

a) Income statement

b) Balance sheet

c) Statement of retained earnings

d) Statement of cash flows

 

 

58. All but which of the following sections would be found on an income statement?

a) Net sales

b) Gross margin

c) Investment activities

d) Expenses

 

 

59. A financial statement that includes a percentage breakdown of each item is known as which of the following?

a) Income statement

b) Common-size financial statement

c) Statement of retained earnings

d) Statement of cash flows

 

 

60. A financial statement that shows a firm's assets, liabilities, and owner's equity is called a/an

a) Income statement

b) Common-size financial statement

c) Balance sheet

d) Statement of cash flows

 

 

61. A financial statement that shows the cash inflows and outflows of a business is called a(n)

a) Income statement

b) Common-size financial statement

c) Balance sheet

d) Statement of cash flows

 

 

62. Financial statements that project what a firm's financial condition will be in the future are known as

a) Pro forma financial statements

b) Common-size financial statements

c) Balance sheets

d) Statements of cash flows

 

63. _____________ are either full or partial estimates, since projections are being made as opposed to recording actual transactions.

a) Income statements

b) Common-size financial statements

c) Pro forma financial statements

d) Statements of cash flows

 

64. When more cash is going out of a business than is coming in, this is referred to as

a) cash turnover ratio

b) Profit

c) Negative cash flow

d) Being “in-the-black”

 

65. Elvira is considering purchasing a new truck for her distribution company. To better evaluate such a financial risk, she makes projections about what her company’s financial condition will be like in the future if a new truck is purchased. This is referred to as a/an

a) Business cycle balance sheet

b) Common-size financial statement

c) Statement of current cash flow

d) Pro forma financial statement

 

66. Which of the following financial actions should be made on a weekly basis by a small business manager?

a) Check your cash balance on hand

b) Note especially slow-paying accounts

c) Record any money paid out

d) Review federal tax requirements

 

67. Which of the following financial actions should be made on a monthly basis by a small business manager?

a) Check your cash balance on hand

b) Note especially slow-paying accounts

c) Calculate payroll

d) Review your income statement

 

68. Which of the following is not a major category of financial ratios?

a) Equity

b) Leverage

c) Activity

d) Profitability

 

69. Benchmark analysis compares firms to

a) Industry averages

b) Lagging competitors

c) Industry leaders

d) Their own past performance

 

70. Calculations that compare the important financial aspects of a business are called

a) Financial ratios

b) Overview ratios

c) Accounting ratios

d) Analytical ratios

 

71. In the Reality Check titled “Do You Have a Business or a Hobby?” the primary check to determine which you have is

a) How many employees you have

b) Number of states you operate in

c) Total revenue generated

d) If you make a profit in three of the past five years

 

72. ___________ analysis involves comparing firms’ financial ratios to the industry averages.

a) Industry average

b) Benchmarking

c) Competitive average

d) Trend

 

73. Each year, managers at Super Socks compare their current financial ratios with the numbers from the previous two years. This is referred to as what kind of analysis?

a) Industry average analysis

b) Benchmarking analysis

c) Time-continuum analysis

d) Trend analysis

 

74. The ratios used to measure a firm's ability to meet its short-term obligations to creditors as they come due are called

a) Liquidity ratios

b) Activity ratios

c) Leverage ratios

d) Profitability ratios

 

75. Which of the following ratios measures the number of times the firm can cover its current liabilities with its current assets?

a) Current ratio

b) Quick ratio

c) Debt ratio

d) Return on assets

 

 

76. Harry's Home Services has current liabilities of $450,000, current assets of $500,000, and profits of $80,000. Which of the following is the current ratio for Harry's business?

a) 0.17

b) 0.9

c) 1.11

d) 16

 

77. Current ratios of 1.0 or less are considered

a) To show excessive liquidity

b) Low and indicative of potential financial problems

c) Average

d) Very positive

 

78. If Tim's Tools & Tunes has current assets of $500, inventory of $45, current liabilities of $425, and profit of $250, which of the following is the quick ratio for the business?

a) 1.07

b) 1.28

c) 1.7

d) 2.18

 

79. The ratios that measure the speed with which various accounts are converted into sales or cash and that are used to measure the efficiency of asset usage are known as

a) Liquidity ratios

b) Activity ratios

c) Leverage ratios

d) Profitability ratios

 

80. The ratio that measures how quickly goods are sold and replenished is called

a) Average collection period

b) Inventory turnover

c) Quick ratio

d) Current ratio

 

81. Bill's Bolo Business has a cost of goods sold of $45,000, an inventory of $20,000, and current assets of $50,000. Which of the following is the inventory turnover for the business?

a) 0.9

b) 1.3

c) 2.25

d) 2.5

 

82. The measure of how long it takes a firm to convert a credit sale into a usable form is known as which of the following?

a) Average collection period

b) Inventory turnover

c) Quick ratio

d) Current ratio

 

83. Sally's Shoe Service has accounts receivables of $35,335, average sales per day of $500,000, and a cost of goods sold of $45,000. What is her average collection period?

a) 7.0 days

b) 7.8 days

c) 14.15 days

d) 25.79 days

 

84. High average collection periods usually indicate

a) Sales that are increasing

b) Accounts receivable that are all being collected

c) Many uncollected accounts receivable

d) Overly restrictive credit policies

 

85. Which of the following ratios measures how efficiently the firm is using its assets to generate sales?

a) Current ratio

b) Total asset turnover ratio

c) Fixed asset turnover

d) Debt ratio

 

86. A low fixed asset turnover ratio often indicates that

a) The firm is efficiently using its current assets.

b) The firm is efficiently using its total assets.

c) The firm is keeping expenses low.

d) Marketing efforts are ineffective.

 

87. Larry's Lab has sales of $35,750, net fixed assets of $14,500, current assets of $12,300, and cost of goods sold of $30,000. Which of the following is the fixed asset turnover ratio for the business?

a) 1.18 times

b) 1.19 times

c) 2.47 times

d) 2.91 times

 

88. Which of the following ratios measures how efficiently the firm uses all of its assets to generate sales?

a) Fixed asset turnover

b) Total asset turnover

c) Debt ratio

d) Times interest earned ratio

 

89. Shelli's Ski Super has sales of $670, net fixed assets of $210, total assets of $305, and current assets of $25. Which of the following is the total asset turnover ratio for the business?

a) 0.46 times

b) 2.2 times

c) 3.19 times

d) 26.8 times

 

90. Which of the following ratios measures the extent to which a firm uses debt as a source of financing and its ability to service that debt?

a) Liquidity ratios

b) Activity ratios

c) Leverage ratios

d) Profitability ratios

 

91. Which of the following ratios measures the proportion of a firm's total assets that have been acquired with borrowed funds?

a) Fixed asset turnover

b) Total asset turnover

c) Debt ratio

d) Times interest earned ratio

 

92. Kim's Kar Kare Service has total debt of $690, total assets of $1,260, interest expense of $140, and sales of $400. Which of the following is the debt ratio for the business?

a) 11.1 percent

b) 31.7 percent

c) 54.8 percent

d) 58 percent

 

93. Which of the following ratios shows how far operating income can decline before the firm will have difficulties servicing its debt obligation?

a) Fixed asset turnover

b) Total asset turnover

c) Debt ratio

d) Times interest earned ratio

 

94. Sandi's Silver Service has operating income of $545, sales of $750, expenses of $245, and interest expense of $198. Which of the following is the times interest earned ratio for the business?

a) 2.22

b) 2.75

c) 4.49

d) 72.6

 

95. Which of the following ratios is widely used as an indication of management efficiency and measures the percentage of each sales dollar that remains as profit after all expenses have been paid.

a) Times interest earned

b) Net profit margin

c) Return on assets

d) Return on equity

 

96. Becky's Bovine Specials has a net income of $345, operating income of $305, sales of $678, and total assets of $245. Which of the following is the net profit margin for her business?

a) 0.361

b) 0.450

c) 0.508

d) 0.884

97. Which of the following ratios shows effective management and the firm's effectiveness in generating profits from the available assets?

a) Times interest earned

b) Net profit margin

c) Return on assets

d) Return on equity

 

98. Danny's Dog Delivery has total assets of $975, sales of $989, net profit after taxes of $56, and operating income of $576. Which of the following is the return on assets ratio for this business?

a) 0.057

b) 0.591

c) 0.986

d) 1.01

 

99. Which of the following ratios measures the return the firm earned on its owner's investment in the firm?

a) Times interest earned

b) Net profit margin

c) Return on assets

d) Return on equity

 

100. Ally's Allied Apples has net profit after taxes of $30, total assets of $989, sales of $979, owner's equity of $990, and interest expense of $56. Which of the following is the return on equity for this business?

a) 0.030

b) 0.057

c) 0.989

d) 1.87

 

101. In a limited partnership, at least one partner

a) Has unlimited liability

b) Has limited liability

c) Has raised 50 percent more capital than the other partners

d) Has given up any tax advantages

 

102. The “right of first refusal” refers to which of the following?

a) Partners may refuse to let one of the partners leave the business.

b) Partners may allow one partner to have only limited liability.

c) Partners may have first chance at buying the selling partner's shares in the business.

d) Partners may refuse to pay out the profits of the business and instead reinvest the money back into the business.

 

103. A business structure in which one or more of the owners may be granted limited liability as long as one partner is designated a general partner is called a

a) General partnership

b) Fragmented partnership

c) Limited partnership

d) Segmented partnership

 

104. If the partners in a partnership have not written a legal agreement, which act helps to settle any problems that may arise?

a) SBA

b) SEC

c) UPA

d) FTC

 

105. A contract between partners of a business that defines obligations and responsibilities of the business owners is called the

a) UPA

b) Incorporation of the Partnership

c) Article of Partnership

d) Partnership Contract

 

106. Corporations that sell shares of stock to the public and are listed on the stock exchange are referred to as

a) Divested corporations

b) Entrepreneurial corporations

c) Closely held corporations

d) Public corporations

 

107. A partnership that is created to complete a specified purpose and is limited in duration is called a

a) General partnership

b) Limited partnership

c) Corporation

d) Joint venture

 

108. Which form of business ownership is the most complicated to form?

a) Sole proprietorships

b) Partnerships

c) Corporations

d) Subsidiaries

 

109. As far as the courts are concerned, a corporation has all but which of the following rights?

a) The right to sue

b) The right to own property

c) The right to engage in transactions

d) The right of first refusal

 

110. Sylvia is looking to start her own sporting goods manufacturing company, but the venture will require a great deal of start-up investment. Which of these should she choose to ensure adequate financing?

a) Partnership

b) Sole proprietorship

c) Corporation

d) Small independent business

 

111. Which of the following forms of business ownership has the following advantages: limited liability, increased access to resources, and easy transfer of ownership?

a) Sole proprietorship

b) Partnership

c) Corporation

d) Joint venture

 

112. Which of the following forms of business ownership has the following disadvantages: expensive to start, complex to maintain, and double taxation?

a) Sole proprietorship

b) Partnership

c) Corporation

d) Closely held corporation

 

113. The legal and administrative costs are one of the major disadvantages of which form of business ownership?

a) Sole proprietorships

b) Partnerships

c) Corporations

d) General partnerships

 

114. What types of business entities are subject to double taxation?

a) Sole proprietorships

b) Partnerships

c) Public corporations

d) Private corporations

 

115. A type of corporation that taxes the owners as partners yet provides more flexibility is called a/an

a) Nonprofit corporation

b) S corporation

c) Limited partnership

d) Limited liability company

 

116. A special type of corporation in which the owners are taxed as partners is called a/an

a) Nonprofit corporation

b) S corporation

c) Limited partnership

d) Limited liability company

 

117. What types of corporations largely depend on grants from private foundations and public donations to meet expenses?

a) Nonprofit corporations

b) Limited-liability companies

c) S corporations

d) C corporations

 

 

.

118. In Scenario 2-1 above, what would be the major advantage of establishing her business as a sole proprietorship?

a) Independence

b) Unlimited resources

c) Pooled talents

d) Double taxation

 

119. In Scenario 2-1 above, what would be the major advantage of establishing her business as a general partnership?

a) Independence

b) Limited liability

c) Pooled talents and resources

d) Double taxation

 

120. In Scenario 2-1 above, which form of business ownership should she choose?

a) Sole proprietorship

b) Partnership

c) Corporation

d) Sole partnership

 

121. In Scenario 2-1 above, what will be the biggest advantage of establishing her business as a corporation?

a) Unlimited liability

b) Independence

c) Ease of setup

d) Limited liability

122. In Scenario 2-2 above, Jenny could be categorized as what type of a business individual?

a) Entrepreneur

b) Business manager

c) Small business owner

d) Small business entrepreneur

 

123. In Scenario 2-2 above, which phase is Harry at in the startup process model?

a) Implementation

b) Triggering event

c) Innovation

d) Growth

 

124. In Scenario 2-2 above, at which stage in the startup process model will Jenny begin her part in this new venture?

a) Implementation

b) Innovation

c) Growth

d) Triggering event

 

125. In Scenario 2-2 above, all but which of the following are characteristics Harry possesses as a small business person?

a) Risk taker

b) Passion

c) Perseverance

d) Risk averse

 

126. In Scenario 2-2 above, what will be the most challenging aspect of beginning this new business?

a) Long hours spent on the business

b) The commitment that the business requires

c) Income uncertainty

d) Choosing the right form of business ownership

 

127. Compare and contrast a small business manager and an entrepreneur.

 

128. Describe the behaviors that are possessed by entrepreneurs.

 

129. Use the startup process model to compare and contrast an entrepreneur and a small business manager.

 

130. List and discuss the primary reasons that people go into business for themselves.

 

131. Describe two advantages and two disadvantages of self-employment.

 

132. Describe three characteristics of a successful entrepreneur.

 

133. Compare and contrast a sole proprietorship, a partnership, and a corporation.

 

75. ________ is the ability to last and produce results into the future.

a) Sustainability

b) Innovation

c) Social impact

d) Entrepreneurship

76. The rules of moral values that guide decision making, or one’s understanding of right or wrong, are referred to as

a) Cultural values

b) Business ethics

c) Mission and vision

d) Social norms

78. A tool with which the owner of a business communicates ethical expectations to everyone associated with the business is called a

a) Code of conduct

b) Tool of ethics

c) Code of ethics

d) Tool of conduct

79. Which of the following does not apply to an ethical code that is written for a small business?

a) It should be written concisely and clearly.

b) It should apply equally to all employees.

c) It should be a reflection of the small business owner's ideals and beliefs.

d) It should not be included in an employee handbook.

80. As seen in Figure 3.2, entrepreneurs typically have higher standards concerning unacceptable behavior than

a) Politicians

b) Lawyers

c) Clergy

d) Big business managers

81. A long-term planning tool used for viewing a business and the environments in which it operates in the broadest terms is

a) Strategic planning

b) Intermediate planning

c) Short-term planning

d) Strategic alternatives

82. The first function of good management is which of the following?

a) Good planning

b) Good organization

c) Good leadership

d) Good recruiting and hiring

83. Green marketing refers to businesses showing concern for which of the following issues?

a) The environment

b) Willingness to devote a percentage of profits to charitable organizations

c) Landscaping cities through development of parks

d) Offering child care services as part of employee benefit packages

84. A/an ___________ helps an organization determine the most appropriate steps to take to accomplish the goals that are identified in the strategic plan.

a) Mission statement

b) Code of ethics

c) Strategic objective

d) Action plan

85. ___________ is a long-range management tool that helps small businesses be proactive in the way they respond to environmental change.

a) Strategic planning

b) Short-term planning

c) Intermediate planning

d) Strategic alternatives

86. The process of ________________ provides an overview of a business and all the factors that may affect it in the next three to five years.

a) Strategic planning

b) Short-term planning

c) Intermediate planning

d) Strategic alternatives

87. All but which of the following are steps in the strategic planning process?

a) Mission statement

b) Competitive analysis

c) Control systems

d) Identifying all interest expenses

88. The reason an organization exists is called a

a) Profit margin

b) Mission statement

c) Statement of intentions

d) Profit potential

89. The foundation on which all other goals and strategies are based is a

a) Mission statement

b) Statement of intentions

c) Code of ethics

d) List of company goals

90. One of Robert’s roles within the company that he manages is to constantly examine what is happening in all sectors that have an impact on the industry, both within the business and outside of it. This role is referred to as:

a) Social entrepreneurship

b) BCG analysis

c) Environmental analysis

d) Strategic impass

91. The mission statement should have how many words?

a) 100 or fewer

b) 75 or fewer

c) 50 or fewer

d) 25 or fewer

92. The step of strategic planning in which the internal strengths and weaknesses of a business and the opportunities and threats that exist outside the business is called a(n)

a) SWAT analysis

b) SWOT analysis

c) External environmental analysis

d) Internal environmental analysis

93. Environmental analysis is important to small businesses because

a) They are less flexible

b) They are less sensitive to customer preferences

c) They have more competitors

d) They have fewer resources to risk

94. The increased popularity of tattoos among teens and twenty-somethings means opportunity for skin artists who are able to provide this service in a small business. This is an example of what type of opportunity?

a) Economic

b) Legal

c) Competitive

d) Sociocultural

95. An analysis of the _________ environment identifies strengths and weaknesses that exist within the business.

a) Internal

b) External

c) Economic

d) Sociocultural

96. Threats and opportunities to a business can be found in which of the following environments?

a) Economic and legal only

b) Legal and sociocultural only

c) Technological and competitive only

d) Economic, legal, sociocultural, competitive, and technological

97. Which of the following environments would the threat of new trade restrictions fall into?

a) Economic

b) Legal/regulatory

c) Sociocultural

d) Competitive

98. Which of the following environments would a change in the age of the baby boomers fall into?

a) Economic

b) Legal/regulatory

c) Sociocultural

d) Competitive

99. Which of the following environments would a change in the interest rate fall into?

a) Economic

b) Legal/regulatory

c) Sociocultural

d) Competitive

100. Which type of analysis is important in matching the strengths of a business to the external environmental factors that are identified?

a) External analysis

b) Internal analysis

c) SWOT analysis

d) SWAT analysis

26. T F New ideas occur to small business owners three times as often after the business is running than before it began.

 

27. T F Sometimes business opportunities come unexpectedly, and the small business owner must then take advantage of that opportunity presented.

 

28. T F The most critical concern in getting a business off the ground is the feasibility of the idea.

 

29. T F In addition to a business plan, a market analysis, competitive analysis, and startup costs are important to success.

 

30. T F Companies that pursue operational excellence know that their customers value low price.

 

31. T F Thomas Edison is the most prolific inventor of all time, with 1,093 patents.

 

32. T F Focusing on one-time sales with individual customers is the premise behind the customer intimacy model.

 

33. T F Customer service could be the competitive advantage for a business.

 

 

34. T F The name of the business must be filed with the secretary of state in the state where the business is being formed.

 

35. T F When a business begins operations, advance payments of estimated federal and possibly state income taxes must be paid.

 

36. T F If a person provides services to a business but is not an employee of the business, they are considered dependent contractors.

 

37. T F Withholding for Social Security taxes is 9.25 percent, which the employer must match.

 

 

Multiple Choice Questions

38. While still in his 20s, according to the chapter opening case, Derek Johnson founded all of the following technology-related companies except

a) Short Message Service

b) Tatango.com

c) Derek Media

d) Twitter

 

39. Which of the following increases when beginning a new business rather than buying an existing business?

a) Frustration

b) Income

c) Risk

d) Profit potential

 

40. Starting a business because other job opportunities have evaporated during times of economic hardship is referred to as

a) Frugal business advantage

b) Necessary entrepreneurship

c) Fiscal entrepreneurship

d) Economic advantage

 

41. As a result of the recent economic recession, Bart was laid off from his corporate finance job indefinitely. With little planning, he eventually started his own business as a financial management consultant, helping small business owners keep afloat financially during tough economic times. This is a classic example of

a) Frugal business advantage

b) Necessary entrepreneurship

c) Fiscal entrepreneurship

d) Economic advantage

 

42. No matter what type of business a person is starting, the most important resource is

a) Capital

b) Assets

c) Experience

d) Time

 

43. In the beginning of a new business, the only thing the new business person has is

a) Vision

b) Capital

c) Assets

d) A customer base

 

44. According to data from the Small Business Success Index, which of the following is true?

a) The median age for a U.S. small business owner is 49.5 years

b) 44 percent of U.S. small business owners are female

c) 75 percent of U.S. small business owners have a college degree

d) 16 percent of U.S. small business owners started the business

 

45. Wanda has dreams of opening her own pet shop called “Wanda’s Aquarium”. Aside from think of a name and how her store will look, she has done very little planning at this very early stage. All she currently has is

a) A strategy

b) Financial means

c) An objective

d) A vision

 

46. Which of the following is not an advantage of new business startups?

a) Freedom to create

b) Ability to create a distinctive competitive advantage

c) No negative image due to someone else's mistake

d) Well-established clientele

 

47. The risk of failure is greater with

a) Existing businesses

b) Franchises

c) Startups

d) Existing family-owned businesses

 

48. Which of the following is not a disadvantage to new business startups?

a) Problems in identifying area market needs

b) Finding motivated employees

c) Vendor issues

d) Customer relationship problems

 

49. A business that is more dependent on the services of people than on money and equipment is known as

a) A labor-intensive business

b) A capital-intensive business

c) A service-intensive business

d) An asset-intensive business

 

50. A business that depends greatly on equipment and capital for its operations is known as

a) A labor-intensive business

b) A capital-intensive business

c) A service-intensive business

d) An asset-intensive business

 

1. T F Planning is essential if a business is to succeed.

2. T F A business plan can be the difference between running a business proactively and running a business reactively.

 

3. T F A business plan should provide a road map for future operations.

 

4. T F Business plans do not necessarily need to be written on paper; having the plan in mind is sufficient.

 

5. T F The overall appearance of a business plan is not important; content is what counts.

 

6. T F Writing a business plan is pure science, not an art.

 

7. T F The most important section of a business plan is the executive summary.

 

8. T F The executive summary is located at the beginning of the business plan and should be written first.

 

9. T F When writing the company and industry section of the business plan, any setbacks or wrong turns should not be included.

 

10. T F The goal of the marketing research section of the business plan is to convince readers that a market exists for the product/service and that the projected sales forecasts can be achieved.

 

11. T F Marketing objectives and strategies used to accomplish those objectives are included in the products/services section of the business plan.

 

12. T F The marketing plan section of the business plan stresses the manufacturing and operations plan that will be needed to produce the product.

Ans:  False LO:  2 Page:  91 AACSB: Analytic

13. T F A successful management team combines people with complementary business knowledge, technical skills, and life experiences.

 

14. T F A timeline does not need to be attainable; it need only show a general outline of when projects may be completed.

 

15. T F The marketing plan section of the business plan is where alternative plans are established in case the unexpected should occur.

16. T F The most important financial statement for a small business is the cash-flow statement.

 

17. T F If a new small business runs out of cash, thus having inadequate cash flow, it is out of business.

 

18. T F A projected profit-and-loss statement should be 100 percent accurate in the future dollar amounts it states.

 

19. T F Information and documents critical to the business plan would be found in the appendix section of the business plan.

 

20. T F Writing a business plan involves a long series of interrelated steps.

 

21. T F A common mistake made in writing business plans is for the small business owner to propose investing none of their own money in the business.

 

22. T F Potential pitfalls and problems should be addressed in a well-written business plan.

 

23. T F A business plan says nothing about the level of financial and professional knowledge a potential small business owner has acquired.

 

24. T F eDivvy is an online gift sharing program that allows groups from office parties or weddings to select gifts and invite others to contribute to the price.

 

25. T F Identifying a business’s breakeven point is used to provide direction for that business.

75. SBA 8(a) certification provides preference in bidding on federal and state contracts to

a) Women only

b) Minorities only

c) Women and minorities

d) First-generation Americans

77. According to the report “Women in Business, 2006,” women-owned businesses represent what percentage of all nonfarm operations?

a) About 10 percent

b) About 28 percent

c) About 97 percent

d) About 50 percent

 

78. From 1976 to 2004, the share of women owning their own business increased from ____ percent to ____ percent?

a) 50, 90

b) 22, 33

c) 10, 12

d) 33, 75

 

79. John Deere relies on hundreds of vendors to produce component parts for its farm equipment. This illustrates which secret of small business success?

a) Small businesses have competitive advantage over large businesses

b) A symbiotic relationship exists between small and large businesses

c) Small businesses perform more efficiently than larger ones

d) Small business are able to innovate more easily than larger ones

 

80. The chemical producer, Hoechst Celanese, found that diversity in the work force was particularly beneficial in which area?

a) Problem solving

b) Reaching a consensus

c) Exploring one point of view

d) Downsizing

 

81. Small businesses are more able than big businesses to perform efficiently in which of the following areas?

a) Management

b) Higher profit margins

c) Fewer expenses

d) Distribution

 

 

82. Which of the following are the inherent factors that work in favor of small businesses?

a) Ability to remain flexible and innovative

b) Management expertise

c) Emphasis on variety

d) Emphasis on quantity

 

 

83. The ability to offer greater value than one’s competitors is called which of the following?

a) Quality

b) Reduction in the price charged

c) Competitive advantage

d) Qualitative advantage

 

 

84. The stronger and more sustainable the competitive advantage a small business maintains, the better the chances of

a) Guaranteeing a profit

b) Winning and keeping customers

c) Obtaining a loan from a bank

d) Entering the international market

 

85. You have a small business that offers printing services. One of the services you offer is a high-speed color copier. You are currently the only printing service in a tristate area that offers such a service. You currently have

a) Creative destruction

b) A competitive advantage

c) A qualitative advantage

d) A capital advantage

 

86. Large telecommunications companies have an incentive to improve existing lines of products and services to better serve their customers, rather than invent new products. This best demonstrates what aspect of innovation in business?

a) Research and development departments in large companies fuel innovation

b) Compared to larger companies, small businesses are not financially equipped to innovate

c) Real innovation tends to come from independent inventors and small businesses

d) Large companies are too inflexible to handle real innovation

 

87. Who is credited with the quote “Even if you're on the right track, you'll get run over if you just sit there”?

a) Will Rogers

b) Robert Kennedy

c) Joseph Schumpeter

d) Lance Armstrong

 

88. According to the highlight box of inspiring quotes, what did Robert Kennedy say one must dare do in order to achieve greatly?

a) Serve society

b) Seek security

c) Fail miserably

d) Go fast

89. In order to take advantage of economies of scale, large businesses usually

a) Devote resources to produce selected quantities of products

b) Devote resources to produce large quantities of products

c) Devote resources that are committed for only short time periods

d) Devote resources that are able to quickly respond to a changing market

 

90. The incentive for innovation of new ideas and products is generally strongest for

a) Research and development divisions of large companies

b) Small businesses

c) Government-funded research laboratories

d) Colleges and universities

 

 

 

91. Inventing a new way to organize physical inputs to produce a product or service refers to

a) Process innovation

b) Product innovation

c) Service innovation

d) Management innovation

 

92. Linda Waters, a chemical engineer at a large pharmaceutical company, has lead a team to develop a new drug that effectively treats the common flu faster than any other drug on the market. This is an example of what type of innovation?

a) Process innovation

b) Product innovation

c) Service innovation

d) Management innovation

 

93. Creating a new way to organize a business’s resources involves

a) Process innovation

b) Product innovation

c) Service innovation

d) Management innovation

94. The most common types of innovations produced by small business relate to

a) Service and products

b) Manufacturing

c) Management techniques

d) New resources offered by financial institutions

 

95. The process of creative destruction involves which of the following?

a) The destruction of current products

b) The replacement of current products

c) The innovation of new products

d) The replacement of existing products with new and better products

 

96. Big business competes based on mass production and, thus, lower prices. Small business can compete based on

a) Personalized services and products

b) Lower prices than big business can offer

c) Quality

d) Accessibility to large amounts of capital

 

97. Which of the following was not cited as necessary for getting a business off on the right foot?

a) A market large enough to generate profit

b) Sufficient capital

c) A global perspective

d) Accurate information

 

 

 

 

 

 

 

98. Allen Campbell’s small tire business has recently closed due to credit foreclosure. This is an example of

a) Voluntary withdrawal

b) Bankruptcy

c) Business failure

d) Adequate management

 

99. The valuable skills and knowledge that employees of a business possess are collectively called

a) Business assets

b) Tangible inventory

c) Outsourcing

d) Intellectual capital

 

100. The lifeblood of any new small business is which of the following?

a) Cash

b) A large target market

c) A customer base

d) A quality product/service

1. T F Strategic planning is the process of identifying the mission, goals, and objectives of a business.

 

2. T F Social responsibility is the obligation of a business to maximize the positive impact it has on society and to minimize the negative impact.

 

3. T F Social responsibility refers to the rules of moral values that guide decision-making.

 

4. T F The philanthropic goodwill level on the social responsibility pyramid is concerned with a company's obligation to be ethical and to do what is right, just, and fair.

 

5. T F Historically, the primary role of business has been economic.

 

6. T F Philanthropy is the bottom level of the social responsibility pyramid.

7. T F Laws geared toward consumer protection became popular when Ralph Nader started the consumer

protection movement in the early 1960s.

 

8. T F Milton Friedman emphasizes the philanthropic side of social responsibility.

 

9. T F A hostile work environment in which work is unreasonably difficult is defined as a type of sexual harassment by the EEOC.

10. T F Virtue ethics deals with the consequences of one’s own actions.

 

11. T F Over the past several years, the term social entrepreneur has emerged as a way to describe the use of business skills to marshal resources.

 

12. T F Changes in ethical standards and values usually precede changes in laws.

 

13. T F Innovation is the ability to do a lot with a little, gather needed resources, and build an organization.

14. T F A code of ethics is a formal statement of the long-range goals and plans for a company.

 

15. T F When it comes to a code of ethics, companies should take a “three Ps” approach: Print it, post it, pray they read it.

 

16. T F A code of ethics that is supported and enforced by management will become a part of a company's culture.

17. T F The long-term planning tools used for viewing a business and its environment in the broadest of terms are known as the operational plan.

18. T F According to the Reality Check box titled “Green Can Be Gold,” efforts of businesses to act in a socially responsible manner toward the environment are known as environmental marketing.

 

19. T F The mission statement is the foundation on which all other goals and strategies of a business are based.

 

20. T F The last step in the strategic planning process involves the establishment of control systems.

 

21. T F An effective mission statement balances ideas and reality.

 

22. T F The heart of the strategic planning process is the mission statement.

 

23. T F There is little connection between strategic planning and social responsibility.

 

24. T F The ability to adapt to change is a major determinant of business success or failure in a free enterprise system.

 

25. T F The step of strategic planning in which the manager identifies strengths, weaknesses, opportunities, and threats is known as environmental analysis.

51. Sue Pallen is a partner in a cake-decorating company. Her role within the company is to identify new markets for growth and sustaining the company’s long-term financial health by maintaining all financial records. As such, Sue can best be described as a/an

a) Entrepreneur

b) CEO

c) Nonprofit manager

d) Small business manager

 

52. The time span for the innovation phase may be

a) One month or less

b) One year or more

c) Several months or even several years

d) Five years or more

 

53. The phase of implementation in the entrepreneurial process involves all but which of the following?

a) Introducing new products

b) Opening new markets

c) Industrial reorganization

d) Developing an advertising campaign

 

54. Which of the following is the key element needed to bring the entrepreneurial idea to reality during the implementation stage?

a) Capital/money

b) Commitment

c) Management expertise

d) A college education

 

55. When does the entrepreneurship stage end and the small business management stage begin?

a) When the maturity stage ends

b) When the growth stage ends

c) After the entrepreneurial event ends

d) When the triggering event ends

 

56. Which stage of the startup process is characterized by relative certainty that the business will survive?

a) Growth

b) Maturity

c) Harvest

d) Implementation

 

57. The stage in the startup process model in which the small business owner removes himself/herself from the business is which of the following?

a) Growth

b) Maturity

c) Implementation

d) Harvest

58. In the growth stage of the startup process model, what is the primary goal of the small business?

a) Regulations

b) Employees

c) Vendors

d) Reaching critical mass (survival)

59.

60. Forces that occur outside of the business that affect the business and its owner are referred to as

a) Financial factors

b) Controlled factors

c) Environmental factors

d) Internal factors

 

60. In the triggering event and the implementation stages of the startup process model, which of the following environmental factors will affect the small business?

a) Role models

b) Suppliers

c) Bankers

d) Competition

 

61. An entrepreneur faces which of the following environmental forces?

a) Hiring and retaining employees

b) Dealing with vendors and suppliers

c) Fighting government regulations

d) Identifying product opportunities

 

62. In the _________ stage of the business management process, attention is placed on team building, setting strategies, and creating a structure and culture of the business.

a) Harvest

b) Growth

c) Maturity

d) Innovation

 

63. In the triggering event stage of the startup process model (Figure 2.3), which of the following personal characteristics are needed by the small business owner?

a) Leadership

b) Vision

c) Commitment

d) Boredom

 

64. In the innovation and triggering event stages of the startup process model (see Figure 2.3), which of the following personal characteristics are needed by the small business owner?

a) Better opportunity

b) Planning

c) Commitment

d) Risk taking

 

65. In the growth stage of the startup process model (Figure 2.3), which of the following organizational characteristics is needed?

a) Strategy

b) Marketing

c) IPO

d) Operation management

 

66. About half of all business owners choose to go into business for themselves because they

a) Want to earn lots of money

b) Like the challenge

c) Want to avoid hard work

d) Want to fulfill others’ expectations

 

67. The primary reason most people start their own business is to

a) Build for their family

b) Earn large sums of money

c) Use their skills/abilities

d) Live where they like

68. Some of the risks assumed through self-employment include all of the following except

a) Income uncertainty

b) Long work hours

c) Personal liability

d) A change in the owner's personality

 

69. Which of the following is not prerequisite for becoming a successful entrepreneur?

a) Passion

b) Determination

c) Knowledge

d) Education

 

70. In the Reality Check “Small Biz on Campus,” what did Whitney Williams begin selling while still in college?

a) Unique-flavored chewing gum

b) A new water-skiing product

c) Refurbished cell phones

d) Custom jewelry

 

71. iContact is a web-based program developed by University of North Carolina students that promotes

a) Revenue generation

b) Social responsibility

c) Entrepreneurship

d) Frugality

 

72. The personal quality linked to entrepreneurship in which people are motivated to excel and choose situations where success is likely is known as

a) Locus of control

b) Need to achieve

c) Need to succeed

d) High performance goals

 

73. The ability to control one's own fate is known as

a) Locus of control

b) Self-determination

c) Perseverance

d) Need to achieve

 

74. The ability to see, conceive, and create new and unique products, services, and processes is known as

a) Innovation

b) Risk taking

c) Product development

d) Locus of control

 

75. A characteristic of entrepreneurial personality that leads one to avoid goals that would be extremely difficult to achieve or goals with success almost guaranteed is called

a) Internal locus of control

b) A high desire for risk

c) Flexibility

d) A high need to achieve

 

101. The most valuable asset a small business owner has is

a) A quality product

b) Buildings and equipment

c) A good relationship with his/her banker

d) Employees

102. Intellectual capital is the skill and knowledge possessed by

a) The small business owner

b) The small business consultant

c) The small business employees

d) The banker for a small business

 

103. A business failure occurs when a business closes for any of the following reasons except

a) Bankruptcy

b) A reorganization

c) A receivership

d) A merger

 

104. In the Entrepreneurial Snapshot, Samuel Adams Brewery can attribute its incredible growth and success to all but which of the following?

a) Fanatical attention to quality

b) The use of marketing tools never before used in the microbrewery industry

c) The perseverance of the founder, Jim Koch

d) A Madison Avenue advertising campaign

 

105. In the Entrepreneurial Snapshot, Jim Koch, the founder of Boston Beer, spent the majority of his time, even after the microbrewery was successful, doing which of the following?

a) Managing

b) Finding sources of finance

c) Selling the product

d) Improving the product

 

106. In the Entrepreneurial Snapshot, what has allowed Boston Beer to become the first to enter the chasm between microbrewery and major brewery?

a) sexy commercials

b) different sized bottles

c) lowest prices for beer

d) passion for quality

 

107. __________ is the efficient and effective use of resources.

a) Innovation

b) Competitive advantage

c) Entrepreneurship

d) Business management

 

108. The most common cause of business failure is

a) Choosing the wrong type of business ownership

b) Starting a business that is too large

c) Lack of marketing expertise by the small business owner

d) Lack of management experience

 

109. A common cause of business failure is

a) Choosing the wrong type of business ownership

b) Starting a business that is too large

c) Industry weakness

d) Specialized management knowledge

 

 

 

 

110. Internal factors are the cause of what percentage of failure in business?

a) 12 percent

b) 34 percent

c) 67 percent

d) 89 percent

 

111. Sam closed the doors to her home-based consulting company only two years after opening because she was tired of working 80-hour weeks. This is an example of which mistake leading to business failure?

a) Failing to understand the level of commitment required

b) Neglecting to plan

c) Not using employees effectively

d) Mishandling finances

 

112. A business failure occurs when a business

a) Closes because of retirement by the owner

b) Is sold

c) Closes because of lack of demand for the product

d) Closes with financial losses to creditors

 

113. A partnership that is restructured or a business that moves to a new location is considered to be which of the following?

a) Business failure

b) Business termination

c) Business success

d) Business venture

 

114. Which of the following is not cited as an entrepreneurial mistake?

a) Failing to look forward to the future

b) Failing to understand the commitment and hard work required

c) Recognizing that the general public is always right

d) Estimating cash flow and capital requirements inaccurately

 

115. Which percentage of small businesses are actually forced out of business with financial loss to creditors?

a) 10 percent

b) 18 percent

c) 50 percent

d) 75 percent

 

 

 

 

116. According to the U.S. Census Bureau, approximately _______ of closed businesses were successful at the time of their closure.

a) One-quarter

b) One-third

c) Two-thirds

d) Three-quarters

 

117. Refer to Scenario 1-1. What type of business is Larry beginning?

a) Large business

b) Joint venture

c) Small business

d) None of the above

 

118. Refer to Scenario 1-1. What advantage will Larry have over his competition with his new product?

a) Competitive advantage

b) Comparative advantage

c) Qualitative advantage

d) Financial advantage

 

119. Refer to Scenario 1-1. What will be the most difficult problem that Larry will encounter?

a) Obtaining sufficient cash

b) Finding a target market

c) Obtaining accurate information

d) Deciding upon appropriate advertising media

120. Refer to Scenario 1-2. The valuable skills and knowledge that Franky's employees possessed is known as

a) Financial capital

b) Intellectual capital

c) Monetary capital

d) Knowledge capital

 

121. Refer to Scenario 1-2. What is the primary reason Franky has failed?

a) Inadequate management

b) Lack of a quality product

c) No target market

d) Inadequate advertising

 

122. Refer to Scenario 1-2. All but which of the following are areas Franky should have worked upon in order to help ensure the success of his business?

a) Plan for the future

b) Understand that commitment and hard work are required for business success

c) Managing finances

d) Increased his advertising budget

 

123. Refer to Scenario 1-2. With the closing of his business, Franky has experienced

a) Business termination

b) Business failure

c) Business closing

d) Business merger

 

124. Refer to Scenario 1-2. Franky joins what percentage of small businesses that have failed?

a) 10 percent

b) 18 percent

c) 50 percent

d) 75 percent

 

125. Describe in detail the three primary characteristics of a small business.

 

126. Briefly discuss the value of diversity in business.

 

 

127.Explain in detail three advantages that contribute to the success of a small business.

 

 

 

128. Describe the four primary types of innovation.

 

76. Which of the following is a source for business ideas that results in avoiding many errors and establishing competitive advantages early on?

a) Hobbies

b) Personal interests

c) Prior work experience

d) Education

 

77. Opportunities that become available to an entrepreneur only after the entrepreneur has started a business are known as

a) Windows of opportunity

b) An idea whose time has come

c) The corridor principle

d) Secondary opportunities

 

78. After running a small restaurant for two years, Pam and Jim realized that a greater opportunity existed in food distribution. They hired family members to run the restaurant while they focused their energy on starting a food distribution company. This is an example of the

a) Distributive responsibility principle

b) Corridor principle

c) Experience curve

d) Bell curve

 

79. Which of the following provides the greatest percentage of business ideas to prospective business owners?

a) Consultants

b) Conferences

c) Competitors

d) Social-networking sites

 

80. Jeff, an avid angler, decided to retire early to pursue a career of making and selling custom hand-made fishing flies and lures. This is an example of identifying business ideas from

a) Prior work experience

b) Hobbies and avocations

c) Serendipity

d) Ambition

 

81. Ideas occur to small business owners almost _______ as often after the business is running than before the business began.

a) Twice

b) Three times

c) Four times

d) Ten times

 

82. A possibility that a person should consider when deciding upon an idea for a business is to focus on an idea provided through

a) Research

b) Education

c) Hobbies

d) A local banker

 

83. Finding something valuable that was not looked for is known as

a) Accidental discovery

b) Stumbling upon a treasure

c) Serendipity

d) Surreptitiousness

 

84. Which of the following questions addresses the most critical concern in beginning a new business?

a) Can I find skilled employees to hire?

b) Will I make a profit?

c) Who is my target market?

d) Is there a need for this business?

 

85. According to the Creating Competitive Advantage “Creative Release” which of the following is not a way to spark creativity?

a) Visit competitors often

b) Set aside time to deliberately evoke creativity

c) Clearly articulate creativity as a core value of your company

d) Study creativity

 

86. When considering startup costs, there will be many expenses that are not expected. It is wise to add an additional _______ to help cover those unexpected expenses.

a) 2 percent

b) 4 percent

c) 6 percent

d) 10 percent

 

87. Computers, office equipment, and furniture are all examples of ____________________ that have a life of more than one year.

a) Current assets

b) Current liabilities

c) Capital equipment assets

d) Investments

 

88. Before a new businessperson can develop a competitive edge, it must determine its own uniqueness by evaluating

a) The competition

b) Start-up costs

c) Its market

d) Assets

 

89. Creating a competitive advantage by holding down costs to provide customers the lowest priced products is known as

a) Operational impasse

b) Product leadership

c) Customer intimacy

d) Least cost pricing method

 

90. Creating a competitive advantage based on providing the highest quality products possible is known as

a) Operational excellence

b) Product leadership

c) Customer intimacy

d) Total quality management (TQM)

 

91. Business can compete on all of the following grounds except

a) Operational excellence

b) Product leadership

c) Customer intimacy

d) Inventory capacity

 

92. New Balance athletic shoes are known for their high quality and technical excellence rather than for low price or other factors. New Balance uses which method for obtaining competitive advantage?

a) Operational excellence

b) Product leadership

c) Customer intimacy

d) Inventory capacity

 

93. A company that strives to offer good products at the lowest prices possible is operating with which competitive advantage?

a) Operational excellence

b) Product leadership

c) Customer intimacy

d) Best service method

 

94. As seen in the Profile in Entrepreneurship “Über Inventor—Old School” how many patents did Thomas Edison receive?

a) 175

b) 523

c) 801

d) 1,093

 

95. As seen in Figure 7.5, which of the following is not a possible mountain on which you might compete?

a) Operational excellence

b) Product leadership

c) Customer intimacy

d) Word of mouth

 

96. Creating a competitive advantage by maintaining a long-term relationship with customers through superior service is known as

a) Operational excellence

b) Product leadership

c) Customer intimacy

d) Best service method

 

97. The business relationship with customers ___________ with the sale of the product or service.

a) Begins

b) Ends

c) Ends unless there is a problem with the product/service

d) Begins and ends

 

98. Most states collect sales taxes on _____________ sold.

a) Everything

b) Tangible property

c) Intangible property

d) Goodwill property

 

99. Taxes on business income generally are due

a) In four annual installments

b) Twice per year

c) Every 30 days

d) Every 2 years

 

100. A person who provides services to a business but is not employed by that business is called a/an

a) Dependent contractor

b) Independent contractor

c) Outcast

d) Insourcer

 

126. Which of the following is not a generic competitive strategy that can be used to gain competitive advantage?

a) Lower cost

b) Differentiation

c) Focus strategies

d) Increased advertising

 

127. Studies that measure the impact that a mass merchandiser like Wal-Mart has on small retailers have shown that small stores usually

a) Go out of business

b) Stay in business but make minor profits

c) Outperform Wal-Mart

d) Benefit as long as they stock different merchandise

 

128. An advantage does not necessarily have to be in the __________. It may come from anything the business does.

a) Market

b) Product

c) Economy

d) Customer's tastes

 

129. ________ research offers a way to answer questions about the customers’ changing wants and needs.

a) Market

b) Competitive

c) Internal

d) Operations management

 

130. The products and services that people like and dislike at any particular time are shaped by

a) One or two major influences

b) Usually ten influences

c) Hundreds of identifiable influences

d) Hundreds of unidentifiable influences

131. In order to write effective goals, which of the following factors must be considered?

a) Goals should be written in terms of actions.

b) Goals should be measurable.

c) Goals should be difficult to accomplish.

d) Goals should have no definite time period for completion.

 

132. Cindy owns a flower shop, and her primary goal is to increase sales in the current fiscal year. This goal can best be described as

a) Measurable

b) Challenging, yet attainable

c) Communicated with everyone in the company

d) Written with a time frame for achievement

 

133. Which of the following was not cited as a key point in the Hardball Manifesto?

a) Focus relentlessly on competitive advantage.

b) Strive for “extreme” competitive advantage.

c) Exploit people's will to win.

d) There are no boundaries.

 

134. A business-level goal describes

a) Who the small business owner is and what the business is

b) The performance desired from specific departments

c) A plan of action that details how plans will be accomplished

d) What the overall business should accomplish

 

135. A function-level goal describes

a) Who the small business owner is and what the business is

b) The performance desired from specific departments

c) A plan of action that details how plans will be accomplished

d) What the overall business should accomplish

 

136. A strategy describes

a) Who the small business owner is and what the business is

b) The performance desired from specific departments

c) A plan of action that details how plans will be accomplished

d) What the overall business should accomplish

 

137. According to Figure 3.7 in the text about levels of goals, which is the top level of the pyramid?

a) Departmental strategies

b) Departmental goals

c) Business goals

d) Mission statement

 

138. What type of planning addresses operational growth?

a) Strategic planning

b) Business planning

c) Ethical planning

d) Financial planning

 

139. In Scenario 3-1 above, which level of the social responsibility pyramid would Milton Friedman maintain Betty should be most concerned with?

a) Economic responsibility

b) Legal obligations

c) Ethical responsibility

d) Philanthropic goodwill

 

140. In Scenario 3-1 above, which level of the social responsibility pyramid is Betty concerned with when she is preparing food?

a) Economic responsibility

b) Legal obligations

c) Ethical responsibility

d) Philanthropic goodwill

 

141. In Scenario 3-1 above, besides providing her customers with the best service possible, Betty is also interested in the rest of their trip. Which level of the social responsibility pyramid addresses this aspect of her business?

a) Economic responsibility

b) Legal obligations

c) Ethical responsibility

d) Philanthropic goodwill

 

142. In Scenario 3-1 above, the sponsorship of the soccer team would fall under which level of social responsibility?

a) Economic responsibility

b) Legal obligations

c) Ethical responsibility

d) Philanthropic goodwill

 

143. In Scenario 3-1 above, Betty's competitive advantage would be which of the following?

a) The bed and food she provides

b) The sponsorship of the soccer team

c) The extra services she provides her guests

d) The strictness with which she adheres to food preparation

 

144. In Scenario 3-2 above, keeping current with the new technologies and the cash flow problem are examples of which environment?

a) External environment

b) Internal environment

c) Economic environment

d) Technological environment

 

145. In Scenario 3-2 above, Terry's new competition and his potential customer referrals are examples of which environment?

a) External environment

b) Internal environment

c) Economic environment

d) Technological environment

 

146. In Scenario 3-2 above, an increase in interest rates seems very likely in the future. This will severely affect Terry's cash flow problems. This is an example of a threat from which of the following environments?

a) Economic environment

b) Legal/regulatory environment

c) Sociocultural environment

d) Competitive environment

 

147. In Scenario 3-2 above, Terry is seriously considering dropping his hourly fee. He is doing this in response to which environment?

a) Economic environment

b) Legal/regulatory environment

c) Sociocultural environment

d) Competitive environment

 

 

148. In Scenario 3-2 above, considering the business that Terry is pursuing, which of the following environments must he pay close attention to?

a) Economic environment

b) Legal/regulatory environment

c) Competitive environment

d) Technological environment

 

 

149. Discuss the relationship between social responsibility, ethics, and strategic planning.

 

150. Compare and contrast the four levels depicted in the pyramid of social responsibility.

 

151. List and describe the four areas of laws that regulate business activity.

 

152. Discuss the importance of a code of ethics for a business.

 

152.Describe the importance of a mission statement to a business.

 

154. Define competitive advantage and explain two core ideas that are valuable in defining competitive advantage.

 

155. List and describe at least five areas of comparison that may be included in a competitive analysis.

 

156.Explain three of the five basic forces of competition that exist within every industry.

 

 

157. Describe three benefits of gaining a competitive advantage.

 

157.Explain in detail one strategy by which a business could gain a competitive advantage.

 

159. Describe three components of well-written goals.

 

 

 

51. A business plan’s cover page should include all of the following information except

a) Short summary

b) Name of business

c) Address of business

d) The date the plan was issued

 

52. Daniel is preparing a business plan for the carwash that he plans to open. He is writing a one-page abstract of the plan to highlight crucial information and to spark readers’ interest. This abstract is part of which business plan component?

a) Cover page

b) Executive summary

c) Table of contents

d) Industry analysis

 

53. In writing her business plan, Rita wants to include an honest portrayal of the setbacks that she had come up against along the way in forming the business. This would fit under which area of the business plan?

a) Industry analysis

b) Company information

c) Executive summary

d) Cover page

 

54. __________ involves identifying trends and changes that are happening at the national and international levels that may influence the future of a small business.

a) Environmental analysis

b) Financial positioning

c) Internal Positioning

d) Quality control

 

55. The executive summary should include all but which of the following?

a) Company information

b) Market opportunity

c) Financial data

d) A listing of competitors' products in the appendix section

 

56. Descriptions of factors such as the background of the company, your competitive advantage, company objectives, and the legal business form would be found in which of the following sections?

a) Executive summary

b) Company and industry

c) Products and services

d) Marketing research and evaluation

 

57. A good executive summary provides the opportunity to develop an elevator pitch. What is an elevator pitch?

a) The approach you take when selling elevators

b) The short explanation of your business idea condensed to its essence

c) Directions you provide vendors to find your business

d) A list of your products

58. Factors such as uses for the product, patents and trademarks, and how the product is different will be found in which of the following sections?

a) Executive summary

b) Company and industry

c) Products and services

d) Marketing research and evaluation

 

59. Which of the following areas is addressed in the marketing research section of the business plan when the target markets are identified by some common variable?

a) Markets

b) Market trends

c) Competition

d) Market share

 

60. Which of the following areas is addressed in the marketing research section of the business plan when the price leader, the quality leader, and the service leader are identified?

a) Markets

b) Market trends

c) Competition

d) Market share

 

61. All of the following are considered psychographic variables except

a) Similar lifestyle

b) Usage rate of products

c) Degree of loyalty

d) Consumer demographics

 

62. Although Bob’s Outdoor Retailer competes directly with nearby supercenters, managers at Bob’s are confident that individuals within a ten-mile radius of the business will be loyal customers. These managers are establishing a target market based on

a) Demographics

b) Psychographic variables

c) Geographic location

d) Market trends

 

 

63. Stella, a tattoo artist, visits tattoo conventions in a nearby city every few months to attract potential customers who live on the outskirts of her business’s geographic market. This is an example of using

a) Pricing as part of the marketing plan

b) Promotion as part of the marketing plan

c) Place as part of the marketing plan

d) Service policies as part of the marketing plan

 

64. Which of the following areas is addressed in the marketing research section of the business plan when sales in relation to total industry sales are expressed as a percentage?

a) Markets

b) Market trends

c) Competition

d) Market share

 

65. Which of the following is not included in the marketing plan section of the business plan?

a) How sales forecasts will be reached

b) Marketing objectives

c) Identification of potential markets

d) Cash-flow statements

 

66. Which of the following areas is addressed in the marketing plan section of the business plan when gross margin and the ability to make a profit after all expenses are paid are discussed?

a) Pricing

b) Promotion

c) Place

d) Service policies

 

67. Which of the following areas in the marketing plan section of the business plan is described when advertising media, trade shows, and direct mail are discussed?

a) Pricing

b) Promotion

c) Place

d) Service policies

 

68. Which of the following areas in the marketing plan section of the business plan is described when sales representatives and channels of distribution are discussed?

a) Pricing

b) Promotion

c) Place

d) Service policies

 

69. Which of the following areas in the marketing plan section of the business plan is described when warranties, customer problems and complaints, and subcontracts are discussed?

a) Pricing

b) Promotion

c) Place

d) Service policies

70. The section of the business plan where such items as facilities, location, capital equipment, labor force, inventory control, and purchasing are discussed is

a) Product/services section

b) Company and industry

c) Marketing

d) Manufacturing and operations

 

71. The _______________ section of the manufacturing and operations segment of the business plan discusses the proximity to customers or the proximity to transportation.

a) Geographic location

b) Facilities

c) Make or buy policy

d) Control systems

 

72. The _________ section of the manufacturing and operations segment of the business plan discusses the adequacy and quantity of skilled workers that are available to help in the production of the product/service.

a) Labor force

b) Facilities

c) Make or buy policy

d) Control systems

 

73. Which of the following sections of the manufacturing and operations section of the business plan discusses what will be produced in the plant and what components will be purchased to be assembled into the finished product?

a) Labor force

b) Facilities

c) Make-or-buy policy

d) Control systems

 

74. Developing adequate parking for a business establishment involves which area of the manufacturing and operations plan?

a) Facilities

b) Geographic location

c) Labor force

d) Control system

 

75. Ensuring for product quality is part of which portion of a manufacturing and operations plan?

a) Facilities

b) Geographic location

c) Labor force

d) Control system

76. A core management team must be balanced by obtaining all but which types of the following skills?

a) Technical skills

b) Business skills

c) Management experience

d) Marketing experience

 

77. Which of the following is a possible contingency that should be anticipated in the critical risks and assumptions section of the business plan?

a) Competition through underpricing by competitors

b) Unrealistic timelines

c) Inadequate management

d) Lack of sufficient capital

 

78. Contingencies related to ____________ in the critical risks and assumptions segment of the business plan discusses either sales that are too low or sales that are too high.

a) Unreliable sales forecasts

b) Competition

c) Unfavorable industry-wide trends

d) Insufficient numbers of trained employees

 

79. Which of the following is the contingency in the critical risks and assumptions segment of the business plan that discusses events occurring within the economy and society that could negatively affect the product/service being offered?

a) Unreliable sales forecasts

b) Competition

c) Unfavorable industry-wide trends

d) Insufficient numbers of trained employees

 

80. All but which of the following benefits might arise for a community in which a small business is located?

a) Economic development

b) Community development

c) Human development

d) Social development

 

81. Which section of the benefits to community segment is concerned with the multiplier effect—the number of hands in the community affected by new dollars?

a) Economic development

b) Community development

c) Human development

d) Monetary development

 

82. A document that graphically shows how job positions fit within an organization is sometimes included in the appendix of a plan. This document is referred to as a/an

a) Mission statement

b) Network diagram

c) Organization chart

d) Control chart

 

83. As a new small business owner, Sandra enjoys the fact that her business provides needed goods and services to her community. This involves which type of community benefit?

a) Economic development

b) Community development

c) Human development

d) Sociocultural development

 

 

84. While finalizing the business plan for the pizza shop that he hopes to soon open, Alfred sits down with his teenage children to discuss the possibilities of them taking over ownership many years down the road. This demonstrates which business plan component?

a) Developing a financial plan

b) Developing an exit strategy

c) Identifying benefits to the community

d) Building a management team

 

85. The financial document that is used by startup businesses to show where capital comes from and for what it will be used is called a

a) Cash-flow statement

b) Projected earnings statement

c) Sources and uses of funds

d) Income statement

 

86. The financial document that shows the amount of money a business has on hand at the beginning of a time period, receipts, and money paid out is called a/an

a) Cash-flow statement

b) Projected earnings statement

c) Sources and uses of funds

d) Income statement

 

87. For the first year of business, cash-flow projections should be made

a) Daily

b) Monthly

c) Quarterly

d) Yearly

 

88. Adequate cash flow can be especially critical if the business is a

a) Manufacturing business

b) Service business

c) Seasonal/cyclical business

d) Health care business

 

89. Which of the following financial documents shows the assets, liabilities, and owner's equity for a business?

a) Cash-flow statement

b) Income statement

c) Balance sheet

d) Statement of retained earnings

90. Which financial document shows what is owned and what is owed?

a) Cash-flow statement

b) Income statement

c) Balance sheet

d) Statement of retained earnings

 

91. A financial document that shows sales revenues, expenses, and net profit or loss is called a

a) Cash-flow statement

b) Statement of retained earnings

c) Balance sheet

d) Profit-and-loss statement

 

92. A profit-and-loss statement can be broken down into which category or categories?

a) Best case scenario and worst-case scenario

b) Based on product line or service

c) Most likely scenario only

d) All of the above

 

93. Which of the following financial documents projects the best and the worst that could happen in order to calculate profits or losses?

a) Cash-flow statement

b) Statement of retained earnings

c) Balance sheet

d) Profit-and-loss statement

 

94. The point at which sales and costs are equal and a business is neither making or losing money is called

a) Profit

b) Gross margin

c) Breakeven point

d) Net income

 

95. Break even analysis occurs in which area of the business plan?

a) Financial plan

b) Risks and assumptions

c) Marketing plan

d) HR plan

96. After the financial projections have been made for the breakeven analysis, it may be helpful to compare the projections to

a) The banker's projections

b) Industry averages

c) The accountant's projections

d) Wholesale averages

 

97. In which section of a business plan would résumés, advertising samples, brochures, organization charts, and the floor plans of the business be found?

a) Manufacturing and operations

b) Product or services

c) Marketing research and evaluations

d) Appendix

 

98. The last step in the preparation of a business plan should be which of the following?

a) Professional binding in leather

b) Review and evaluation

c) Inclusion of appendices

d) Summary of the business plan into one page or less

 

99. Preparing a pro-forma profit-and-loss statement for the first three years of operation takes place before

a) Estimating the initial capital requirements for the business

b) Listing possible sources of start-up capital

c) Computing financial ratios

d) Identifying the product or service

 

100. In her business plan, Jane indicates that her new company will rely on word-of-mouth advertising for the first few years. This is an example of which common error in writing business plans?

a) Depending on outdated industry comparisons

b) Making unsubstantiated assumptions

c) Misunderstanding financial information

d) Lacking marketing strategies

 

1. T F A disadvantage of the direct ownership system used by early manufacturers in the 1830s like McCormick and Singer was the lack of direct control and control over quality levels.

 

2. T F Franchising dominates the fast-food, automobile, and lodging segments of the U.S. economy.

 

3. T F McCormick and Singer were two of the first franchises in America during the 1800s.

 

4. T F Franchised businesses directly produce almost 6 million jobs.

 

5. T F Nearly 50 percent of all U.S. businesses are franchised.

 

6. T F Most of the franchises in the United States operate in the retail food sector.

 

7. T F Making products available to consumers through exclusive dealers in a specific geographic region is the purpose of product-distribution franchising.

 

8. T F Product-distribution franchising is commonly used in fast-food restaurants and lodging establishments, such as hotel and motel chains.

 

9. T F In comparison to business-format franchising, product-distribution franchising is more of a turnkey approach to franchising.

 

10. T F The biggest advantage of franchising for a franchisee is the marketing expertise that is provided.

 

11. T F Some franchisors prefer that their franchisees not have experience in the particular field of the franchise.

 

12. T F Local franchisees share in the advertising costs spent by the franchisors when advertising nationally and/or regionally.

 

13. T F Franchisors seldom provide financial resources for startup and working capital for inventory.

 

14. T F The primary drawback of franchising to the franchisee is that you must give up some control, some decision-making power, and some freedom.

 

 

 

15. T F One advantage of franchising to the franchisee is that it is relatively easy to terminate a franchise agreement if things are not going well.

 

16. T F If a franchisee feels that a product, promotion, or policy may not be appropriate for his/her area, the franchisee can decide to not participate.

 

17. T F A right of first denial states that a franchisee must decline continuing a franchise agreement before the franchisor can offer the franchise to someone else.

 

18. T F From the perspective of the franchisor, one of the biggest advantages of offering franchises is the expansion of the business happening much faster than if the franchisor were in business alone.

 

19. T F Franchisors often have several sources of income built into franchise agreements, including franchise fees, operating revenue percentages, and product/supplies revenues.

 

20. T F One way in which franchisors have dealt with the complexity of serving differing customer tastes covering large geographic areas is through company owned franchises.

 

21. T F Trade associations such as the International Franchise Association can be a good source for industry-wide data as well as company-specific data.

 

22. T F The American Franchise Association is a trade association that provides information and services about franchising.

 

23. T F When individuals have a general idea of the franchise that they are interested in, they should contact the company and ask for a copy of its disclosure statement.

 

24. T F A good question to ask concerning a potential franchise purchase is whether or not the franchise gives exclusive territory for the length of the agreement.

 

25. T F Because franchisors have lawyers look over the franchise agreement, it is not necessary for a franchisee to pay a lawyer to do the same thing.

 

 

26. T F A high fixed asset turnover ratio generally reflects good overall management because it measures how efficiently the firm uses all of its assets to generate sales.

 

27. T F A low net profit margin ratio indicates that expenses are too high relative to sales.

 

28. T F A high return on equity ratio is generally a good indication for a business; however, this ratio is highly affected by debt and may not be an accurate measurement of management effectiveness.

 

29. T F Each business day, 5,000 small businesses in the United States declare bankruptcy primarily because of poor cash flow management.

 

30. T F Without proactively managing a firm's cash flow, the firm is exposed to many risks, each of which could spell disaster.

 

31. T F The primary reason a small business needs adequate cash flow is to pay the bills incurred by the business.

 

32. T F Figure 8.5 in the chapter shows that the cash-to-cash cycle is the amount of time that passes between spending money for raw materials to receiving revenue from selling finished products.

 

33. T F A cash budget typically covers a two-year period that is divided into smaller intervals.

 

34. T F Aging schedules are listings of a firm's account payables according to the length of time they are outstanding.

 

 

Multiple Choice Questions

35. When Krispy Kreme was founded in 1937 by Vernon Rudolph, according to the chapter opening case, the doughnuts were initially produced to sell to

a) Franchised Krispy Kreme businesses

b) Walk-up customers

c) Local grocery stores

d) International distributors

 

36. Computers help us to take financial _______, which is then turned into usable ________.

a) Data; information

b) Research; data

c) Information; data

d) Information; research

 

37. The passage of the Sarbanes-Oxley Act of 2002 resulted in which of the following?

a) More relaxed accounting practices in business

b) More stringent accounting practices in business

c) Exemption of smaller businesses from adhering to stringent accounting practices

d) Exemption of larger businesses from adhering to stringent accounting practices

 

38. The system within a business for converting raw data from source documents (like invoices, sales receipts, bills, and checks) into information that will help a manager make business decisions is known as a/an

a) Computer system

b) Accounting system

c) Record system

d) Data system

 

39. Most of the mismanagement decisions that cause small businesses to fail are related to

a) Inventory

b) Personnel

c) Finance

d) Sales

 

 

 

 

 

40. At Wilson’s Wash and Go, business managers ensure that all financial transactions are recorded in chronological order. These transactions are then classified by type. This example specifically involves which two areas of the accounting process?

a) Journals and ratios

b) Ledgers and financial statements

c) Ratios and financial statements

d) Journals and ledgers

 

41. _________ refers to what the business owes.

a) Debit

b) Asset

c) Owner’s equity

d) Liability

 

42. __________ refers to what the business owner has invested in the business.

a) Debit

b) Asset

c) Equity

d) Liability

 

43. An accounting system in which every business transaction is recorded in an asset account, a liability account, or an owner's equity account in order for the system to balance is known as which of the following?

a) Double-entry accounting

b) Open book accounting

c) Managerial accounting

d) Cost accounting

 

44. In double-entry accounting systems, debits must always equal

a) Assets

b) Liabilities

c) Credits

d) Owner's equity

 

45. Double-entry accounting systems revolve around all but which of the following types of accounts?

a) Asset

b) Liabilities

c) Owner's equity

d) Expense

 

46. Single-entry accounting systems record the flow of income and expenses in a running log and allow the small business owner to produce

a) An income statement

b) A balance sheet

c) A statement of cash flows

d) Monthly statements

 

47. In the accounting equation, Assets = Liabilities +

a) Revenue

b) Expenses

c) Equity

d) Cash flow

 

48. In the accounting equation, Cash Flow = Receipts -

a) Revenue

b) Expenses

c) Equity

d) Disbursements

 

49. “Profit = Revenue – Expenses” represents the activity described in the

a) Income statement

b) Balance sheet

c) Cash flow statement

d) Quick ratio

 

 

50. At Fran’s Floral, Fran records transactions when cash is actually received and when expenses are actually paid. This is referred to as the ________ method of accounting.

a) Accrual-basis

b) Cash-basis

c) Liquidity-basis

d) Profit-basis

 

26. T F A major advantage of a sole proprietorship is that the owner has complete control over the business.

 

27. T F The major disadvantage of a sole proprietorship is limited liability.

 

28. T F The biggest advantage of partnerships is the pooling of talents and resources.

 

29. T F In a partnership, if both partners bring the same qualities to the business, then one of them is probably not needed.

 

30. T F Although the ability to raise capital is better with a partnership than with a proprietorship, a partnership still cannot usually gather as many resources as a corporation.

 

31. T F In a partnership, the partners will be held liable only for their own negligence.

 

32. T F If a partner leaves, the partnership is dissolved and the remaining partners can either find a new partner or terminate the business.

 

33. T F One of the most serious problems that can threaten a partnership is managerial conflict.

34. T F Foresight in writing articles of partnership can solve many partner problems in the future.

 

35. T F A closely held corporation publicly trades its shares of stock on a major auction market.

 

36. T F A form of business ownership where the business is owned by a limited group of people and the stock is not traded publicly is called a closely held corporation.

 

37. T F Limited liability is the major advantage of forming a business as a corporation.

38. T F C corporations and S corporations are taxed the same.

39. T F A document describing a business that is filed with the state in which a business is formed is referred to as articles of incorporation.

 

40. T F C corporations provide individuals with limited-liability protection of a corporation while allowing the tax advantages of a partnership.

 

41. T F LLCs can be an attractive form of ownership for small businesses.

42. According to the opening Vignette, John Goscha can best be described as a/an

a) Franchiser

b) Entrepreneur

c) Corporate business manager

d) Small business manager

 

43. Rubin’s day-to-day job as a business owner involves identifying opportunities for which marketable ideas exist and assuming the risk to make these ideas happen. Rubin can best be described as a/an

a) Innovator

b) Marketer

c) Entrepreneur

d) Small business manager

 

44. Jasper has developed a concept for a start-up company that involves developing a new process for priming and painting automobile panels. Based on this example, Jasper is focusing on which entrepreneurial behavior?

a) Creation

b) Innovation

c) Risk assumption

d) Performance intention

 

45. Which of the following behaviors was not cited as being included in most definitions of an entrepreneur?

a) Controlling

b) Creation

c) Innovation

d) Risk assumption

 

46. A small business manager faces which of the following environmental forces?

a) Finding opportunities

b) Prompting creativity

c) Locating an incubator

d) Hiring and retaining employees

 

47. ___________ is the entrepreneurial behavior that involves the expectation of high levels of growth or profit.

a) General management

b) Supply chain

c) Risk assumption

d) Performance intention

 

48. Entrepreneurship primarily involves which phase of business?

a) The startup process

b) Hiring of key employees

c) Maintaining a positive cash flow

d) Building and maintaining a sufficient customer base

 

49. The entrepreneurship process begins with

a) An innovative idea

b) A triggering event

c) Implementation

d) Growth

 

50. The entrepreneurial process in the startup process model begins with

a) A visit to the local banker for startup funds

b) A visit to the local library for more information on the business

c) A visit to a favorite business professor for advice

d) An innovative idea that is refined as the idea is thought through

 

26. T F A potential franchisee may receive only partial use of trademarks, trade names, logos, and other symbols as detailed in the disclosure statement.

 

27. T F Royalty fees that are paid to the franchisor are usually calculated as a percentage of gross profits.

 

28. T F If an advertising fee is charged to a franchisee, the franchisor is required by law to spend a percentage of the collected fees in the franchisee's market.

 

29. T F Franchise agreements are currently written in simple enough language that a lawyer need not be contacted before signing a franchise agreement.

 

30. T F Over the past 25 years, the wording within disclosure statements has gradually become more “legalese” and complex.

 

31. T F The issue of exclusive territory is the subject of much controversy in the franchising world.

 

32. T F U.S. companies facing increased domestic competition are turning to foreign markets such as Canada and Mexico for expansion opportunities.

 

33. T F When expanding abroad, franchisors must be sensitive to the demographic, cultural, and legal climates of the host country.

 

34. T F With the passage of the North American Free Trade Agreement (NAFTA), franchise opportunities in South America have become a dominant force in the retailing sector.

 

 

35. The process of gathering and verifying the accuracy of information included in the franchise agreement and all other information provided by the franchisor is called

a) Deductive reasoning

b) Preemptory investigation

c) Due diligence

d) Market research

Ans:  c

 

36. Through the franchise agreement, the ________ gains the benefit of the parent company's expertise, experience, management systems, marketing, and financial help.

a) Franchisor

b) Franchisee

c) Leaser

d) Lessee

Ans:  b

 

 

 

37. A contractual license to operate an individually owned business as a part of a larger chain is known as a/an

a) Franchise

b) Small business contract

c) Chain contract

d) Import contract

Ans:  a

 

38. The parent company that develops a product or business process and sells the rights is known as the

a) Franchisor

b) Franchisee

c) Company of origin

d) Opening company

Ans:  a

 

39. The small business person who purchases the franchise in order to sell the product or service is known as the

a) Franchisor

b) Franchisee

c) Company of origin

d) Opening company

Ans:  b

 

40. Franchises have experienced growth since the 1950s, although they have existed since the

a) Late 1700s

b) Early 1800s

c) Late 1800s

d) Early 1900s

Ans:  b

 

41. In 2010, which famous franchise business took the top spot on the Entrepreneur Franchise 500 list?

a) Starbucks

b) McDonalds

c) Subway

d) Burger King

Ans:  c

 

42. Samuel has decided to buy a small pretzel shop, where he will be expected to pay fees and royalties for exclusive rights to local distribution of pretzels made at the shop. Samuel can best be described as a/an

a) Franchisor

b) Franchisee

c) CEO

d) Social entrepreneur

Ans:  b

 

43. According to the 2010 Franchise Business Economic Outlook, in total, franchised businesses support over _________ jobs.

a) 2 million

b) 6 million

c) 18 million

d) 32 million

Ans:  c

 

44. ________ and ________ were two of the first businesspeople to use exclusive agents, which laid the ground for today's franchising.

a) Ford, Hoover

b) John Deere, Macy's

c) McDonald's, Hilton

d) McCormick, Singer

Ans:  d

 

45. Today, franchising is represented in almost every industry, with more than ________ U.S. businesses being franchises.

a) 225,000

b) 909,000

c) 2.5 million

d) 25 million

Ans:  b

 

46. Franchised businesses directly produce almost __________ jobs.

a) 1 million

b) 32 million

c) 5 million

d) 18 million

Ans:  d

 

47. Product-distribution franchising involves licensing the use of its

a) Trade name

b) Business format

c) Turnkey

d) Dealership

Ans:  a

 

48. Making products available to consumers in a specific geographic region is the purpose of ________ franchising.

a) Product-distribution

b) Business format

c) Turnkey

d) Dealership

Ans:  a

 

 

 

 

 

49. A type of franchise in which the franchisee agrees to purchase the products of the franchisor or use the franchisor's name is called

a) Product-distribution franchise

b) Business-format franchise

c) Dealership franchise

d) Logo franchise

Ans:  a

50. Product franchises and business-format franchises are used by all but which of the following groups?

a) Producers

b) Wholesalers

c) Retailers

d) Manufacturers

Ans:  d

 

76. A short-term loan where both principal and interest must be repaid in a lump sum at maturity is known as a/an

a) Unsecured loan

b) Secured loan

c) Line of credit

d) Demand note

 

77. A loan that requires the borrower to make small monthly payments that are usually enough to cover the interest, with the balance due at maturity is called a

a) Balloon note

b) Floor planning

c) Line of credit

d) Demand note

 

78. All but which of the following are the most common types of loans provided by commercial finance companies?

a) Leasing

b) Floor planning

c) Balloon notes

d) Factoring accounts receivable

 

79. A type of business loan that is generally made for high-priced items like new automobiles or trucks, where the business holds the item in inventory and pays interest, and where the asset is still owned by the lender until it is sold, is known as which of the following?

a) An unsecured loan

b) Floor planning

c) A line of credit

d) A demand note

 

80. Which type of loans are made to established businesses that have demonstrated a strong overall credit profile and have shown excellent creditworthiness and an extreme probability of repayment?

a) Balloon note

b) Floor planning

c) Installment loans

d) Unsecured term loans

 

81. Commercial finance companies extend short- and intermediate-term credit to small businesses at an interest rate that is ___________ commercial banks.

a) Lower than

b) The same as

c) Higher than

d) The prime interest given by

 

82. In the Manager's Notes “Banker Talk”, when should you tell your banker that your business is having financial trouble?

a) On a Tuesday

b) When the business plan is finished

c) Before you are in dire need

d) As soon as you know an exact amount you need

 

83. What type of loan requires collateral as security for the lender?

a) Lateral loan

b) Unsecured loan

c) Secured loan

d) Installment loan

 

84. At Lou’s Landscaping Services, a number of customers were not paying up on time, and Lou needed cash for a large purchase. As a result, Lou sold the company’s accounts receivable to a finance company for 70 percent of the total collection amount. This method of raising funds is referred to as

a) Floor planning

b) Bartering

c) Crediting

d) Factoring

 

85. Which type of loans are provided by commercial finance companies and allow small businesses to have use of state-of-the-art equipment at a fraction of the cost?

a) Leasing

b) Floor planning

c) Balloon notes

d) Factoring accounts receivable

 

86. The practice of raising funds for a business through the sale of accounts receivable is known as which of the following?

a) Leasing

b) Floor planning

c) Balloon notes

d) Factoring accounts receivable

 

87. A finance company will generally purchase the accounts receivable or lend small businesses somewhere between ____________ percent of the face value of the accounts receivable being factored.

a) 40 and 60

b) 45 and 70

c) 55 and 80

d) 70 and 90

 

88. ____________ are made to small business owners based on the amount of money paid in premiums on an insurance policy that has a cash surrender value.

a) Floor planning loans

b) Leases

c) Installment loans

d) Policy loans

 

89. An insurance company will frequently lend up to _____ of a policy's cash surrender value.

a) 10 percent

b) 30 percent

c) 59 percent

d) 95 percent

 

90. A small business may qualify for loans through a commercial bank where a portion of the loan is guaranteed by the Small Business Administration. This loan is known as

a) An SBA loan

b) A government loan

c) A direct loan

d) A 504 loan

 

91. Loans that are granted by commercial banks to entrepreneurs that are then guaranteed at up to 90 percent of the loan value by the SBA as part of the 7(a) program are called which of the following?

a) SBA loans

b) Guaranteed loans

c) Direct loans

d) 504 loans

 

92. In the bar chart Figure 9.3 “Who Gets SBA Loans?” which industry sector receives the largest percentage of SBA 7(a) loans?

a) Service

b) Manufacturing

c) Construction

d) Agriculture

 

93. A relatively new loan program available through the SBA that simplifies the paperwork and reduces the time required for a loan answer that has historically been required is the

a) SBA loan

b) Guaranteed loan

c) Direct loan

d) SBA express program

 

94. Under the SBA express program, up to ____________ can be borrowed by a small business with a one-page application.

a) $10,000

b) $150,000

c) $75,000

d) $350,000

 

95. Which of the following is an appropriate follow-up action if a potential lender initially says “no”?

a) Ask for advice

b) Avoid further communication

c) Submit the same application again

d) Show resentment

 

96. The first place most entrepreneurs find equity capital is

a) Partners

b) Community investors

c) Venture capital firms

d) In their personal assets

 

97. Most state and local government programs usually have _____ interest rates than conventional loans, often with ________ maturities.

a) Higher, longer

b) Higher, shorter

c) Lower, longer

d) Lower, shorter

 

98. The purchase of goods from suppliers who do not demand payment immediately is called which of the following?

a) Trade credit

b) Guaranteed loans

c) Direct loans

d) LowDoc program

 

99. Most lenders will expect entrepreneurs to provide equity funds in an amount of at least ____ percent of the business before approving a loan.

a) 10

b) 20

c) 35

d) 50

 

100. The Department of Commerce estimates that nearly _______ of all startups begin without borrowed funds.

a) 10 percent

b) 30 percent

c) 66 percent

d) 75 percent