TEST BANK for Entrepreneurship Starting and Operating A Small Business, 4th Edition by Steve Mariott

TEST BANK for Entrepreneurship: Starting and Operating A Small Business, 4th Edition by Steve Mariotti; Caroline Glackin

TABLE OF CONTENTS 1. CHAPTER 1: Entrepreneurs Recognize Opportunities 2. CHAPTER 2: The Business Plan: Road Map to Success 3. CHAPTER 3: Creating Business from Opportunity 4. CHAPTER 4: Exploring Your Market 5. CHAPTER 5: Developing the Right Marketing Mix and Plan 6. CHAPTER 6: Smart Selling and Effective Customer Service 7. CHAPTER 7: Understanding and Managing Start-Up, Fixed, and Variable Costs 8. CHAPTER 8: Using Financial Statements to Guide a Business 9. CHAPTER 9: Cash Flow and Taxes 10. CHAPTER 10: Financing Strategy & Tactics 11. CHAPTER 11: Addressing Legal Issues and Managing Risk 12. CHAPTER 12: Operating for Success 13. CHAPTER 13: Management, Leadership, & Ethical Practices 14. CHAPTER 14: Franchising, Licensing, and Harvesting: Cashing in Your Brand

Chapter 1 Entrepreneurs Recognize Opportunities 1) Products are tangible, meaning .

A) you can't actually touch them B) you can sell them C) you can touch them D) you can see them Answer: C Diff: 1 Page Ref: 3 Learning Object.: 1.1 Summarize what entrepreneurs do.

AACSB Category: Reflective thinking 2) Entrepreneurs are often both owners and .

A) creditors B) employees C) customers D) suppliers Answer: B Diff: 2 Page Ref: 3 Learning Object.: 1.1 Summarize what entrepreneurs do.

AACSB Category: Reflective thinking 3) An entrepreneur is a person who assumes the risks of organizing and managing a business for the sake of reducing stress from the "rat race."

Answer: FALSE Diff: 1 Page Ref: 3 Learning Object.: 1.1 Summarize what entrepreneurs do.

AACSB Category: Reflective thinking 4) Explain how entrepreneurs can add value to scarce resources, and what signal they use to determine whether or not they are succeeding in doing so.

Answer: A scarce resource is something of value that can be used to make something else or to fill a need. The French economist Jean Baptiste Say wrote at the turn of the 19th century: "The entrepreneur shifts economic resources [like wood or coal] out of an area of lower and into an area of higher productivity and greater yield." By doing this, Say argued, entrepreneurs add value to scarce resources.

Diff: 3 Page Ref: 4 Learning Object.: 1.1 Summarize what entrepreneurs do.

AACSB Category: Analytical thinking

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5) In the United States nearly half of the private workforce is represented by .

A) small business owners and their employees B) entrepreneurs C) corporations and their employees D) women and minorities Answer: A Diff: 1 Page Ref: 7 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 6) A(n) is the wealth and resources of a country or region, including its financial structure.

A) economy B) government C) justice system D) free enterprise Answer: A Diff: 2 Page Ref: 4 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 7) Entrepreneurs have more control over more aspects of their working lives than employees. Of which aspect of their working lives do employees have more control?

A) financial uncertainty B) working conditions C) time D) encroachment on personal time Answer: A Diff: 2 Page Ref: 10 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 8) Cash or goods invested to generate income and wealth is called .

A) profit B) capital C) debt D) liability Answer: B Diff: 1 Page Ref: 5 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking

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9) The United States economy is a free enterprise system. It is also referred to as a "free trade system" because it is based on .

A) voluntary exchange B) gambling and chance C) involuntary exchange D) government cooperation Answer: A Diff: 1 Page Ref: 5 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 10) Entrepreneurship can be very challenging. Which is not a typical challenge of being an entrepreneur?

A) loneliness B) financial reward C) long hours D) financial insecurity Answer: B Diff: 2 Page Ref: 10 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 11) When making an investment, always consider the , which is the cost of your nextbest investment.

A) next-investment cost B) cost of goods sold C) opportunity cost D) marginal cost Answer: C Diff: 3 Page Ref: 11 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 12) The free-market system is also called .

A) volunteerism B) socialism C) capitalism D) dogmatism Answer: C Diff: 1 Page Ref: 4 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 3

13) Most of the world's businesses are businesses.

A) small B) medium-sized C) large D) family-owned Answer: A Diff: 1 Page Ref: 6 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 14) A company that has more than employees and sales of more than $ million per year is considered to be a "big" business.

A) 100/$5 million B) 100/$10 million C) 500/$5 million D) 500/$10 million Answer: C Diff: 2 Page Ref: 6 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 15) Some of the world's greatest entrepreneurs have overcome challenges from their childhood and youth, including all of these except one.

A) learning disabilities B) abuse C) extreme poverty D) financial prosperity Answer: D Diff: 3 Page Ref: 9 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 16) The corporate equivalent of paying owners a portion of the business's profits is called a .

A) bonus B) dividend C) capital D) revenues Answer: B Diff: 3 Page Ref: 9 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 4

17) Which of the following is not a characteristic that is helpful for an entrepreneur to have?

A) self-confidence B) caution C) self-esteem D) drive Answer: B Diff: 1 Page Ref: 9-10 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 18) How does the free-enterprise system discourage entrepreneurs who waste resources?

A) The government penalizes them.

B) They run into regulations that make it too difficult for them to operate.

C) They can't make a profit and are forced out of business.

D) They limit competition.

Answer: C Diff: 3 Page Ref: 5 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 19) Why do consumers benefit from free trade and the resulting competition between businesses?

A) Competition drives away the entrepreneurs who use resources most wisely.

B) Competition tends to drive down prices and improve quality.

C) Competition offers consumers fewer choices and makes the marketplace less confusing.

D) Competition reduces the choices to consumers.

Answer: B Diff: 3 Page Ref: 5 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 20) A for-profit enterprise with the dual goals of achieving profitability and attaining beneficial returns for society is called .

A) venture capitalism B) serial entrepreneurship C) social entrepreneurship D) portfolio entrepreneurship Answer: C Diff: 3 Page Ref: 13 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

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21) Entrepreneurs that participate in activities to avoid harm to the environment or help protect it in some ways are engaged in .

A) venture philanthropy B) green entrepreneurship C) social entrepreneurship D) corporate responsibility Answer: B Diff: 1 Page Ref: 14 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 22) Benefits of becoming an entrepreneur include independence, satisfaction, financial reward, self-esteem, and contributions to society.

Answer: TRUE Diff: 2 Page Ref: 8-9 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 23) The economy of the United States is a free-enterprise system.

Answer: TRUE Diff: 1 Page Ref: 4 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

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24) Describe three potential rewards of becoming an entrepreneur that appeal to you.

Answer: (The answer should describe 3 of the following 5 rewards.)

1. Control over time - Do you work better at midnight than at 8 a.m.? If you start your own business, you have control over how you spend your time. Are you the type of person who would rather work really hard for two weeks nonstop and then take a break? If you are an entrepreneur, you can. You can also choose to hire other people to do tasks that you do not want to do or are not good at, so you can stay focused on what you do best. Bill Gates likes to spend his time designing software. He hires other people to manage Microsoft's operations and market and sell its products.

2. Fulfillment - Successful entrepreneurs are passionate about their businesses. They are excited and fulfilled by their work. Entrepreneurs are almost never bored. If something about running their business is boring to them, they can hire someone to do that task.

3. Creation/Ownership - Entrepreneurship is a creative endeavor: Entrepreneurs put their time into creating something that they hope will survive and become profitable. Entrepreneurs own the businesses that they create and the profits that the businesses earn. Ownership is the key to wealth. Your goal is to create a business that makes a continuing profit. Eventually, you may be able to sell that business for a multiple of earnings. That is how entrepreneurs create wealth.

4. Control over compensation - Entrepreneurs choose how they are paid. As owner of your company you can decide to: Pay yourself a salary - a fixed payment made at regular intervals, such as every week, or every month. No matter how much time you put in, the salary remains the same.

Pay yourself a wage - a fixed payment per hour.

Take a share of the company's profit - as the owner you can pay yourself a portion of the business's profit. This payment is called a dividend.

Take a commission on every sale you make. - A commission is a percentage of the value of a sale. If you decide to pay yourself 10% commission and you sell one of your products for $120, your commission on the sale would be $12.

5. Control over working conditions - As an entrepreneur you can create a working environment that reflects your values. If you believe in recycling, you can make sure your company recycles.

You also evaluate your own performance. No one else has the power to hire or fire you.

Diff: 3 Page Ref: 8-9 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Analytical thinking 25) Explain why it is important to consider opportunity cost when making a decision.

Answer: Using a comparison of costs and benefits to make a decision is called cost/benefit analysis. It is a helpful tool because we tend to make decisions with our emotions, not by using our intellect to evaluate the pros and cons. Cost/benefit analysis can be inaccurate without including opportunity cost. This is the cost of your "next-best investment." People often make decisions without considering opportunity costs and then wonder why they are not happy with the outcome. Each time you make a decision about what to do with your time, energy, or money think about the cost of the opportunities that you are giving up.

Diff: 3 Page Ref: 11 Learning Object.: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB Category: Reflective thinking 7

26) Entrepreneurs look at five basic ways of opportunity for business ideas. Which is not one of those five?

A) developing a new market for an existing product B) producing a product more cheaply C) finding new ways to use existing technology D) raising prices in an existing market Answer: D Diff: 3 Page Ref: 15 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Analytical thinking 27) Entrepreneurs view problems as a(n) .

A) roadblock B) opportunity C) hurdle D) challenge Answer: B Diff: 3 Page Ref: 16 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Reflective thinking 28) The great economist Joel Schumpeter emphasized that innovation is the key to entrepreneurship. Which of the following is a basic way to create a new business?

A) expand upon old technology B) develop current markets C) use new technology to produce a new product D) find a less expensive source of resources Answer: C Diff: 3 Page Ref: 15 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Analytical thinking 29) A business opportunity is an idea, plus .

A) it is attractive to suppliers B) it may have marginal performance in your business environment C) it has a limitless window of time to work within D) it is attractive to customers and will work in your business environment Answer: D Diff: 3 Page Ref: 17 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Analytical thinking

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30) In creating a new business, a(n) is one that comes from inside you, a hobby or an interest.

A) internal opportunity B) passionate choice C) compulsion D) external opportunity Answer: A Diff: 2 Page Ref: 18 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Reflective thinking 31) The best business opportunities often combine both and .

A) extreme luck/chance B) luck/sales skill C) sales/marketing D) internal/external factors Answer: D Diff: 2 Page Ref: 19 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Reflective thinking 32) Russell Simmons, founder of Def Jam Records, believes that if you know 10 people who will buy your product, would be willing to buy it if they knew about it.

A) 1,000 B) 10 more C) 10 million D) 10,000 Answer: C Diff: 2 Page Ref: 19 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Application of knowledge 33) A(n) is a plan for how a business intends to go about its own performance and outdo that of its competition.

A) strategy B) model C) opportunity D) All of the above.

Answer: A Diff: 3 Page Ref: 19 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Analytical thinking

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34) What are the four characteristics of a business opportunity?

Answer: 1. It is attractive to customers because it creates or adds value for its customers.

2. It will work in the business environment.

3. It can be executed in a defined window of opportunity.

4. It can be implemented with the right team to make it durable.

Diff: 3 Page Ref: 18 Learning Object.: 1.3 Identify and evaluate opportunities to start your own business.

AACSB Category: Analytical thinking 35) If a business is not making a profit, the entrepreneur knows that .

A) no one wants to buy the product/service B) he/she is not making good use of scarce resources C) people are willing to buy the product/service at a high price D) competition is too great Answer: B Diff: 3 Page Ref: 23 Learning Object.: 1.4 Explain how profit works as a signal to the entrepreneur.

AACSB Category: Analytical thinking 36) is the sign that an entrepreneur has added value to the resources he or she is using.

A) Profit B) Sales C) Revenues D) Liabilities Answer: A Diff: 2 Page Ref: 23 Learning Object.: 1.4 Explain how profit works as a signal to the entrepreneur.

AACSB Category: Analytical thinking 37) Closing a business is nothing to be ashamed of if you .

A) learn something from the experience B) are on vacation in Jamaica C) have a partner D) are a corporation Answer: A Diff: 2 Page Ref: 23 Learning Object.: 1.4 Explain how profit works as a signal to the entrepreneur.

AACSB Category: Reflective thinking 38) The seven rules for building a successful business include recognizing an opportunity, evaluating it with critical thinking, building a team, and financing with money from credit cards.

Answer: FALSE Diff: 3 Page Ref: 24 Learning Object.: 1.4 Explain how profit works as a signal to the entrepreneur.

AACSB Category: Analytical thinking 10

39) Profits result from customer choices, not the entrepreneur's choices.

Answer: FALSE Diff: 3 Page Ref: 23 Learning Object.: 1.4 Explain how profit works as a signal to the entrepreneur.

AACSB Category: Reflective thinking 40) What are the seven rules for building a successful business?

Answer: 1. Recognize an opportunity. Find a problem, change, invention, technology, or competitive weakness that you can exploit.

2. Evaluate it with critical thinking. Analyze the idea: the costs, the benefits, and the opportunity costs.

3. Build a team. Two, three, or four heads are better than one.

4. Write a realistic business plan. A written business plan is necessary to get investors to provide you money.

5. Gather resources. Assemble the team and the money you have brought together.

6. Decide ownership. NOTE: This is not really explained in the chapter but it alludes to deciding the legal form of ownership of the business: proprietorship, some form of partnership, or some type of corporation.

7. Create wealth. NOTE: This is not elaborated upon either, but it refers to using the business to generate ongoing profit or to create a platform for acquisition by others at a profit to the founder/owner.

Diff: 2 Page Ref: 24 Learning Object.: 1.4 Explain how profit works as a signal to the entrepreneur.

AACSB Category: Analytical thinking

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Chapter 2 The Business Plan: Road Map to Success 1) A(n) is a company's plan to generate revenue and make a profit from operations.

A) business plan B) marketing plan C) analysis D) business model Answer: D Diff: 1 Page Ref: 40 Learning Object.: 2.1 Describe a feasibility analysis and choose when to create one.

AACSB Category: Analytical thinking 2) A feasibility analysis is a study to assist in making a go/no go decision based upon a close examination of product/service, market, industry, and financial data in a sufficient degree of detail to ensure confidence in the results.

Answer: TRUE Diff: 2 Page Ref: 36 Learning Object.: 2.1 Describe a feasibility analysis and choose when to create one.

AACSB Category: Analytical thinking 3) The Business Model Canvas has core building blocks that are intended to supply answers to critical questions.

A) 3 B) 9 C) 6 D) 8 Answer: B Diff: 2 Page Ref: 40 Learning Object.: 2.2 Prepare a business model canvas.

AACSB Category: Application of knowledge 4) Bankers and other potential investors will often refuse to see an entrepreneur who does not have a .

A) complete business plan B) sales forecast C) resumé D) marketing plan Answer: A Diff: 1 Page Ref: 44 Learning Object.: 2.3 Identify primary business plan contents AACSB Category: Analytical thinking

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5) Writing a business plan can ensure that you .

A) achieve your expense projections B) figure out how to make your business work C) meet your target revenue goals D) make a profit Answer: B Diff: 2 Page Ref: 43 Learning Object.: 2.3 Identify primary business plan contents AACSB Category: Reflective thinking 6) A(n) can be a front line of defense against a poor idea.

A) goal B) mission C) objective D) business plan Answer: D Diff: 3 Page Ref: 44 Learning Object.: 2.4 Summarize the various purposes of a business plan and the audiences for one.

AACSB Category: Reflective thinking 7) It is best to wait to write a business plan until you find lenders or investors.

Answer: FALSE Diff: 2 Page Ref: 44 Learning Object.: 2.4 Summarize the various purposes of a business plan and the audiences for one.

AACSB Category: Reflective thinking 8) A business plan is the key to raising capital.

Answer: TRUE Diff: 1 Page Ref: 44 Learning Object.: 2.4 Summarize the various purposes of a business plan and the audiences for one.

AACSB Category: Reflective thinking 9) Explain 3 reasons why a start-up organization would have a written business plan.

Answer: 1. Writing a business plan early will save you time and money.

2. Your business plan is the key to raising capital.

3. The business plan is an operations' guide.

Diff: 2 Page Ref: 44-45 Learning Object.: 2.4 Summarize the various purposes of a business plan and the audiences for one.

AACSB Category: Analytical thinking

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10) Your business plan projections should be .

A) incredible and impossible to reach B) optimistic and a bit of a stretch C) practical and easy to reach D) realistic and attainable Answer: D Diff: 3 Page Ref: 51 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 11) The section of the business plan should be written last.

A) Cover Page B) Mission, Vision, Culture C) Executive Summary D) Financial Statements Answer: C Diff: 1 Page Ref: 47 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 12) The Executive Summary contains the .

A) inspired enthusiasm for success B) story of the business C) funding request D) All of the above.

Answer: D Diff: 3 Page Ref: 46 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 13) Making the beliefs, values, and behavioral norms explicit and intentional builds the of an organization.

A) culture B) vision C) mission D) All of the above.

Answer: A Diff: 3 Page Ref: 47 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking

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14) One section of the business plan that is often neglected is the A) Marketing Plan B) Opportunity Analysis and Research C) Executive Summary D) Financial Projections Answer: B Diff: 3 Page Ref: 48 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking

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15) The addresses the roles of the community, region, nation, and world in a business.

A) business analysis B) environmental analysis C) industry analysis D) proof of market Answer: B Diff: 2 Page Ref: 48 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 16) Target market segments are defined by common factors such as A) psychographics B) geography C) demographics D) All of the above.

Answer: D Diff: 2 Page Ref: 48 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 17) A competitive analysis is an important component of .

A) a mission statement B) opportunity analysis C) a vision statement D) All of the above.

Answer: B Diff: 2 Page Ref: 48 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking

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18) The four factors that form marketing mix are .

A) product, price, promotion, and place B) product, place, politics, and price C) product, packaging, promotion, and price D) product, price, promotion, and public opinion Answer: A Diff: 1 Page Ref: 49 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 19) Price should reflect the organization's .

A) policy B) vision C) strategy D) All of the above.

Answer: D Diff: 3 Page Ref: 49 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 20) Advertising is promotion through media outlets.

A) paid B) free C) discounted D) personal Answer: A Diff: 1 Page Ref: 49 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 21) Telemarketing is a form of .

A) advertising B) publicity C) direct marketing D) None of the above.

Answer: C Diff: 2 Page Ref: 49 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking

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22) Which of the following is not needed in all business management teams?

A) operations B) outside directors C) marketing D) accounting Answer: B Diff: 3 Page Ref: 50 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 23) Resumes and position descriptions should be included in business plans for A) all employees B) key managers C) Both of these.

D) Neither of these.

Answer: B Diff: 2 Page Ref: 50 Learning Object.: 2.5 Differentiate the components of a business plan.

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24) A factor to consider when selecting a physical location is .

A) nearby university B) wage rates C) work force availability D) All of the above.

Answer: D Diff: 2 Page Ref: 50 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 25) Cash flow be negative before debt and equity infusions and after them.

A) can, cannot B) cannot, cannot C) cannot, can D) can, can Answer: A Diff: 3 Page Ref: 53 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking

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be negative

26) Income statement projections realistically in the first few months of operations.

A) show losses B) show profits C) break even D) show marginal profits Answer: A Diff: 2 Page Ref: 53 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 27) Ratio analysis can help business owners .

A) secure funding B) manage operations C) understand their performance relative to peers D) All of the above.

Answer: D Diff: 3 Page Ref: 55 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 28) An IPO is a(n) exit strategy for entrepreneurial ventures.

A) extinct B) rare C) common D) alternative for a buyout plan Answer: D Diff: 3 Page Ref: 55 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 29) If a company does not have , it will fail.

A) property B) cash C) advertising D) advanced technology Answer: B Diff: 1 Page Ref: 53 Learning Object.: 2.5 Differentiate the components of a business plan.

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30) What a business owns is called .

A) liabilities B) assets C) net worth D) owner's equity Answer: B Diff: 1 Page Ref: 53 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Reflective thinking 31) The marketing plan is based on the marketing mix of product, price, place, and packaging.

Answer: FALSE Diff: 2 Page Ref: 45 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 32) Discuss the significance of the management section of the business plan and what it should contain.

Answer: The management team is often the deciding factor for financial support of the business.

With all other factors being equal, a strong management team will be successful and a weak one will fail. The team must be composed of an effective balance of members with technical expertise, experience in the field, and life experience. In the plan, you should briefly discuss the current and proposed management team and reference their resumes in the appendices. An organizational chart and descriptions of key roles is helpful, as is a chart of compensation rates.

Diff: 3 Page Ref: 50 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 33) Describe mission, vision and culture.

Answer: The mission of a business is expressed in a mission statement which is a concise communication of strategy, including the business definition and competitive advantage. Its function is to clarify what the business is trying to do, and it can provide direction and motivation to those who are involved in the business.

The vision for a business is broader and more comprehensive, painting the big picture of what you want your organization to become. It is built on the core values and belief systems of the organization. It is typically shorter than the mission statement, with a loftier perspective.

The culture of an organization is largely defined by its leadership. Organizational culture has many components, including norms for risk tolerance and innovation, orientation with respect to people, team formation and outcomes, attention to detail, and communication.

Diff: 2 Page Ref: 47 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking

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34) What are the types of financial information to include in a business plan and why are they important?

Answer: The financial section of the business plan is the numeric representation of all that is written in it. It should demonstrate organizational viability in financial terms. Commercial lenders in particular will often go directly from reading the executive summary to the financials before reading anything else.

Diff: 3 Page Ref: 51 Learning Object.: 2.5 Differentiate the components of a business plan.

AACSB Category: Analytical thinking 35) Which of the following is not a best practice?

A) Write for your audience.

B) Use technical language and jargon.

C) Show that you are emotionally, intellectually and financially invested in the business.

D) Explain why the business will be successful.

Answer: B Diff: 3 Page Ref: 57 Learning Object.: 2.6 Recognize and demonstrate proper development and formatting of a business plan.

AACSB Category: Analytical thinking 36) A(n) is a 30-second to a 2-minute summary of your business.

A) story B) advertisement C) elevator pitch D) executive summary Answer: C Diff: 1 Page Ref: 58 Learning Object.: 2.6 Recognize and demonstrate proper development and formatting of a business plan.

AACSB Category: Analytical thinking 37) When you make an in-person presentation to prospective investors you should A) be prompt B) establish rapport with the audience C) use clear visual aids D) All of the above.

Answer: D Diff: 2 Page Ref: 58 Learning Object.: 2.6 Recognize and demonstrate proper development and formatting of a business plan.

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38) Business plan and venture competitions for students are held worldwide. Many of them include .

A) oral presentations B) prizes C) travel D) All of the above.

Answer: D Diff: 2 Page Ref: 59 Learning Object.: 2.6 Recognize and demonstrate proper development and formatting of a business plan.

AACSB Category: Analytical thinking 39) In a business plan, it is important to demonstrate that you have "skin in the game."

Answer: TRUE Diff: 3 Page Ref: 57 Learning Object.: 2.6 Recognize and demonstrate proper development and formatting of a business plan.

AACSB Category: Reflective thinking 40) What is the importance of having a professional, polished business plan?

Answer: A plan with clear, concise language, current data, a single "voice," and a consistent format is professional. A professional business plan on high quality paper with a neat, attractive cover, cover page, and professional binding will go a long way to impressing the reader. The potential investor or other reader needs to find the plan appealing in order to read it.

Diff: 3 Page Ref: 56-57 Learning Object.: 2.6 Recognize and demonstrate proper development and formatting of a business plan.

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Chapter 3 Creating Business From Opportunity 1) Which of the following is not an element of business definition?

A) the offer B) the acceptance C) target market D) production and delivery capability Answer: B Diff: 2 Page Ref: 94 Learning Object.: 3.1 Define your business.

AACSB Category: Analytical thinking 2) A target market of every adult in the United States is too A) narrow B) broad C) specific D) limiting Answer: B Diff: 1 Page Ref: 94 Learning Object.: 3.1 Define your business.

AACSB Category: Reflective thinking 3) Business definition answers the questions of who, what, and A) how B) when C) why D) None of the above.

Answer: A Diff: 1 Page Ref: 94 Learning Object.: 3.1 Define your business.

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4) A is a group of people who would be interested in buying a given product or service.

A) market B) consumer C) customer D) target Answer: A Diff: 1 Page Ref: 93 Learning Object.: 3.1 Define your business.

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5) The business definition has three elements: .

A) target market, potential customers, and production capability B) offer, target market, and production/delivery capability C) offer, acceptance, and consideration D) business definition, target market, and market analysis Answer: B Diff: 2 Page Ref: 94 Learning Object.: 3.1 Define your business.

AACSB Category: Reflective thinking 6) A solid business definition has three elements: 1) the offer, 2) target market, 3) production and delivery capability.

Answer: TRUE Diff: 1 Page Ref: 94 Learning Object.: 3.1 Define your business.

AACSB Category: Analytical thinking 7) Before you can start your business, you must define it. Describe the questions the business definition answers and its three elements.

Answer: The business definition answers three questions: Who, What, and How? a) Who will the business serve? In other words, who is in the market for your product or service? b) What will the business offer the customers? What are the products (or services) the business will sell? c) How will the business provide the products or services it offers? What are the primary actions and activities required to conduct this business? For example: • Buying or developing or manufacturing the product.

• Identifying its prospective customers and selling the product to them.

• Producing and delivering the product or service.

• Receiving payment.

The definition of the business has three elements: 1) The Offer - What will you sell to your customers? That is called your offer. This includes exactly which products and services you will bring to the market, and how you will price them.

2) Target Market - Which segment of the consumer market are you aiming to serve? This is called your target market. Defining your target market in a way that helps you to identify potential customers is an important factor in achieving success.

3) Production and Delivery Capability - How will you provide your offer to your targeted customers? This includes how you will perform all key activities required to produce the product or service, deliver it to your customers, and ensure that they are satisfied.

Diff: 3 Page Ref: 94 Learning Object.: 3.1 Define your business.

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8) is the core values of an organization in action.

A) Mission B) Culture C) Vision D) None of the above.

Answer: B Diff: 2 Page Ref: 97 Learning Object.: 3.2 Articulate your core beliefs, mission, and vision.

AACSB Category: Reflective thinking 9) When you start your business your will guide the business operations and decisions.

A) core beliefs B) track record C) guiding light D) competitive offers Answer: A Diff: 1 Page Ref: 95 Learning Object.: 3.2 Articulate your core beliefs, mission, and vision.

AACSB Category: Reflective thinking 10) Your is a concise communication of your strategy including your business definition, purpose, and your competitive advantage.

A) target market analysis B) business plan C) values statement D) mission statement Answer: D Diff: 2 Page Ref: 96 Learning Object.: 3.2 Articulate your core beliefs, mission, and vision.

AACSB Category: Reflective thinking 11) Which of the following is not a strong method of identifying business opportunities?

A) Searching through a process of identification and selection beginning with self- developed (or group-developed) ideas.

B) A person has a talent for making something and decides that he or she should go into business.

C) Searching through a process of identification and selection starting with research on "hot" businesses or growth areas.

D) A person has an idea for a product or service and searches for a market.

Answer: B Diff: 3 Page Ref: 98 Learning Object.: 3.2 Articulate your core beliefs, mission, and vision.

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12) Your company's vision defines the work environment.

Answer: FALSE Diff: 2 Page Ref: 97 Learning Object.: 3.2 Articulate your core beliefs, mission, and vision.

AACSB Category: Reflective thinking 13) Which item below is not a competitive advantage?

A) using a new patented manufacturing process that reduces manufacturing costs by 25% B) offering free samples during a two week promotion C) consistently providing better customer service than the competition D) reducing operating costs by 7% Answer: B Diff: 3 Page Ref: 100 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Analytical thinking 14) Business definition + competitive advantage is .

A) competitive tactics B) competitive strategy C) business mission D) business plan success Answer: B Diff: 2 Page Ref: 105 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Reflective thinking 15) For a business to be successful, a competitive advantage must be A) expensive B) legal C) sustainable D) profitable Answer: C Diff: 1 Page Ref: 105 Learning Object.: 3.3 Analyze your competitive advantage.

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16) A competitive advantage can be based on any of six factors. Which factor below is not one of the six?

A) opportunity B) selection C) service D) quality Answer: A Diff: 2 Page Ref: 101 Learning Object.: 3.3 Analyze your competitive advantage.

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17) For your business to be successful you will need a strategy for beating the competition, i.e., your .

A) competitive advantage B) customer analysis C) target market D) market analysis Answer: A Diff: 2 Page Ref: 100 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Reflective thinking 18) In analyzing competitive advantage, you will need to ask three questions. Among these are: A) Cost structure - are you at a cost advantage or disadvantage?

B) What is your unique selling proposition? What do you have that competitors cannot or will not match?

C) Competitive offers - how do you compare with competitors on a feature-by-feature basis?

D) All of the above.

Answer: D Diff: 3 Page Ref: 102, 103 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Analytical thinking 19) Entrepreneurs tend to be .

A) risk averse B) negative C) optimistic D) dispassionate Answer: C Diff: 1 Page Ref: 102 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Reflective thinking 20) The six factors of competitive advantage are quality, price, location, selection, service, and speed/turnaround.

Answer: TRUE Diff: 3 Page Ref: 101 Learning Object.: 3.3 Analyze your competitive advantage.

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21) Describe the six factors of competitive advantage.

Answer: Competitive advantage comes from one (or a combination) of six factors: 1) Quality - Can you provide higher quality than competing businesses?

2) Price - Can you offer a lower price than your competition?

3) Location - Can you find a more convenient location for customers?

4) Selection - Can you provide a wider range of choices than your competitors?

5) Service - Can you provide better, more personalized customer service?

6) Speed/Turnaround - Can you deliver your product or service more quickly than the competition?

Diff: 3 Page Ref: 101 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Analytical thinking 22) How do you decide if your competitive advantage is strong enough, and give an example?

Answer: 1) Sell to a market that is large and growing, for example, China or iPods.

2) Sell to a market where the competition is able to make a profit. For example, right now, the jury is out on whether hybrid cars will be profitable. However, selling the Honda Accord (the U.S.'s most purchased car) is obviously profitable for Honda.

3) Sell to a market where competitors are succeeding, but they cannot block your entry or make market entry hard. For example, take your product and sell it at a flea market.

4) Sell a product or service that solves problems consumers have with competitors. For example, FEDEX offered overnight delivery and began to beat the United States Postal Service and United Parcel Service.

5) Sell a product or service at a competitive price that will attract customers. For example, UPS fought back against FEDEX by offering a lower price than FEDEX for overnight delivery.

Diff: 3 Page Ref: 101, 102 Learning Object.: 3.3 Analyze your competitive advantage.

AACSB Category: Analytical thinking 23) Briefly describe a product or service idea, e.g., a bookstore, and describe how you might create a competitive advantage.

Answer: Answers will vary, but the answer should focus on using the following tactics/elements to develop a unique selling proposition: a) location, b) product characteristics, c) design, and/or d) price. The student may well include promotion as well.

Diff: 1 Page Ref: 102 Learning Object.: 3.3 Analyze your competitive advantage.

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24) The cost of selling one unit of a product is called .

A) cost of materials B) cost of goods sold C) cost of services sold D) marginal cost Answer: B Diff: 3 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 25) To help determine whether your business will be profitable, calculate the A) difference between the costs and profits for one unit B) economics of one unit C) cost of goods sold D) marginal cost of one unit Answer: B Diff: 1 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 26) Total gross profit = .

A) profit - cost of goods sold B) cost of goods sold - total revenue C) revenue - cost of goods sold D) revenue - operating costs Answer: C Diff: 1 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 27) A typical unit of sale for a wholesaler would be .

A) one item B) one dozen C) a block of time devoted to a task D) one hour of work Answer: B Diff: 1 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

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28) Average gross profit per customer is .

A) average cost of sale - average sale per customer B) average cost of tangible product - average cost of intangible product C) average sale per customer - average cost of sale per customer D) average sale per consumer + average sale per wholesaler Answer: C Diff: 2 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 29) Total cost of goods sold per unit consists of .

A) volume cost + labor cost B) labor cost - volume discount per unit C) materials cost per unit + labor cost per unit D) selling price per unit + gross profit per unit Answer: C Diff: 3 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 30) Business leaders create wealth by .

A) avoiding the cost of hiring employees B) reducing their gross margins C) hiring employees in order to sell more units and generate more profit D) charging high prices to customers Answer: C Diff: 3 Page Ref: 112 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Reflective thinking 31) What is the average unit of sale for a restaurant that serves $3,250 per day in meals to 200 customers per day?

A) $32.50 B) $20.00 C) $16.25 D) $15.84 Answer: C Diff: 1 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

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32) If the Foreign Exchange rate between the Japanese yen and the Euro is 190 : 1, how many yen will equal 10 euros?

A) 1900 B) 100 C) 1910 D) 1901 Answer: A Diff: 2 Page Ref: 112 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Application of knowledge 33) The foreign exchange rate is .

A) the relative value between one currency and another B) the rate at which countries do business C) the relative value between the dollar and foreign currencies D) the relative value of last year's currency to this year's Answer: A Diff: 2 Page Ref: 112 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 34) Tray has a T-shirt business that buys shirts from a wholesaler for four dollars each and sells them to retailers for eight dollars each. He imprints each shirt with a picture of a musical artist that costs him two dollars. He also pays his cousin to do the printing at five dollars an hour.

LaShawn prints five shirts per hour. A retailer offers to buy 1000 shirts at seven dollars each.

Should Tray agree to the deal?

A) Yes, Tray will make a profit of one dollar per shirt.

B) No, Tray will not make a profit at this price.

C) Yes, Tray will make a marginal profit at this rate.

D) Yes, even though he may lose money he can make up for it in volume.

Answer: B Diff: 3 Page Ref: 111 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Application of knowledge 35) Once you know your you can calculate gross profit.

A) cost of goods sold B) gross cost C) unit of sale D) net profit Answer: A Diff: 2 Page Ref: 108 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

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36) The unit of sale for a retailer is .

A) a dozen of an item B) one item C) one order D) one hour of time Answer: B Diff: 1 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 37) The unit of sale for a manufacturer is .

A) a dozen of an item B) one item C) one order D) one hour of time Answer: C Diff: 1 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Analytical thinking 38) The COGS and COSS are equivalent mathematically.

Answer: TRUE Diff: 2 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Reflective thinking 39) Why is it a good idea to figure out your Economics of One Unit?

Answer: The Economics of One Unit of Sale (EOU) is a method for seeing whether your business idea might be profitable. The EOU tells you how much gross profit you will earn on every unit of your product or service that you sell.

If one unit of sale is profitable, the whole business is likely to be profitable, too. On the other hand, if one unit of sale is not profitable, then no matter how many units you sell, your business will never be successful.

Diff: 2 Page Ref: 107 Learning Object.: 3.4 Prepare viability tests using the economics of one unit.

AACSB Category: Reflective thinking 40) To determine the value of a business you can use asset valuation. It is a method that analyzes the underlying value of a business's sales and operating costs as a basis for negotiating a price.

Answer: FALSE Diff: 3 Page Ref: 113 Learning Object.: 3.5 Calculate the value of a business.

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Chapter 4 Exploring Your Market 1) Nike sells sneakers, but it also markets sneakers, using to get its message out to customers.

A) publicity B) advertising and publicity C) advertising D) coupons Answer: B Diff: 1 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Reflective thinking 2) Marketing is .

A) satisfying customers at a profit B) the business function that identifies customers and their needs and wants C) product, place, promotion, and price D) All of the above.

Answer: D Diff: 2 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Reflective thinking 3) Which business function do experts agree you should focus on first when preparing to start a business?

A) operations B) marketing vision C) financing D) core concepts Answer: B Diff: 1 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Reflective thinking 4) A identifies distinctively the goods or services of one organization from others through a design, symbol, name, term or other distinguishing features.

A) product B) brand C) strategy D) positioning Answer: B Diff: 2 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

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5) is the business function that identifies customers and their needs and wants.

A) Marketing B) Advertising C) Selling D) Promoting Answer: A Diff: 2 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Reflective thinking 6) An entrepreneur's market is .

A) people who like your product B) the same as competitors' markets C) a three square-block area surrounding his or her location D) the group of people who are current and possible future customers Answer: D Diff: 3 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Analytical thinking 7) A business that markets is the same as a market-driven business.

Answer: FALSE Diff: 1 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Reflective thinking 8) Explain why marketing is considered the business function that should drive all a business's decisions.

Answer: Marketing is the business function that identifies a business's customers and their needs and wants. Through marketing, the name of a business comes to mean something clear and concrete in the customer's mind. Above all, marketing is the way a business tells its customers that it is committed to meeting their needs.

Diff: 2 Page Ref: 130 Learning Object.: 4.1 Discriminate between marketing and selling.

AACSB Category: Analytical thinking 9) The most important thing you should do before launching your product or service is .

A) thoroughly research the market B) raise enough capital C) design your logo D) hire the right employees Answer: A Diff: 1 Page Ref: 130 Learning Object.: 4.2 Summarize how market research prepares you for success.

AACSB Category: Reflective thinking 2

10) Research carried out indirectly through other existing resources is called A) secondary research B) primary research C) literature analysis D) post-secondary research Answer: A Diff: 1 Page Ref: 131 Learning Object.: 4.2 Summarize how market research prepares you for success.

AACSB Category: Analytical thinking 11) In doing research, there are several choices to help you. Among these are A) business library B) magazine articles C) Internet research D) All of the above.

Answer: D Diff: 1 Page Ref: 133 Learning Object.: 4.2 Summarize how market research prepares you for success.

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12) Your best option in market research is generally primary rather than secondary research.

Answer: TRUE Diff: 2 Page Ref: 131 Learning Object.: 4.2 Summarize how market research prepares you for success.

AACSB Category: Analytical thinking 13) Psychographic analysis and behavioral analyses are examples of methods of A) market research B) market segmentation C) marketing D) positioning Answer: B Diff: 2 Page Ref: 142 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 14) What is the third step of deciding who the potential customers are for your business?

A) understanding who might actually buy your product or service B) understanding who needs your product or services C) analyzing who has the authority to buy D) analyzing the buying process that leads customers to your product or service Answer: D Diff: 3 Page Ref: 139 Learning Object.: 4.3 Choose your market segment and research it.

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15) Which of the following aspects of a product/service is the most important to focus on when selling?

A) benefits B) features C) price D) usefulness Answer: A Diff: 2 Page Ref: 140 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking 16) Which of the following is a step in determining how customers decide to buy a product?

A) Determine the need it meets.

B) Analyze the buying process.

C) Think about who might actually buy it.

D) All of the above.

Answer: D Diff: 2 Page Ref: 139 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 17) Dividing a population on the basis of age, gender, income or education is A) marketing statistics B) demographics C) behavioral data D) psychographics Answer: B Diff: 1 Page Ref: 142 Learning Object.: 4.3 Choose your market segment and research it.

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18) Consumers who have a similar response to a certain type of marketing can be classified as a .

A) market segment B) target market C) market D) small niche Answer: A Diff: 2 Page Ref: 141 Learning Object.: 4.3 Choose your market segment and research it.

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19) Which of the following is not a step in the buying process?

A) awareness B) demographic analysis C) information search D) evaluation of purchase Answer: B Diff: 1 Page Ref: 139 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking 20) Which of the following is not a stage in the product life cycle (PLC)?

A) Competitive B) Growth C) Maturity D) Decline Answer: A Diff: 1 Page Ref: 144 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 21) Dividing the market by purchase behaviors that have been observed is segmentation.

A) demographic B) behavioral C) psychographic D) benefits-sought Answer: B Diff: 2 Page Ref: 142 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 22) By teaching customers how to use its products, Home Depot is helping customers see the of its products.

A) ramifications B) benefits C) features D) utility Answer: B Diff: 1 Page Ref: 141 Learning Object.: 4.3 Choose your market segment and research it.

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23) What is a focus group?

A) It is a method of market research that involves bringing together some people who might use a product and having a researcher question them about it.

B) It is a method of market research that focuses on how the industry is performing.

C) It is a method of market research that involves collecting statistics about a group of people who might use a product.

D) It is a method of research that uses unhappy customers.

Answer: A Diff: 3 Page Ref: 136 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 24) There is a subtle difference between the and the fact while the other is a perception.

A) revenue/costs B) sales/marketing C) features/benefits D) None of the above.

Answer: C Diff: 2 Page Ref: 140 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking

of a product. One is a

25) Market research can help you get a fix on who your customers are and A) where you can reach them B) what they want and need C) how they behave D) All of the above.

Answer: D Diff: 3 Page Ref: 135 Learning Object.: 4.3 Choose your market segment and research it.

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26) ask(s) people directly, through interviews or questionnaires, about their perceptions of a product or service.

A) General research B) Industry research C) Statistical research D) Surveys and focus groups Answer: D Diff: 2 Page Ref: 136 Learning Object.: 4.3 Choose your market segment and research it.

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27) Understanding the status and trends of an industry can be aided by .

A) checking out the internet public library, your local Small Business Administration, chamber of commerce, or local business school or college library B) looking for recent articles on the industry in magazines or by using Google or other search engines C) looking on competitors' web sites D) All of the above.

Answer: D Diff: 3 Page Ref: 137 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 28) The set of four stages that a product or market goes through from its beginning until its end is called the .

A) phases of product maturity B) product life cycle C) marketing cycle D) product stages cycle Answer: B Diff: 1 Page Ref: 144 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 29) Market research is typically .

A) complete when the product or service is introduced B) complete within six months after introduction C) complete a year after product introduction D) ongoing; you always do market research Answer: D Diff: 2 Page Ref: 138 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking 30) The product life cycle phases include .

A) introduction B) decline C) growth and maturity D) All of the above.

Answer: D Diff: 1 Page Ref: 144 Learning Object.: 4.3 Choose your market segment and research it.

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31) Smart marketers always emphasize .

A) benefits, not features B) features, not benefits C) benefits, not prices D) None of the above.

Answer: A Diff: 2 Page Ref: 140 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking 32) The product life cycle compares gross profit to sales as a product/service moves through its life stages.

Answer: FALSE Diff: 3 Page Ref: 144 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking 33) Market research should be an integral part of your business.

Answer: TRUE Diff: 1 Page Ref: 138 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Reflective thinking 34) Explain the difference between features and benefits and how it applies to sales.

Answer: The features are facts about the product. These facts create the benefits that a product can provide for a consumer. You might be selling a pan, for example, with Teflon coating. This feature creates a benefit; food cooked in the pan will not stick and the pan will be easy to clean.

The essence of selling is showing how and why the outstanding features of your product or service will benefit customers. Smart marketers always emphasize the benefits, not the features, of a product.

Diff: 2 Page Ref: 140 Learning Object.: 4.3 Choose your market segment and research it.

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35) Explain what market segmentation is and how it applies to marketing.

Answer: If the best marketing strategies are focused on the customer, a company clearly has to choose which customers to target. You need to figure out which segments of the market to target.

A market segment is composed of consumers who have a similar response to a certain type of marketing. It is difficult to target two very different segments of a market. Marketers have developed four basic ways to analyze a market: 1) Geographic segmentation - dividing a population by location.

2) Demographic segmentation - dividing a population based on a variable like age, sex, income, or education.

3) Psychographic segmentation - dividing a population by psychological differences such as personalities (conservative vs. liberal, for example), or life-styles.

4) Behavioral segmentation - dividing the market by purchase behaviors that have been observed, such as brand loyalty or responsiveness to price.

If your company has very limited resources, you might choose to target only one segment. A very large company might decide to appeal to the entire market by designing a product tailored for each segment.

Diff: 3 Page Ref: 141, 142 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 36) Analyze the buying process that leads customers to your product or service.

Answer: 1) Awareness: The consumer realizes a need. Advertising or promotion is intended to make consumers aware of potential needs.

2) Information search: Now that the consumer knows that she has a need or a want, she will search for information about products or services that might resolve that need or want.

3) Evaluate alternatives. Now that the consumer knows of alternatives, she can evaluate which best meets her needs.

4) Decide to purchase/buying decision: The first purchase is a test to see if this product/service fulfills the need/want.

5) Evaluation of purchase: If the product or service clearly meets the need or want, then the customer/consumer may begin to develop brand loyalty and tell others about the brand. If this happens, you may be able to keep the customer for life.

Diff: 3 Page Ref: 139, 140 Learning Object.: 4.3 Choose your market segment and research it.

AACSB Category: Analytical thinking 37) How are demographic, psychographic and behavioral segmentation different?

Answer: Demographic segmentation is dividing a population based on a variable such as gender, income, or education. In contrast, psychographic segmentation divides a population by psychological differences such as values or personality traits. Behavioral segmentation is dividing the market by purchase behaviors that have been observed, such as brand loyalty or responsiveness to price.

Diff: 3 Page Ref: 142 Learning Object.: 4.3 Choose your market segment and research it.

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38) Positioning your product in the market involves .

A) buying advertising and obtaining publicity B) distinguishing your product by demonstrating to customers that it is the cheapest in the market C) distinguishing your product from others being offered to the market segments you have targeted D) moving it to the top in search engine optimizing Answer: C Diff: 3 Page Ref: 146 Learning Object.: 4.4 Position your product or service within your market.

AACSB Category: Reflective thinking 39) The positioning statement for a business includes its name/brand, its competitive industry/category, , and audience/target market.

A) features and points of difference B) benefits or points of difference C) benefits and similarities D) pricing and distribution Answer: B Diff: 3 Page Ref: 146 Learning Object.: 4.4 Position your product or service within your market.

AACSB Category: Analytical thinking 40) A marketing plan can serve as a stand-alone document or be part of an overall business plan.

Answer: TRUE Diff: 2 Page Ref: 147 Learning Object.: 4.4 Position your product or service within your market.

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Chapter 5 Developing the Right Marketing Mix and Plan 1) Which of the following is one of the four Ps of marketing?

A) population B) publicity C) product D) packaging Answer: C Diff: 1 Page Ref: 157 Learning Object.: 5.1 Combine the Four P's - product, price, place, promotion - into a market mix.

AACSB Category: Analytical thinking 2) Promotion consists of .

A) devices such as discount coupons and giveaways B) advertising C) publicity D) All of the above.

Answer: D Diff: 1 Page Ref: 158 Learning Object.: 5.1 Combine the Four P's - product, price, place, promotion - into a market mix.

AACSB Category: Analytical thinking 3) Finding a retail site that has more than ample parking, excellent access and walk-in trade potential is an example of maximizing which of the marketing Ps? A) promotion B) price C) product D) place Answer: D Diff: 1 Page Ref: 158 Learning Object.: 5.1 Combine the Four P's - product, price, place, promotion - into a market mix.

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4) is free (non-purchased) mention of your business or brand in newspapers, magazines, radio or TV. A) Publicity B) Advertising C) Promotion D) Product marketing Answer: A Diff: 1 Page Ref: 158 Learning Object.: 5.1 Combine the Four P's - product, price, place, promotion - into a market mix.

AACSB Category: Analytical thinking 5) Define promotion, advertising and publicity.

Answer: Promotion is the use of advertising and publicity to get a business's marketing message out to its customers. Publicity is free. Publicity can be in newspapers and magazines or on radio and TV stations. An advertisement is a paid announcement that the business's product or service is for sale. Examples of advertising include television commercials, billboards, and magazine ads.

Diff: 2 Page Ref: 158 Learning Object.: 5.1 Combine the Four P's - product, price, place, promotion - into a market mix.

AACSB Category: Analytical thinking 6) Which of the following is not an example of successful branding?

A) A product represents luxury to customers.

B) Customers associate a product with high ethical standards.

C) Customers confuse a business's logo with that of another business.

D) Associate your company with a charity.

Answer: C Diff: 2 Page Ref: 160 Learning Object.: 5.2 Choose the attributes of your product or service.

AACSB Category: Reflective thinking 7) When you build a brand, try to focus tightly on one key .

A) feature B) benefit C) product D) product line Answer: B Diff: 2 Page Ref: 159 Learning Object.: 5.2 Choose the attributes of your product or service.

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8) A product is something that exists in nature or is made by human industry, usually to be sold, whereas a service is .

A) intangible B) tangible C) physical D) free Answer: A Diff: 3 Page Ref: 158 Learning Object.: 5.2 Choose the attributes of your product or service.

AACSB Category: Reflective thinking 9) Ford's Edsel is an example of a product that failed because it lacked A) name recognition B) focus C) competitiveness D) options Answer: B Diff: 2 Page Ref: 159 Learning Object.: 5.2 Choose the attributes of your product or service.

AACSB Category: Reflective thinking

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10) Nike's "swoosh" is an example of a(n) .

A) advertisement B) logo C) marketing message D) None of the above.

Answer: B Diff: 2 Page Ref: 160 Learning Object.: 5.2 Choose the attributes of your product or service.

AACSB Category: Application of knowledge 11) The key to building a successful brand is to focus tightly on the primary benefit you want customers to associate with your business.

Answer: TRUE Diff: 1 Page Ref: 159 Learning Object.: 5.2 Choose the attributes of your product or service.

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12) Explain why a business should focus on its brand.

Answer: The key to building a successful brand is to focus tightly on the primary benefit a business wants customers to associate with it. Marketing expert, Al Ries, explains that the most successful businesses focus their marketing so that they come to own a category in the customer's mind. By owning a brand, a business is far stronger. Examples of some well known brands are the way Volvo is recognized for safety and Federal Express is known for guaranteed overnight delivery.

Diff: 3 Page Ref: 159 Learning Object.: 5.2 Choose the attributes of your product or service.

AACSB Category: Analytical thinking 13) What is the smartest price strategy?

A) Choose a pricing strategy that incorporates the psychology of pricing.

B) Pick a pricing strategy that is different from the competition's strategy.

C) Offer the lowest price that you can afford to offer.

D) Find the lowest cost products from your suppliers.

Answer: A Diff: 3 Page Ref: 162 Learning Object.: 5.3 Price your products for success.

AACSB Category: Reflective thinking 14) According to author Jay Levinson, when consumers in the furniture industry rated factors affecting their purchase decision, .

A) price was the ninth most important variable B) price was not deemed to be a critical or relevant variable in the purchase decision C) price was by far the most important variable D) price was the second most important variable Answer: A Diff: 3 Page Ref: 162 Learning Object.: 5.3 Price your products for success.

AACSB Category: Application of knowledge 15) pricing is offering "more for less" by underscoring a product's quality, while at the same time featuring its price.

A) Prestige B) Cost-plus C) Penetration D) Value Answer: D Diff: 2 Page Ref: 163 Learning Object.: 5.3 Price your products for success.

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16) Pricing strategies include .

A) penetration B) skimming C) cost plus D) All of the above.

Answer: D Diff: 2 Page Ref: 163 Learning Object.: 5.3 Price your products for success.

AACSB Category: Analytical thinking 17) Although there are numerous pricing strategies to use in the beginning, it really doesn't matter since price is really guess work.

Answer: FALSE Diff: 1 Page Ref: 162 Learning Object.: 5.3 Price your products for success.

AACSB Category: Reflective thinking 18) How is penetration pricing different from skimming pricing?

Answer: Penetration pricing offers a low price during the early stages of a product's life cycle to gain market share. In contrast, the skimming strategy seeks to charge high prices during the introductory stage when the product is novel and has few competitors, to take early profits, and then to reduce prices to more competitive levels.

Diff: 3 Page Ref: 163 Learning Object.: 5.3 Price your products for success.

AACSB Category: Analytical thinking 19) Location and distribution are major components of the "place" component.

Answer: TRUE Diff: 1 Page Ref: 164 Learning Object.: 5.4 Find the best location for maximum efficiency and effectiveness of distribution.

AACSB Category: Analytical thinking 20) What is a banner ad?

A) an ad that runs on a Web site B) an ad attached to the back of an airplane C) an ad that runs in the newspaper D) an ad that is attached to an email Answer: A Diff: 1 Page Ref: 176 Learning Object.: 5.5 Select the mix of promotion to use for your business.

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21) is the use of advertising and publicity to get your marketing message out to your customers.

A) Communication B) Marketing C) Promotion D) Imagery Answer: C Diff: 1 Page Ref: 165 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Analytical thinking 22) is promotion that combines education and entertainment to make a more lasting impression upon an audience.

A) Marketing B) Word-of-mouth marketing C) Edutainment D) Cause-related marketing Answer: C Diff: 1 Page Ref: 175 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Reflective thinking 23) is an announcement sent to the media to generate publicity.

A) A press release B) Advertising C) A sales promotion D) Public relations Answer: A Diff: 2 Page Ref: 179 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Analytical thinking 24) A press release should answer six questions. Which of the following is not one of the six?

A) who?

B) how?

C) when?

D) why not?

Answer: D Diff: 2 Page Ref: 179 Learning Object.: 5.5 Select the mix of promotion to use for your business.

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25) advertising provides information about an organization rather than a specific product and is intended to create awareness about the firm and enhance its image.

A) Product B) Trade C) Bulk D) Institutional Answer: D Diff: 3 Page Ref: 170 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Analytical thinking 26) In doing your pitch letter you will want to address .

A) how your business changed you or helped your community B) obstacles you have overcome to start your business C) what you and your business have done that is interesting and unique D) Any or all of the above.

Answer: D Diff: 3 Page Ref: 179 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Analytical thinking 27) In terms of the pitch letter, you should always .

A) follow up your pitch letter by phone B) only make one attempt to get to a journalist C) be polite and persistent D) A and C combined.

Answer: D Diff: 2 Page Ref: 179 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Analytical thinking 28) There is no single correct way to determine your promotional budget.

Answer: TRUE Diff: 2 Page Ref: 168 Learning Object.: 5.5 Select the mix of promotion to use for your business.

AACSB Category: Reflective thinking 29) Marketing inspired by a commitment to a social, political or environmental issue is called .

A) socially responsible business B) philanthropy C) cause-related marketing D) person marketing Answer: C Diff: 1 Page Ref: 182 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

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30) Why are nonprofit corporations tax exempt?

A) because they use the money they collect to help improve society B) because they donate money to foundations C) because they pay a different form of tax than regular corporations D) they are too few in number to matter to the government Answer: A Diff: 2 Page Ref: 183 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

AACSB Category: Reflective thinking 31) A nonprofit organization that uses donated money to help others is called a A) philanthropy B) foundation C) tax exempt D) community organization Answer: B Diff: 1 Page Ref: 182 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

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32) Expressing concern for social issues by giving money, time, or advice is called A) philanthropy B) cause-related marketing C) foundation D) social responsibility Answer: A Diff: 2 Page Ref: 182 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

AACSB Category: Analytical thinking 33) Which of the following is a way to use cause-related marketing in your business?

A) Pay employees to volunteer some time toward community service.

B) Advertise that you support a social, political, or environmental cause, without actually giving any money or time to the cause.

C) Donate a small percentage of your revenue to a cause, but don't tell anyone.

D) Substitute it for publicity.

Answer: A Diff: 3 Page Ref: 183 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

AACSB Category: Reflective thinking 34) Cause-related marketing is a rather difficult way to work philanthropy into your business.

Answer: FALSE Diff: 3 Page Ref: 182 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

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35) Define philanthropy and explain why some marketing experts call philanthropy "the fifth P," and why it is important to entrepreneurs.

Answer: Philanthropy is the giving of money, time, or advice in an effort to help solve a social or environmental problem such as homelessness, pollution, or cruelty to animals.

Many philanthropic foundations in this country were established by entrepreneurs. Business owners have a responsibility to help the communities they serve. Philanthropy may also generate positive publicity, because a business can choose to promote the giving that you do. For this reason, marketing experts sometimes consider philanthropy "the fifth P." Many entrepreneurs also feel that philanthropy helps to make a successful and fulfilling life.

Diff: 3 Page Ref: 182 Learning Object.: 5.6 Add the fifth P, philanthropy, to your business.

AACSB Category: Reflective thinking 36) Which of the following is a role of the marketing plan?

A) convincing skeptical investors that your plan has merit B) identifying the target market for the organization C) detailing the advertising plan D) All of the above.

Answer: D Diff: 3 Page Ref: 185 Learning Object.: 5.7 Recognize the importance of a marketing plan.

AACSB Category: Analytical thinking 37) Good marketers know that a(n) is the heart of the marketing plan.

A) researching suppliers B) sales forecast C) analysis of the market D) price/profit schedule Answer: C Diff: 3 Page Ref: 185 Learning Object.: 5.7 Recognize the importance of a marketing plan.

AACSB Category: Reflective thinking 38) Marketing should not be budgeted as a percentage of sales but rather as money that is needed to drive sales. Therefore it is part of the business's .

A) variable costs B) sales forecast C) fixed costs D) intermediate costs Answer: C Diff: 3 Page Ref: 185 Learning Object.: 5.7 Recognize the importance of a marketing plan.

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39) Discuss the concept of fixed costs. How are they different from variable costs?

Answer: Fixed costs are "fixed" because they do not fluctuate or vary in relation to sales. Rent, for example, is a fixed cost, and rent expense will likely increase over time. However, rent will not increase as a function of sales.

Variable costs such as insurance, on the other hand, fluctuate with sales.

Diff: 2 Page Ref: 185 Learning Object.: 5.7 Recognize the importance of a marketing plan.

AACSB Category: Analytical thinking 40) To break even, a business must .

A) sell enough units to cover all its costs B) sell enough units to cover its fixed costs C) sell enough units to earn a profit D) sell enough units to cover variable costs Answer: B Diff: 1 Page Ref: 186 Learning Object.: 5.8 Apply breakeven analysis to evaluate your marketing plan.

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Chapter 6 Smart Selling and Effective Customer Service 1) Entrepreneurs constantly, not just to customers, but to investors, bankers and people they want to hire.

A) sell B) try to make a good impression C) attempt to be optimistic D) All of the above.

Answer: D Diff: 1 Page Ref: 198 Learning Object.: 6.1 Explain the importance of selling based on benefits.

AACSB Category: Reflective thinking 2) When you sell, you should always listen carefully to customer complaints, because A) it's better to have customers complain to you than to other people B) customers are happier when you listen to them C) they provide invaluable information about how to improve the product or service D) the "buck" stops here Answer: C Diff: 2 Page Ref: 198 Learning Object.: 6.1 Explain the importance of selling based on benefits.

AACSB Category: Reflective thinking 3) Entrepreneurs sell constantly to .

A) potential employees B) potential investors C) customers D) All of the above.

Answer: D Diff: 1 Page Ref: 198 Learning Object.: 6.1 Explain the importance of selling based on benefits.

AACSB Category: Reflective thinking 4) The essence of selling is teaching.

Answer: TRUE Diff: 1 Page Ref: 198 Learning Object.: 6.1 Explain the importance of selling based on benefits.

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5) Why have so many successful entrepreneurs started out in sales?

Answer: Selling is the key to business and knowing how to sell is a critical skill for an entrepreneur. Selling is about listening and matching customers' expressed needs with product and service solutions. That basic skill of determining need and providing solutions is the secret to being both a successful entrepreneur and a successful salesperson. Salespeople also have the entrepreneurial characteristics of being optimistic, hard-working, ambitious, confident, organized, and focused on problem solving. Many salespeople go on to start their own businesses because they have these characteristics.

Diff: 2 Page Ref: 198 Learning Object.: 6.1 Explain the importance of selling based on benefits.

AACSB Category: Analytical thinking 6) If you decide to pay yourself a commission from your business, you will be earning .

A) a percentage of your business profit B) a percentage of each sale C) a set salary D) a bonus Answer: B Diff: 2 Page Ref: 198 Learning Object.: 6.2 Demonstrate principles of selling to prepare effective sales calls.

AACSB Category: Analytical thinking 7) When you are starting out and cannot afford to pay sales representatives full-time salaries, you can offer instead.

A) incentives B) bonuses C) commissions D) bonuses and incentives Answer: C Diff: 2 Page Ref: 198 Learning Object.: 6.2 Demonstrate principles of selling to prepare effective sales calls.

AACSB Category: Analytical thinking 8) An appointment with a potential customer to explain or demonstrate your product or service is called a .

A) sales call B) pre-qualification C) product demonstration D) presentation Answer: A Diff: 2 Page Ref: 200 Learning Object.: 6.2 Demonstrate principles of selling to prepare effective sales calls.

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9) Objectives during a sales call include making the customer .

A) want to buy the product or service from you B) aware of your product or service C) want to buy your product or service D) All of the above.

Answer: D Diff: 3 Page Ref: 200 Learning Object.: 6.2 Demonstrate principles of selling to prepare effective sales calls.

AACSB Category: Analytical thinking 10) Good salespeople .

A) believe in what they are selling B) feel good about what they are selling C) All of the above.

D) None of the above.

Answer: C Diff: 3 Page Ref: 199 Learning Object.: 6.2 Demonstrate principles of selling to prepare effective sales calls.

AACSB Category: Analytical thinking 11) Outline the principles of selling.

Answer: Make a good personal impression when selling your product or service. Be clean, welldressed, but do not overdress for the audience. (You might not want to wear a three piece suit to see a garage owner, but you would if you were to see a banker.)

Know your product or service. Understand how features benefit your customer. Be able to articulate the benefits.

Believe in your product or service. If you do not believe, then others will not either. However, always look to improve your product or develop a new one.

Know your field. Read trade literature and know your industry.

Know your customers. What are their needs and how does your product or service address them?

Prepare your sales presentations. Tailor your presentations to the audience.

Think positively. You have to be mentally strong and be willing to accept rejection; oftentimes 10 people will say no to everyone that says "yes."

Keep good records. Keep your invoices and receipts.

Make an appointment. People will respect you if you respect their time.

Treat everyone you sell to like gold. People like to be treated well and respected. Moreover, if you do not do well, bad news travels fast. If you do a bad job, the customer will probably tell at least 10 colleagues or friends about the poor experience.

Diff: 3 Page Ref: 198, 199 Learning Object.: 6.2 Demonstrate principles of selling to prepare effective sales calls.

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12) During each sales call you make, focus on this question.

A) How can I make the customer buy from me?

B) What does the customer need?

C) How can I convince the customer to ignore his/her objections?

D) How do I handle the objections that will be raised?

Answer: B Diff: 3 Page Ref: 201 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Analytical thinking 13) The most important thing to do during a sales call is A) listen, in order to learn what the customer needs B) keep talking so the customer doesn't lose interest C) ask questions to keep the customer engaged in the sales call D) push for the sale early and don't mention price until the end Answer: A Diff: 2 Page Ref: 201 Learning Object.: 6.3 Plan successful sales calls.

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14) What should you do when a customer raises objections during a sales call?

A) Ignore them; the customer will forget about them by the time the call is over.

B) Acknowledge objections as they arise and respond to them.

C) Shorten the sales call; don't waste time on a customer who has objections to your product or service.

D) Say, "I'll get back to that in a moment."

Answer: B Diff: 2 Page Ref: 203 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Reflective thinking 15) are people and/or organizations that may be receptive to a sales pitch.

A) Prospects B) Potentials C) Probables D) Possibles Answer: A Diff: 1 Page Ref: 201 Learning Object.: 6.3 Plan successful sales calls.

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16) Successful businesses are built on .

A) repeat business B) frequent sales C) big sales D) highly profitable sales Answer: A Diff: 2 Page Ref: 203 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Reflective thinking 17) People you think might be receptive to your sales presentation are called A) consumers B) customers C) prospects D) interested parties Answer: C Diff: 2 Page Ref: 205 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Analytical thinking 18) Every sales call is an opportunity to .

A) improve your selling skills B) talk and talk and talk to the customer C) exploit your customers D) None of the above.

Answer: A Diff: 1 Page Ref: 204 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Reflective thinking 19) Which of the following is not a prequalification question?

A) Is this individual in my market?

B) Does he or she need my product?

C) How will he or she pay for it?

D) Can he or she afford it?

Answer: C Diff: 3 Page Ref: 201 Learning Object.: 6.3 Plan successful sales calls.

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20) It is not really necessary to prequalify your customer before the sales call since it can be done during the sale.

Answer: FALSE Diff: 2 Page Ref: 201 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Analytical thinking 21) Asking the right questions is optional during a sales call or presentation.

Answer: FALSE Diff: 2 Page Ref: 204 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Analytical thinking 22) Describe three sales call behaviors used by successful salespeople.

Answer: 1) Let the customers talk more than you do. According to SPIN Selling, "the more your customers talk, the more you will learn about their needs, which puts you in a better position to offer them the most customized and most helpful solutions." Encourage your customers to talk to you about their situations and problems. As they talk, they begin to understand their own needs better and begin to realize the importance of solving their problems.

2) Ask the right questions! How do you get customers to talk to you? Rackham notes that you have to ask the right questions. If your sales calls are leaving you with little information, you're not asking the questions that uncover your customers' needs. Instead of focusing on selling your product, really focus on listening to your customers. Try to draw them out. Be a friend. You need to fully understand their problems before trying to suggest that your product or service could provide a solution.

3) Wait to offer products and solutions until later in the call. First, let your customer talk.

Second, once you've got the customers talking, ask the right questions to help the customers uncover their problems. Now you are ready to offer your product or service as a solution to one of these problems. As Rackham writes, "You cannot know what solution to offer if you do not uncover customer needs and decision criteria first. For example, if you spend your time with the customer talking about how quiet your machine is, and noise is not a factor your customer cares about, you've wasted your time." You cannot offer a solution until you know what problem the customer needs to solve.

Diff: 3 Page Ref: 203, 204 Learning Object.: 6.3 Plan successful sales calls.

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23) Discuss the eight step sales call.

Answer: 1) Preparation - Prepare yourself mentally. Visualize the call in your mind.

2) Greeting - Greet the customer politely and graciously. Keep a two-way conversation going.

3) Show the product or service - Personalize it for the prospect or customer.

4) Listen to the customer - In successful sales calls, the buyer does most of the talking.

5) Deal with objections - Acknowledge objections and address them. If you admit and address negatives about your product or service, you gain credibility.

6) Close the sale - Ask for the order. If the customer says "no" three times you still have a chance. When the customer says "no" the fourth time, it is really a "No." 7) Follow-up - Find out how the customer likes the product or service and if you can be of further help.

8) Ask for referrals - If you did a good job for a customer, ask them for referrals, other potential customers you might contact.

Diff: 3 Page Ref: 202, 203 Learning Object.: 6.3 Plan successful sales calls.

AACSB Category: Analytical thinking 24) Using technology to sell .

A) is not really necessary B) works for products but not services C) can be useful in helping you communicate your product to the customer and to stay in touch with the customer D) is too expensive for the average salesperson Answer: C Diff: 2 Page Ref: 205 Learning Object.: 6.4 Analyze and improve sales calls.

AACSB Category: Information technology 25) Brian Tracy believes all objections fall into one of six categories. Which of the following is not one of the six?

A) follow-up service and competition B) support, warranties and assurances C) price and performance D) None of the above.

Answer: D Diff: 2 Page Ref: 204 Learning Object.: 6.4 Analyze and improve sales calls.

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26) Which of the following is not an example of customer service?

A) Suggest a less expensive product that will meet the customer's need.

B) Deliver the product on time.

C) Keep a customer on hold indefinitely.

D) Help customers carry their purchases to their vehicles.

Answer: C Diff: 1 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

AACSB Category: Reflective thinking 27) Everything that a business does to keep its customers happy is called A) customer service B) customer appreciation C) post-sale service D) customer satisfaction Answer: A Diff: 2 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

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28) Joe Girard's Law of states that just a few unhappy customers can keep a great many other customers away from your business.

A) 250 B) Sales C) 200 D) Sales Averages Answer: A Diff: 3 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

AACSB Category: Analytical thinking 29) Customer complaints should be .

A) carefully listened to, but not responded to (don't let the customer know you take the complaints seriously) B) acknowledged and responded to politely C) politely ignored D) put in priority order Answer: B Diff: 1 Page Ref: 207 Learning Object.: 6.5 Recognize and arrange excellent customer service.

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30) Telling the truth about any negative aspect of a product or service usually A) means that you are dishonest B) annoys your customer C) gains your customer's trust D) makes a customer think you are up to something Answer: C Diff: 1 Page Ref: 208 Learning Object.: 6.5 Recognize and arrange excellent customer service.

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31) Which of the following is not a cost of losing a customer?

A) loss of past dollars B) loss of jobs C) loss of reputation D) loss of future business Answer: A Diff: 3 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

AACSB Category: Analytical thinking 32) Customer service is everything you do to keep customers happy, especially A) after they've bought something B) during the buying process C) before they've bought something D) as they are paying for the product Answer: A Diff: 2 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

AACSB Category: Reflective thinking 33) Losing a customer can hurt by .

A) loss of jobs B) losing your reputation and future business C) losing the current dollars D) All of the above.

Answer: D Diff: 2 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

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34) An angry customer can make you angry too. However, it is crucial that .

A) you ensure you continue to sell your product or service B) you stay calm, ask the customer to explain the situation, and do not interrupt the customer as she speaks C) you make your points to the customer D) once the sale is made, you do not go back to this person Answer: B Diff: 2 Page Ref: 208 Learning Object.: 6.5 Recognize and arrange excellent customer service.

AACSB Category: Reflective thinking 35) A successful business is built upon repeat customers.

Answer: TRUE Diff: 1 Page Ref: 208 Learning Object.: 6.5 Recognize and arrange excellent customer service.

AACSB Category: Reflective thinking 36) Define customer service and give examples of offering good customer service.

Answer: Customer service is everything you do to keep your customers happy, especially after they've bought something. It includes maintaining and repairing the product or service once it has been sold and dealing with the customers' complaints. Many businesses do not practice customer service because it requires effort, time, and money. Smart entrepreneurs understand, however, that investing in customer service is likely to have a high return.

Here are some examples: 1) Calling your customer by name.

2) Delivering a product on time.

3) Helping a customer carry his or her product to the car.

4) Suggesting a less expensive product that will meet the customer's need.

5) Providing a full refund to a customer who is dissatisfied with a product or service.

6) Taking time to listen politely and with empathy to a customer's complaint.

7) Providing a toll-free customer assistance phone line.

Smart entrepreneurs pay close attention to their customers. They constantly ask questions and analyze their needs. They train their employees to look for customer needs that might be going unfulfilled. The most successful entrepreneurs become customer service experts. Excellent customer service combined with smart selling and a product that offers a unique competitive advantage will lead to success.

Diff: 3 Page Ref: 206 Learning Object.: 6.5 Recognize and arrange excellent customer service.

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37) When is an entrepreneur done collecting market research for his/her business?

A) when the business has been opened B) when the business has been operating for six months C) never D) when the minimum sales have been reached Answer: C Diff: 1 Page Ref: 209 Learning Object.: 6.6 Define customer relationship management and interpret its value.

AACSB Category: Reflective thinking 38) Information such as customers' e-mail addresses and purchasing history can be stored in a simple computer .

A) Web site B) program C) database D) software Answer: C Diff: 1 Page Ref: 212 Learning Object.: 6.6 Define customer relationship management and interpret its value.

AACSB Category: Analytical thinking 39) As your database grows, you can make it more sophisticated by organizing it by region or .

A) customer interest B) age C) gender D) ethnic group Answer: A Diff: 2 Page Ref: 212 Learning Object.: 6.6 Define customer relationship management and interpret its value.

AACSB Category: Analytical thinking 40) The Small Business Administration advises sales people to put the customer first, stay close to the customer, and pay attention to details.

Answer: TRUE Diff: 2 Page Ref: 210 Learning Object.: 6.6 Define customer relationship management and interpret its value.

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Chapter 7 Understanding and Managing Start-Up, Fixed, and Variable Costs 1) The bedrock principle of business is that it should .

A) please its customers B) advertise better than its competitors C) earn a profit D) continually improve Answer: C Diff: 2 Page Ref: 225 Learning Object.: 7.1 Calculate the investment required for business start-up.

AACSB Category: Reflective thinking 2) Which two categories below are used for business costs?

A) materials and labor B) gross and net C) fixed and variable D) cost of goods sold and administrative Answer: C Diff: 3 Page Ref: 225 Learning Object.: 7.1 Calculate the investment required for business start-up.

AACSB Category: Analytical thinking 3) A litmus test for profitability is .

A) the business plan B) the economics of one unit (EOU) C) the business model D) net profit Answer: B Diff: 2 Page Ref: 225 Learning Object.: 7.1 Calculate the investment required for business start-up.

AACSB Category: Analytical thinking 4) There are two categories of variable costs: .

A) net variable costs and cost of goods sold B) gross costs and net variable costs C) cost of goods sold and other variable costs D) interest and taxes paid Answer: C Diff: 2 Page Ref: 230 Learning Object.: 7.2 Assess the variable costs of starting a business.

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5) Other variable costs per unit subtracted from Total COGS per unit equals A) cost of goods sold per unit B) contribution margin per unit C) total other variable costs per unit D) operating margin per unit Answer: B Diff: 3 Page Ref: 231 Learning Object.: 7.2 Assess the variable costs of starting a business.

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6) Start-up investment is the one-time expense of opening a business. It is also called A) entry cost B) seed capital C) down payment D) beginning capital Answer: B Diff: 1 Page Ref: 226 Learning Object.: 7.2 Assess the variable costs of starting a business.

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7) A(n) is a model or pattern that serves as an example of how a product would look and operate if it were manufactured.

A) prototype B) archetype C) typology D) model Answer: A Diff: 1 Page Ref: 226 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 8) If you sell $2500 worth of product, pay COGS of $800 and other variable costs of $360, what is your gross profit?

A) $1340 B) $1700 C) $2464 D) $2500 Answer: A Diff: 1 Page Ref: 230 Learning Object.: 7.2 Assess the variable costs of starting a business.

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9) The Thomas Register of American Manufacturers lists companies that specialize in creating .

A) products B) prototypes C) copyrights D) services Answer: B Diff: 1 Page Ref: 226 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 10) The cost of material used to make a product and cost of labor used to make the product is associated specifically with a single of sale.

A) unit B) hour C) dozen D) dollar Answer: A Diff: 2 Page Ref: 230 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 11) Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City.

Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $500, Depreciation = $0. What is Carla's monthly cost of goods sold?

A) $800 B) $600 C) $450 D) $100 Answer: A Diff: 1 Page Ref: 230 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Application of knowledge 12) Business start-up cost information can be obtained from .

A) advisors B) quotations from vendors C) industry data D) All of the above.

Answer: D Diff: 2 Page Ref: 226 Learning Object.: 7.2 Assess the variable costs of starting a business.

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13) You should keep reserves of at least .

A) 3 months of fixed operating costs B) 6 months of fixed operating costs C) one half of the start-up investment D) one year of fixed operating costs Answer: C Diff: 3 Page Ref: 227 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 14) will tell you how long it will take you to earn enough profit to cover your start-up investment.

A) Return on sales B) Return on assets C) Payback D) ROI Answer: C Diff: 2 Page Ref: 228 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 15) A critical cost for a beginning business is the seed capital.

Answer: TRUE Diff: 1 Page Ref: 226 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 16) It is wise to keep a reserve equal to one-fourth of the start-up investment.

Answer: FALSE Diff: 2 Page Ref: 227 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 17) Variable costs are expenses that must be paid regardless of whether sales are being generated.

Answer: FALSE Diff: 2 Page Ref: 230 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 18) What are variable costs? How are they broken down?

Answer: Variable costs are expenses that vary directly with changes in the production or sales volume. They are broken down into two subcategories: cost of goods sold or cost of services sold and other variable costs that include commissions and shipping and handling.

Diff: 2 Page Ref: 230 Learning Object.: 7.2 Assess the variable costs of starting a business.

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19) Explain the concept of payback period.

Answer: The payback period is the estimated time required to earn sufficient net cash flow to cover start-up investment money. It is measured by dividing the start-up investment in dollars by the net cash flow per month.

Diff: 2 Page Ref: 228 Learning Object.: 7.2 Assess the variable costs of starting a business.

AACSB Category: Analytical thinking 20) Depreciation is a(n) .

A) fixed operating cost B) variable cost C) flexible cost D) administrative cost Answer: A Diff: 2 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Analytical thinking 21) Which of the following is not a category of fixed costs?

A) rent B) advertising C) capital D) depreciation Answer: C Diff: 2 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Analytical thinking 22) The percentage of value of an asset subtracted each year until the value becomes zero, to reflect wear and tear on the asset, is called .

A) depreciation B) inventory C) deductible D) reduction Answer: A Diff: 1 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

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23) If a business has total gross profit of $14,720 and total operating costs of $11,500, what is its net profit?

A) $3,000 B) $3,220 C) $1,150 D) $0 Answer: B Diff: 1 Page Ref: 234 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Application of knowledge 24) If a business sells 5,000 units for a total profit of $200,000, what is its profit per unit?

A) $50 B) $400 C) $40 D) $500 Answer: C Diff: 1 Page Ref: 234 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Application of knowledge 25) Total Revenue divided by = units sold.

A) selling price B) profit C) total operating costs D) cost Answer: A Diff: 2 Page Ref: 234 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Application of knowledge 26) Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City.

Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $500, Depreciation = $0. What are Carla's fixed costs?

A) $2,000 B) $2,100 C) $2,600 D) $2,700 Answer: C Diff: 3 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

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27) Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City.

Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $600, Depreciation = $0. Calculate Carla's average sale per customer.

A) $4.50 B) $4.00 C) $5.00 D) $0.80 Answer: A Diff: 2 Page Ref: 234 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Application of knowledge 28) In the phrase I SAID U R + "Other FXs", UR stands for .

A) utilities, rent B) unknown rates C) unforeseen revisions D) unforeseen rates Answer: A Diff: 3 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Analytical thinking 29) Fixed operating costs .

A) are not included in COGS B) are not direct costs of creating each product C) include expenses like rent D) All of the above.

Answer: D Diff: 3 Page Ref: 235 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Analytical thinking 30) is what remains when you subtract fixed and variable costs and taxes from revenues.

A) Operating profit B) Gross profit C) Net profit D) Gross margin Answer: C Diff: 1 Page Ref: 234 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

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31) Fixed operating costs can change over time.

Answer: TRUE Diff: 1 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Reflective thinking 32) Depreciation is the percentage of value of an asset added each year to reflect wear and tear on the asset.

Answer: FALSE Diff: 2 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Analytical thinking 33) Jenny is worried because when she calculates the EOU for her business, the gross profit is too low. Explain whether or not she could improve it by finding an office with a lower monthly rent.

Answer: Gross profit is calculated by subtracting the cost of goods sold from sales or selling price. Rent is not a cost of goods sold. It is a fixed cost, so lowering Jenny's rent may make her business more profitable overall, but it will not raise her gross profit margin. To improve her gross profit, she will need to raise her prices or reduce her cost of goods sold.

Diff: 3 Page Ref: 233 Learning Object.: 7.3 Analyze your fixed operating costs and calculate gross profit.

AACSB Category: Analytical thinking 34) Why is it best to pay expenses for your business with a check, not with cash?

A) A check can't be traced.

B) Cash is easier to lose.

C) A check provides written proof of payment.

D) Paying with a check keeps check printing companies and banks in business.

Answer: C Diff: 1 Page Ref: 238 Learning Object.: 7.4 Select financial record keeping for your business.

AACSB Category: Reflective thinking 35) The systematic recording, reporting, and analysis of the financial transactions of a business is called .

A) accounting B) reconciliation C) cost analysis D) cash flow analysis Answer: A Diff: 1 Page Ref: 235, 236 Learning Object.: 7.4 Select financial record keeping for your business.

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36) Record keeping for a very small business can be accomplished by a journal and files for storing .

A) records of transactions B) details of seed capital C) details of start-up expenses D) details of marginal costs Answer: A Diff: 1 Page Ref: 237 Learning Object.: 7.4 Select financial record keeping for your business.

AACSB Category: Analytical thinking 37) is a review of financial and business records to ascertain integrity and compliance with standards and laws, particularly by the U.S. Internal Revenue Service.

A) Scrutiny B) Assessment C) Due diligence D) Audit Answer: D Diff: 3 Page Ref: 236 Learning Object.: 7.4 Select financial record keeping for your business.

AACSB Category: Analytical thinking 38) The difference between a receipt and an invoice is that the receipt records A) sales B) interest paid C) purchases D) credit transactions Answer: C Diff: 1 Page Ref: 238 Learning Object.: 7.4 Select financial record keeping for your business.

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39) Describe how an entrepreneur should protect his/her financial records.

Answer: Always keep a copy of your financial records in a location separate from your business.

If you are using software, backup your data and keep the CD in a different location. At the end of each month, move your new receipts and invoices to this location. This way if anything happens to your journal or your business site, you will still have your financial records.

Diff: 2 Page Ref: 238 Learning Object.: 7.4 Select financial record keeping for your business.

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40) Give three reasons to keep good records every day.

Answer: Keeping good records will show you how to make your business more profitable.

Perhaps you are making less profit this month than last. Did your expenses go up? Were your revenues down? Maybe you are spending too much in one area. Accurate records can identify which area needs attention.

Keeping good records proves that payments have been made. Records prevent arguments, because they prove bills have been paid or that a customer has paid you. Records also prove that you have paid your taxes, which is quite useful in case the Internal Revenue Service conducts an audit of your tax returns.

Keeping good records will prove that your business is profitable. If you want investors in your business, or people to loan you money, then showing that your business is profitable from accurate records can only help your cause. You must always maintain an up-to-date income statement and balance sheet in order to be able to calculate accurate Return on Investment and Return on Sales.

Diff: 3 Page Ref: 236 Learning Object.: 7.4 Select financial record keeping for your business.

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Chapter 8 Using Financial Statements to Guide a Business 1) Which of the following is not a basic financial document that entrepreneurs use to track their businesses?

A) income statement B) cash flow statement C) balance sheet D) market share statement Answer: D Diff: 1 Page Ref: 252 Learning Object.: 8.1 Understand an income statement.

AACSB Category: Analytical thinking 2) The last line of an income statement shows a business's A) gross profit or gross loss B) profit or loss C) net profit or net loss D) gross margin Answer: C Diff: 2 Page Ref: 253 Learning Object.: 8.1 Understand an income statement.

AACSB Category: Analytical thinking 3) In the income statement, EBIT minus interest costs equals A) gross profit B) pre-tax profit C) net profit D) COGS Answer: B Diff: 3 Page Ref: 252 Learning Object.: 8.1 Understand an income statement.

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4) Jared analyzed the income statement for his independent label and found that for every dollar of sales, 30 cents were spent on cost of goods sold. The gross profit per dollar was 70 cents. If 20 cents were spent on operating costs and 10 cents on taxes, what is the net profit per dollar?

A) 60 cents B) 40 cents C) 30 cents D) 20 cents Answer: B Diff: 2 Page Ref: 252 Learning Object.: 8.1 Understand an income statement.

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5) An income statement shows whether the difference between revenues (sales) and expenses (costs) is a profit or a .

A) loss B) net profit C) breakeven D) semi-loss Answer: A Diff: 1 Page Ref: 252 Learning Object.: 8.1 Understand an income statement.

AACSB Category: Reflective thinking 6) Ideally, you want to have a positive "double" bottom line. This means A) you are achieving twice the revenues you expected B) you have twice the number of customers that you expected C) you have twice the profit you expected D) your profit allows you to stay in business and achieve your mission Answer: D Diff: 3 Page Ref: 254 Learning Object.: 8.1 Understand an income statement.

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7) The power of the income statement is that it will tell you whether you are fulfilling the formula of buying low, selling high, and meeting customer needs.

Answer: TRUE Diff: 2 Page Ref: 253 Learning Object.: 8.1 Understand an income statement.

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8) Describe the parts of an income statement.

Answer: 1) Revenue. Income from sales of the company's products or services. For companies using the cash method of accounting, sales are recorded when payments are received.

2) COGS (Cost of Goods Sold)/COSS (cost of services sold). These are the cost of the materials to make the product (or deliver the service) plus the costs of the direct labor used to make the product (or deliver the service). An income statement reports total COGS for a period.

3) Gross profit. The results of revenue minus COGS. 4) Other Variable Costs (VC). Costs that vary with sales.

5) Contribution margin. The result of revenues minus COGS and other variable costs, or gross profit minus other variable costs.

6) Fixed Operating costs. Costs that do not vary with sales. The most common are represented

by USAIIRD: utilities, salaries, advertising, insurance, interest, rent, and depreciation.

7) Earnings before interest and taxes (EBIT). The result of gross profit minus other variable costs minus fixed costs, except interest and taxes.

8) Pre-Tax Profit. EBIT minus interest costs. This is a business's profit after all costs have been deducted, but before taxes have been paid. Pre-tax profit is used to calculate how much tax the business owes.

9) Taxes. The taxes a business must pay on the income it earns.

10) Net profit/loss: The business's profit or loss before any taxes have been paid.

Diff: 3 Page Ref: 252 Learning Object.: 8.1 Understand an income statement.

AACSB Category: Analytical thinking 9) Owner's equity is also called .

A) debt B) assets C) liabilities D) net worth Answer: D Diff: 2 Page Ref: 256 Learning Object.: 8.2 Examine a balance sheet to determine a business's financing strategy.

AACSB Category: Analytical thinking 10) Cash itself or items that could be quickly turned into cash or will be used within 1 year are called .

A) liquid assets B) long-term assets C) current assets D) liquid cash Answer: C Diff: 2 Page Ref: 257 Learning Object.: 8.2 Examine a balance sheet to determine a business's financing strategy.

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11) Liabilities that will be paid over a period of more than one year are .

A) long-term assets B) long-term liabilities C) equity D) None of the above.

Answer: B Diff: 1 Page Ref: 258 Learning Object.: 8.2 Examine a balance sheet to determine a business's financing strategy.

AACSB Category: Analytical thinking 12) Owner's equity consists of .

A) common equity B) preferred equity C) retained earnings D) All of the above.

Answer: D Diff: 1 Page Ref: 256 Learning Object.: 8.2 Examine a balance sheet to determine a business's financing strategy.

AACSB Category: Analytical thinking 13) Define debt and equity and explain the difference between them. Where does each appear on financial statements?

Answer: Debt is money that is borrowed for use by an organization. It is expected to be paid back, normally with interest. Equity is an asset with a monetary value of cash that is put into an organization in exchange for ownership or as a gift. Debt is a liability (with short-term and potentially long-term aspects) while equity is part of the owner's equity, capital, or net worth.

Debt appears in current and long-term liabilities on the balance sheet while equity is part of net worth. The interest portion of debt repayment appears as an expense on the income statement.

Diff: 2 Page Ref: 256 Learning Object.: 8.2 Examine a balance sheet to determine a business's financing strategy.

AACSB Category: Analytical thinking 14) What must balance with assets on the balance sheet?

A) liabilities and owner's equity B) net worth and owner's equity C) capital and owner's equity D) liabilities net profit Answer: A Diff: 2 Page Ref: 258 Learning Object.: 8.3 Use the balance sheet equation for analysis.

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15) Because different types of assets depreciate at different rates, and because they are purchased at various points in time businesses keep a(n) to track the valuation of each asset that is being depreciated.

A) income statement B) balance sheet C) depreciation schedule D) cash flow statement Answer: C Diff: 1 Page Ref: 262 Learning Object.: 8.3 Use the balance sheet equation for analysis.

AACSB Category: Analytical thinking 16) You can create from your income statement that will help you analyze your business further.

A) financial ratios B) asset categories C) comparisons D) None of the above.

Answer: A Diff: 1 Page Ref: 262 Learning Object.: 8.3 Use the balance sheet equation for analysis.

AACSB Category: Analytical thinking 17) The balance sheet equation tells us that assets - liabilities = net profit.

Answer: FALSE Diff: 1 Page Ref: 258 Learning Object.: 8.3 Use the balance sheet equation for analysis.

AACSB Category: Analytical thinking 18) What is the purpose of financial ratio analysis?

Answer: Financial ratio analysis also allows you to compare the income statements from different months, or years, more easily, even if the sales are different amounts. The percentages let you compare statements as if they were the "same size." For this reason, financial ratio analysis is sometimes called "same-size analysis." Relating each element of the income statement to sales in this fashion will help you notice changes in your costs from month to month and make adjustments to increase profits.

Diff: 2 Page Ref: 262 Learning Object.: 8.3 Use the balance sheet equation for analysis.

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19) To see how costs are affecting net profit, try analyzing the income statement by expressing each .

A) as a percentage of costs B) as a percentage of profit C) as a percentage of sales D) as a percentage of administrative expense Answer: C Diff: 1 Page Ref: 262 Learning Object.: 8.4 Perform a financial ratio analysis on an income statement.

AACSB Category: Analytical thinking 20) Which of the following is not something that can be invested?

A) energy B) time C) expertise D) money Answer: C Diff: 2 Page Ref: 263 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Reflective thinking 21) In a business formula such as Return on Investment, "on" means A) "divided by" B) "on top of" C) "deducted from" D) "subtracted from" Answer: A Diff: 1 Page Ref: 263 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Analytical thinking 22) ROI is always calculated for .

A) a month B) a specific time period, such as month or a year C) the length of a business's fiscal year D) a period of time Answer: B Diff: 3 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

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23) The return on sales ratio is .

A) net income/sales B) also called the operating ratio C) revenue/expenses D) expenses/sales Answer: A Diff: 1 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Analytical thinking 24) Calculate the return on sales for a business that has net income of $25,000 and sales of $60,000.

A) 0.52 B) 4.2 C) 42% D) 4.2% Answer: C Diff: 1 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Application of knowledge 25) How would you express a ratio as a percentage?

A) add a percentage sign B) multiply it by 100 C) divide it by 100 D) None of the above.

Answer: B Diff: 1 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Analytical thinking 26) If you invest $1,525,000 in a business and earn a return of $775,000, what is your ROI? A) 51% B) 42% C) 45% D) 48% Answer: A Diff: 1 Page Ref: 263 Learning Object.: 8.5 Calculate return on investment.

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27) In the United Kingdom, the income statement is called the A) group profit and loss account B) balance sheet C) cash flow analysis D) None of the above.

Answer: A Diff: 2 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

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28) Return on Sales (ROS) is also called a(n) .

A) contribution margin B) gross margin C) profit margin D) operating margin Answer: C Diff: 2 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Analytical thinking 29) The expression, "What you made over what you paid, times one hundred," is a device to remember how to compute .

A) ROS B) ROA C) ROI D) None of the above.

Answer: C Diff: 2 Page Ref: 264 Learning Object.: 8.5 Calculate return on investment.

AACSB Category: Analytical thinking 30) A business's operating ratios are computed by .

A) cost of goods sold/sales B) expense/sales C) income/sales D) income/profit Answer: B Diff: 2 Page Ref: 265 Learning Object.: 8.6 Perform same-size (common-size) analysis of an income statement.

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31) To create a same-size analysis, calculate each line item as a percentage of .

A) sales B) income C) costs D) profit Answer: A Diff: 1 Page Ref: 265 Learning Object.: 8.6 Perform same-size (common-size) analysis of an income statement.

AACSB Category: Analytical thinking 32) When the ratio of expenses versus sales is used to express expenses as a percentage of sales, it is called a(n) ratio.

A) current B) operating C) quick D) None of the above.

Answer: B Diff: 2 Page Ref: 265 Learning Object.: 8.6 Perform same-size (common-size) analysis of an income statement.

AACSB Category: Analytical thinking 33) What analytic tool allows you to compare income statements from different periods, even if the dollar figures are very different?

A) income analyses B) asset analyses C) financial ratios D) same-day statements Answer: C Diff: 2 Page Ref: 265 Learning Object.: 8.6 Perform same-size (common-size) analysis of an income statement.

AACSB Category: Analytical thinking 34) Steve has heard that formulating a common-sized statement for analysis is a good practice.

Explain what he needs to do.

Answer: Steve would need to compare the income statements from different months or years more easily, even if the sales are different amounts. The percentages let you compare statements as if they were the "same size."

Diff: 2 Page Ref: 265 Learning Object.: 8.6 Perform same-size (common-size) analysis of an income statement.

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35) The ratio tells you whether you have enough cash to cover your current debt.

A) financial B) operating C) income D) quick Answer: D Diff: 3 Page Ref: 266 Learning Object.: 8.7 Use quick, current, and debt ratios to analyze a balance sheet.

AACSB Category: Analytical thinking 36) If you extend credit, it is critical to minimize this number to keep cash flowing.

A) receivable turnover ratio B) inventory turnover ratio C) collection-period ratio D) debt-to-equity ratio Answer: C Diff: 2 Page Ref: 268 Learning Object.: 8.7 Use quick, current, and debt ratios to analyze a balance sheet.

AACSB Category: Analytical thinking 37) Firms are concerned about liquidity, which means the ability to convert inventory into credit sales.

Answer: FALSE Diff: 1 Page Ref: 265 Learning Object.: 8.7 Use quick, current, and debt ratios to analyze a balance sheet.

AACSB Category: Analytical thinking 38) Debt ratios show the relationship between debts and equity.

Answer: TRUE Diff: 2 Page Ref: 267 Learning Object.: 8.7 Use quick, current, and debt ratios to analyze a balance sheet.

AACSB Category: Analytical thinking 39) Operating-efficiency ratios are important to a business. They include collection period, debt period, and inventory turnover.

Answer: FALSE Diff: 3 Page Ref: 268 Learning Object.: 8.7 Use quick, current, and debt ratios to analyze a balance sheet.

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40) How does a debt-to-equity ratio help describe the financial health of a company?

Answer: Comparing the amount of money a company has borrowed to its equity value indicates if the amount of borrowing has been high, moderate, or low. A high debt-to-equity ratio means that the company has higher monthly costs to repay loans and, therefore, lower profits. Higher fixed costs such as loan payments also mean more risk of bankruptcy.

Diff: 3 Page Ref: 267 Learning Object.: 8.7 Use quick, current, and debt ratios to analyze a balance sheet.

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Chapter 9 Cash Flow and Taxes 1) Which statement best describes how the cash flow statement differs from the income statement?

A) The income statement records sales and expenses when they happen, not when cash is actually exchanged. The cash flow statement records cash inflows and outflows when they actually occur.

B) The income statement records income, as it comes in, while the cash flow statement records cash from sales.

C) The income statement keeps track of cash when sales are made. The cash flow statement keeps track of cash after sales are made.

D) The cash flow statement also includes the current market value of assets.

Answer: A Diff: 3 Page Ref: 288 Learning Object.: 9.1 Understand the importance of cash flow management.

AACSB Category: Analytical thinking 2) Cash flow is the lifeblood of a business.

Answer: TRUE Diff: 1 Page Ref: 287 Learning Object.: 9.1 Understand the importance of cash flow management.

AACSB Category: Reflective thinking 3) How could the income statement potentially confuse a business owner?

Answer: The income statement shows when sales are made, not when cash is actually received.

If a business owner uses only the income statement to run the business, he or she could mistakenly think that the business has more cash than it actually does. The time lag between making a sale and actually receiving cash for it could cause a business to run out of cash to pay bills, salaries, and other immediate expenses.

Diff: 2 Page Ref: 288 Learning Object.: 9.1 Understand the importance of cash flow management.

AACSB Category: Reflective thinking 4) Which of the three financial statements an entrepreneur prepares is used to guide the day-today operations of the business?

A) the cash flow statement B) the income statement C) the balance sheet D) tax returns Answer: A Diff: 2 Page Ref: 288 Learning Object.: 9.2 Know the difference between cash and profits.

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5) Why is it not a good idea to rely on your income statement to run your business?

A) The income statement records cash when it comes into the business.

B) The income statement adds non-cash expenses back to the business's earnings.

C) The income statement deducts non-cash expenses, such as depreciation, even when no cash is actually flowing out of the business.

D) The income statement usually contains errors that other statements don't have.

Answer: C Diff: 3 Page Ref: 289 Learning Object.: 9.2 Know the difference between cash and profits.

AACSB Category: Analytical thinking 6) Which business below is most likely to have cash flow that is cyclical?

A) gas station B) pet food business C) tax return preparation business D) grocery store Answer: C Diff: 1 Page Ref: 292 Learning Object.: 9.2 Know the difference between cash and profits.

AACSB Category: Analytical thinking 7) If the amount of cash that flows in and out of your business changes significantly during certain times of the year, include the following in your business plan: .

A) a cash flow statement B) a projected cash flow statement C) expectations for seasonal variations D) flow chart Answer: C Diff: 2 Page Ref: 291 Learning Object.: 9.2 Know the difference between cash and profits.

AACSB Category: Analytical thinking 8) Which of the following is not a key rule for managing cash flow?

A) Check cash balance every day.

B) Pay bills as late as possible but on time.

C) Pay bills as soon as possible.

D) Collect cash as soon as possible.

Answer: C Diff: 2 Page Ref: 289 Learning Object.: 9.2 Know the difference between cash and profits.

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9) On your cash flow statement, you will need to the amount you deducted from the income statement as a depreciation expense.

A) subtract B) amortize C) double D) add back Answer: D Diff: 2 Page Ref: 289 Learning Object.: 9.2 Know the difference between cash and profits.

AACSB Category: Analytical thinking 10) Once a business is operational, an entrepreneur needs to keep an eye on defined as "Current Assets minus Current Liabilities."

A) working capital B) the operating ratio C) capital assets D) None of the above.

Answer: A Diff: 1 Page Ref: 289 Learning Object.: 9.2 Know the difference between cash and profits.

AACSB Category: Analytical thinking

, which is

11) What are the rules to keep cash flowing so that you always have enough cash to pay your bills?

Answer: 1) Collect cash as soon as possible. Try to get paid immediately after making a sale.

2) Pay your bills by the due date, but no earlier.

3) Check your cash balance every day. Always know how much cash you have on-hand.

4) Lease, rather than buy equipment, where possible.

5) Avoid buying inventory that does not sell quickly. Inventory ties up cash.

Diff: 2 Page Ref: 289 Learning Object.: 9.2 Know the difference between cash and profits.

AACSB Category: Analytical thinking 12) = Cash on Hand + Cash Receipts - Cash Disbursement.

A) Profit B) Revenue C) Cash flow D) Gross profit Answer: C Diff: 1 Page Ref: 292 Learning Object.: 9.3 Read a cash flow statement.

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13) The cash flow statement is: cash flow = cash on hand + credit and cash sales - cash disbursements.

Answer: FALSE Diff: 2 Page Ref: 292 Learning Object.: 9.3 Read a cash flow statement.

AACSB Category: Analytical thinking 14) If Tara invests $10,000 at 5% interest for 5 years, what will her earnings be at the end?

A) $607.75 B) $2,762.82 C) $12,500 D) $12,763 Answer: D Diff: 3 Page Ref: 301 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Application of knowledge 15) A burn rate is .

A) the number of months a business can survive without making sales B) the amount of cash per month a business can spend before it runs out of cash C) the amount of cash a business burns on rent per month D) the number of days a business can survive without making sales Answer: B Diff: 3 Page Ref: 301 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 16) A(n) rate of return means that interest is earned on the base amount plus any interest previously earned.

A) compound B) accrued C) annual D) fixed Answer: A Diff: 1 Page Ref: 301 Learning Object.: 9.4 Create a cash budget.

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17) Which of the following is the bottom line on a cash flow statement?

A) net profit B) cost of goods sold C) taxes D) ending cash balance Answer: D Diff: 1 Page Ref: 293 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 18) What are the two steps in making a cash flow projection?

A) projecting receipts and paying bills before they are due B) projecting expected cash expenses and subtracting inventory cost C) projecting cash receipts and subtracting expected cash expenses D) projecting receipts and capital expenditures for a quarter Answer: C Diff: 2 Page Ref: 292 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 19) Orders are not entered onto the cash flow statement as cash receipts because you A) don't get the cash until the customer actually pays for the order B) might get them confused with revenue on the income statement C) will have a more accurate cash flow statement if you enter them once a month D) might get a cancellation Answer: A Diff: 1 Page Ref: 292 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 20) If Jacques invests $20,000 at 10% interest for 3 years, what will the future value of the money be?

A) $26,000.00 B) $20,606.02 C) $23,606.02 D) $26,620.00 Answer: D Diff: 3 Page Ref: 302 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Application of knowledge

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21) The value of money is the amount it will be worth a number of periods from the present.

A) present B) future C) cash D) investment Answer: B Diff: 1 Page Ref: 302 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Reflective thinking 22) is the amount an investment is worth discounted back to the present.

A) Present value of money B) Future value of money C) Time value of money D) Prediscounted value of money Answer: A Diff: 2 Page Ref: 303 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 23) The present value of money is based upon the value of your "next-best" opportunity for investment at a particular ROI. If this value is 10%, it is better to get $10,000 at the end of the first year than today.

A) $10,000 B) $9,500 C) $9,090 D) $8,000 Answer: C Diff: 3 Page Ref: 303 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Application of knowledge 24) Every time an entrepreneur spends cash, she or he takes a risk. If one buys the entrepreneur faces the risk of storage costs and pilfering.

A) a computer for your chief financial officer B) capital assets C) inventory D) None of the above.

Answer: C Diff: 1 Page Ref: 296 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking

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, then

25) Credit is .

A) exemplified by purchasing a product to sell, and you don't have to pay until after you have sold it B) the ability to buy something without spending actual cash C) both of the above D) essentially using someone else's money for gain Answer: C Diff: 1 Page Ref: 299 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Reflective thinking 26) To manage cash flow, you should A) project gross receipts B) project gross sales C) project cash receipts D) project net income Answer: C Diff: 1 Page Ref: 292 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking

and then subtract expenses you expect to incur.

27) is the amount an investment is worth discounted back to the present.

A) Earnings value B) Future value C) Present value D) Tangible value Answer: C Diff: 2 Page Ref: 303 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 28) Both cash inflows and outflows can be managed to control overall cash flow.

Answer: TRUE Diff: 2 Page Ref: 295 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 29) Factoring is the selling of a business' accounts receivables at a discount to a finance company called a factor in exchange for immediate cash.

Answer: TRUE Diff: 1 Page Ref: 298 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking

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30) Future value is a component of the time value of money; however, present value is not.

Answer: FALSE Diff: 1 Page Ref: 301 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Reflective thinking 31) What is the burn rate? Why is it important?

Answer: The burn rate is the pace at which a company must spend capital before generating positive cash flow. It is expressed in terms of cash spent per month. It is important because it indicates how long a company can afford to lose money.

Diff: 3 Page Ref: 301 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Analytical thinking 32) Which of the following would be the most or least seasonal businesses and therefore have the least or most cyclical cash flow: a. snow plowing; b. high school senior photography; c. cleaning and repairing lawn mowers, d. evening and weekend babysitting? Why? Answer: Snow plowing is only needed in the winter months, so its cash flow would be highly cyclical; although some people might want their lawnmowers serviced during the winter when they don't use them, most people get lawn mowers repaired from early spring until late fall.

Although senior class photos might be taken during the summer, when students have more time, most will be ordered well before the end of the school year, in time for the yearbook, so fall and winter would probably be the busiest times. Evening and weekend babysitting is needed all year around, so babysitting would be the least seasonal business.

Diff: 3 Page Ref: 290-291 Learning Object.: 9.4 Create a cash budget.

AACSB Category: Application of knowledge 33) tax is federal tax that business owners are assessed on wages paid to themselves.

A) Sales B) Corporate C) Self-employment D) Unemployment Answer: C Diff: 2 Page Ref: 304 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Analytical thinking

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34) Corporate, partnership, individual income tax, and tax returns must be filed on time with the U.S. Internal Revenue Service.

A) state B) local - city or county C) self-employment D) township Answer: C Diff: 2 Page Ref: 304 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Analytical thinking 35) Because entrepreneurs do not have Social Security tax taken out of their income by their employer, they must pay a(n) .

A) self-employment tax B) sales tax C) operating tax D) capital assets tax Answer: A Diff: 1 Page Ref: 304 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Analytical thinking 36) As a sole proprietorship, you sell tangible products to the public at retail. You will need to pay .

A) sales tax B) self-employment tax C) services tax D) Both A and B. Answer: D Diff: 2 Page Ref: 304 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Analytical thinking 37) One of the penalties for failure to file proper wage taxes is sweeping your company bank account. What action will the federal government take?

A) cleaning out your inventory of saleable items B) charge interest and penalties C) taking out any available funds D) confiscate your state business license Answer: C Diff: 2 Page Ref: 304 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Analytical thinking

9

38) A is a legal structure for your business which separates the owners/partners from personal liability and provides a more flexible allocation of profit and loss.

A) limited liability company (LLC) B) sole proprietorship C) partnership D) limited partnership Answer: A Diff: 2 Page Ref: 305 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Analytical thinking 39) Make your life easier at tax time by keeping .

A) complete financial records B) operating ratios C) a good working capital figure D) high net income Answer: A Diff: 1 Page Ref: 306 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: Reflective thinking 40) What are the tax issues for the various legal structures your business can have?

Answer: 1) Sole proprietorship - All profit earned by the sole proprietor is his or hers, and affects his or her tax liability. The business does not have to pay taxes separately.

2) Partnership - Tax issues are essentially the same as with a proprietorship, except that the tax is shared among the partners on their tax returns.

3) Limited partnership - Treated the same as with a partnership, except that losses can be used as a tax shelter without being exposed to personal liability. This can be an incentive for family and friends/investors looking for tax shelters.

4) Corporation (Subchapter C) - A corporation's profits are taxed whether or not any share of the profit is distributed to the owners. Owners must also pay tax on any profit they receive. This is the double taxation burden of the C-corporation.

5) S Corporation - Small companies can use this to avoid double taxation. The S- Corporation is not taxed on profits. It is taxed only once as owner income.

6) Limited Liability Company - This structure separates the owners/partners from liability and provides a more flexible allocation of profits and losses.

Diff: 3 Page Ref: 305 Learning Object.: 9.5 Recognize appropriate tax filing information.

AACSB Category: An•alytical thinking

10

Chapter 10 Financing Strategy and Tactics 1) Statistics indicate that 45 percent of all small businesses A) survive ten plus years B) fail after three years C) survive five or more years D) fail after the first year Answer: C Diff: 1 Page Ref: 318 Learning Object.: 10.1 Assess your financing preferences.

AACSB Category: Analytical thinking

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2) Business failure is defined by Dun and Bradstreet as "business termination A) with no notice B) because of owner illness C) with losses to creditors D) with loss of sales in three continuous quarters Answer: C Diff: 1 Page Ref: 318 Learning Object.: 10.1 Assess your financing preferences.

AACSB Category: Analytical thinking

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3) The amount of risk or threat of loss that an entrepreneur is willing to sustain is A) risk acceptance B) risk tolerance C) risk aversion D) risk allowance Answer: B Diff: 2 Page Ref: 319 Learning Object.: 10.1 Assess your financing preferences.

AACSB Category: Reflective thinking 4) Raising money for a business is an aspect of , which is the use of money for a purpose.

A) comparative advantage B) equity analysis C) surety sequencing D) financing Answer: D Diff: 1 Page Ref: 317 Learning Object.: 10.1 Assess your financing preferences.

AACSB Category: Reflective thinking

1

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5) Financing with earnings is an option under what circumstances?

A) A company has no debt and is growing.

B) A company is profitable and has positive cash flow from operations.

C) A company is profitable and has negative cash flow from operations.

D) A company has substantial cash savings and marketable securities.

Answer: B Diff: 2 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking 6) What do you have to do before you can sell stock in your business?

A) hold an initial public offering B) register C) incorporate D) seek an attorney's help Answer: C Diff: 1 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking 7) Financing a corporation with debt means borrowing or A) taking a loan on a credit card B) borrowing from the entrepreneur's personal accounts C) lending money to customers D) selling bonds Answer: D Diff: 1 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking

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8) An investor who invests money into your business in exchange for equity receives A) a monthly dividend out of the business profits B) liability for any debt the business incurs C) a share of ownership of the business D) annual dividends Answer: C Diff: 1 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking

2

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9) are forms of gifts or grants to businesses.

A) Tax abatements B) Tax credits C) Unpaid labor by friends and family D) All of the above.

Answer: D Diff: 3 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking 10) You could borrow money from friends and family who would like to invest in your business, or you could offer them .

A) equity B) a bonus C) debt D) a job Answer: A Diff: 1 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking 11) The three common ways for a business to raise the capital it needs to grow are with earnings, equity, and debt.

Answer: TRUE Diff: 1 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking 12) How is financing with equity different from financing with debt?

Answer: 1) Financing with debt - The entrepreneur can borrow money from an investor and promise to pay it back over a set period of time and at a set rate of interest. Corporations sell debt in the form of bonds. Similarly, an owner of a small business can borrow money to finance the business.

2) Financing with equity - The entrepreneur trades a percentage of ownership in the business in exchange for money invested into the business. The investor receives a percentage of future profits from the business based upon the percentage of ownership. Corporations sell equity in the form of stock. An entrepreneur cannot sell stock unless the business is incorporated, but he or she can sell equity. The entrepreneur can offer ownership and a share of future profits in exchange for financing.

Diff: 3 Page Ref: 319 Learning Object.: 10.2 Compare the types of business financing.

AACSB Category: Analytical thinking

3

13) If you take out a loan for $2,000 at an annual interest rate of 10%, how much interest will you pay each year?

A) $100.00 B) $20.00 C) $200.00 D) $2000.00 Answer: C Diff: 2 Page Ref: 320 Learning Object.: 10.3 Evaluate the pros and cons of debt and equity financing.

AACSB Category: Application of knowledge 14) A is a document agreeing to repay a certain sum of money (with interest) by a specified date.

A) stock B) mutual fund C) promissory note D) bond Answer: C Diff: 1 Page Ref: 320 Learning Object.: 10.3 Evaluate the pros and cons of debt and equity financing.

AACSB Category: Analytical thinking 15) If $5,000 is borrowed at 9 percent to be paid back over one year, the interest on the loan is .

A) $450 B) $590 C) $500 D) None of the above.

Answer: A Diff: 1 Page Ref: 320 Learning Object.: 10.3 Evaluate the pros and cons of debt and equity financing.

AACSB Category: Application of knowledge 16) Relying primarily on debt financing is very dangerous for a company because A) creditors can force a company into bankruptcy or take over company property B) creditors can sabotage the business by refusing to lend it money C) creditors can gain a majority share of the company and take it over D) it can be very stressful for the owners, thus causing them to make mistakes Answer: A Diff: 2 Page Ref: 322 Learning Object.: 10.3 Evaluate the pros and cons of debt and equity financing.

AACSB Category: Analytical thinking

4

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17) The lender has no say in the management or direction of the business, as long as the loan payments are made and contracts are not violated.

Answer: TRUE Diff: 2 Page Ref: 322 Learning Object.: 10.3 Evaluate the pros and cons of debt and equity financing.

AACSB Category: Analytical thinking 18) Which of the following is not one of the "Five C's of Borrowing?"

A) certainty B) collateral C) character D) conditions Answer: A Diff: 2 Page Ref: 327 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Reflective thinking 19) accounts are credit accounts that have a single borrowing limit and may be used and repaid on a repeated cycle.

A) Charge B) Loan C) Checking D) Savings Answer: A Diff: 3 Page Ref: 328 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 20) The amount you will have to pay over a given period of time until the loan is repaid is called .

A) payback B) principal C) present value D) debt service Answer: D Diff: 1 Page Ref: 327 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking

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21) Which of the following is not a type of community development loan fund?

A) community development banks B) public employee credit union C) community development credit unions D) venture capital Answer: B Diff: 2 Page Ref: 328 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 22) If you are a small business owner looking for a loan, a bank will expect you to A) find equity investors to spread the bank's risk B) incorporate in order to maximize cash flow C) personally guarantee that you will be responsible for the business loan D) incorporate in order to avoid taxation Answer: C Diff: 3 Page Ref: 327 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking

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23) is property or other assets pledged against the loan that the lender can take and sell if the loan is not repaid.

A) Equity B) Collateral C) Asset D) Guarantee Answer: B Diff: 2 Page Ref: 327 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 24) Venture capitalists can make their money by .

A) selling their percentage share of the business to another investor B) waiting until the company "goes public" and converting their shares into stock, which can then be traded on the stock market C) Either of the above.

D) Neither of the above.

Answer: C Diff: 2 Page Ref: 329 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking

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25) Methods of bootstrap financing include .

A) getting suppliers to extend you credit terms B) using temporary help rather than permanent employees C) working from home or borrowing office space D) All of the above.

Answer: D Diff: 3 Page Ref: 332 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 26) No matter what way you approach raising money for your business, you will need a .

A) written business plan B) family investment C) winning lottery ticket D) bank loan Answer: A Diff: 2 Page Ref: 324 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Reflective thinking 27) Some federal agencies provide grants, loans, and/or loan guarantees for businesses that meet specific criteria. One of these is the United States .

A) Interstate Commerce Commission (ICC) B) Small Business Administration (SBA) C) Federal Land Bank (FLB) D) Agricultural Extension Agency (AEA) Answer: B Diff: 2 Page Ref: 331 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 28) Lender financing occurs when a business establishes trade credit with the lender.

Answer: FALSE Diff: 1 Page Ref: 331 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 29) Who are venture capitalists? How do they get their returns?

Answer: Venture capitalists are investors or investment companies whose specialty is financing new, high-potential entrepreneurial companies and second-stage companies. They get their returns either by selling their percentage share of the business to another investor through a private transaction or by waiting until the company goes public.

Diff: 2 Page Ref: 329, 330 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 7

30) Why might a bank be more willing to loan money to a large successful company than to a start-up business?

Answer: The larger established business has already proven that it can be successful, has established products or services and ongoing sales and customers, owns assets, and is already known to the bank. It is more likely to be able to make payments on the loan. A start-up business, especially with a young or unproven owner, may not be successful and therefore not capable of making the loan payments.

Diff: 2 Page Ref: 324, 327 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 31) There are many sources of capital to start a business. What are they?

Answer: 1) Family and friends can loan you money (debt) or take an ownership position (equity) in your business.

2) Venture Capital Funds use equity.

3) Angel investors can make an investment, and you give them an equity position.

4) Banks or credit unions can make a loan, or use credit cards from banks and credit unions.

5) Minority financing sources exist which can lend money or take an equity position.

6) Small Business Investment Companies (SBICs can lend money, debt.)

7) Community development financial institutions (CDFIs) may make equity, near equity and debt funding available.

8) Personal savings and other resources are the best starting point.

Diff: 3 Page Ref: 324 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking 32) What are the Five "C's" of borrowing?

Answer: 1) Collateral - A banker will want to see you pledge property or assets against a loan, so that the bank can take it and sell it if you do not repay the loan.

2) Character - Usually this is translated into credit history. A banker wants to see how you have handled credit (debt) in the past. Your history of borrowing money is captured in your credit history.

3) Capacity - A banker will want to see that the business generates enough income to pay off the debt. A banker wants to see projected cash flow statements to ensure that you will be generating sufficient cash to repay the loan.

4) Capital - A banker will evaluate how much of your money is invested in the business. A banker wants to see that you are investing your money, not just trying to use the bank's money.

5) Conditions - Bankers will evaluate overall economic conditions as part of the analysis of your loan.

Diff: 3 Page Ref: 327 Learning Object.: 10.4 Identify sources of capital for your business.

AACSB Category: Analytical thinking

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33) A share of stock represents in a company.

A) interest B) a right to discounts on products C) a concept like insurance D) ownership Answer: D Diff: 1 Page Ref: 333 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Analytical thinking 34) The greater the potential reward, .

A) the riskier the investment is likely to be B) the more the investment is likely to cost C) the less risky the investment is likely to be D) the longer it will take to show a return Answer: A Diff: 1 Page Ref: 333 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Reflective thinking 35) Corporations sell equity in the form of .

A) debt B) ownership C) stock D) perks Answer: C Diff: 1 Page Ref: 333 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Analytical thinking 36) If an investment is not risky, the reward or the potential return will probably be A) around 20% B) high C) low D) around 15% Answer: C Diff: 1 Page Ref: 333 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Reflective thinking

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37) Bonds are a form of .

A) debt financing B) equity financing C) Both of the above D) None of the above.

Answer: A Diff: 1 Page Ref: 333 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Analytical thinking 38) The equity investor's risk is that of the debt lender.

A) much lower than B) lower than C) the same as D) higher than Answer: D Diff: 2 Page Ref: 335 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Reflective thinking 39) High risk = high reward and conversely, low risk = low reward.

Answer: TRUE Diff: 1 Page Ref: 333 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Reflective thinking 40) A discount, when speaking of bonds, is the difference between a bond's trading price and its par value when the trading price is below par.

Answer: TRUE Diff: 3 Page Ref: 335 Learning Object.: 10.5 Appraise stocks and bonds as investment alternatives.

AACSB Category: Analytical thinking

10

Chapter 11 Addressing Legal Issues and Managing Risk 1) Tax-exempt, nonprofit corporations .

A) cannot make a profit B) do not have legal liability C) are set up with a specific mission to improve society D) pay dividends more often than for-profit corporations Answer: C Diff: 1 Page Ref: 360 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking 2) In limited liability companies .

A) income is taxed only once, as the personal earnings of members B) personal assets of the owners are left legally unprotected C) income is never taxed D) income is taxed twice, corporately and personally Answer: A Diff: 1 Page Ref: 358 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking 3) In a corporation, all profits go to .

A) reduce the surplus B) the owners and the shareholders C) the stockholders as salaries D) the partners according to the terms of the agreement Answer: B Diff: 2 Page Ref: 356 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking 4) Which of the following are not usually not-for-profit organizations?

A) trade associations B) charitable foundations C) churches D) book stores Answer: D Diff: 2 Page Ref: 360 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Reflective thinking

1

5) The number of stockholders in a Subchapter S Corporation is limited to A) 75 B) 50 C) 100 D) 250 Answer: C Diff: 2 Page Ref: 357 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking 6) The main disadvantage of corporations is that corporate income is A) taxed only once B) always high C) taxed twice D) taxed three times Answer: C Diff: 1 Page Ref: 356 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking

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.

7) The limited liability company (LLC) combines the best features of partnerships and corporations and can be an excellent choice for small business with a limited number of owners.

Answer: TRUE Diff: 2 Page Ref: 358 Learning Object.: 11.1 Choose a legal structure for your business.

8) How is a legal entity, such as a corporation, similar to a person? If you owned a business, why might you want it to be incorporated?

Answer: Like a person, a corporation has a name of its own; it can buy, sell, and own property and it is legally responsible for its actions. It is recognized by the law as an individual.

Corporations - not the owners, managers, or employees - are legally responsible for corporate debts and liabilities. The personal property of the owners cannot be taken to pay corporate debts.

Corporations are also permitted by law to sell shares to raise money. Corporations are easier to sell than other forms of business because the new owners will not be personally responsible for the corporation's debts.

Diff: 2 Page Ref: 356 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking

2

9) Compare the legal structure implications of a sole proprietorship and a Subchapter S Corporation for the seven parameters of 1) ownership, 2) liability, 3) taxation issues, 4) profit distribution, 5) voting on policy, 6) life of the legal structure, and 7) capitalization.

Answer: 1) Ownership • Sole proprietorship - the proprietor • Subchapter S - the (up to 100) stockholders 2) Taxation • Sole proprietorship - individual (the lowest rate) • Subchapter S - individual (the lowest rate) 3) Profit distribution • Sole proprietorship - proprietor receives all • Subchapter S - earnings paid to stockholders/shareholders as dividends in proportion to the number of shares of stock that they hold/own 4) Liability • Sole proprietorship - unlimited • Subchapter S - limited 5) Voting on policy • Sole proprietorship - not necessary • Subchapter S - common stockholders vote 6) Life of the legal structure • Sole proprietorship - death of the proprietor terminates the business • Subchapter S - unlimited 7) Capitalization • Sole proprietorship - difficult • Subchapter S - good - easier than a proprietorship: can use both debt and equity.

Diff: 3 Page Ref: 353, 357 Learning Object.: 11.1 Choose a legal structure for your business.

AACSB Category: Analytical thinking 10) Which is not a potential penalty for breaking a contract?

A) You may lose a share of the ownership of your business to the other party who signed the contract.

B) You may be sued in a court of law by the other party who signed the contract.

C) A court may order you to pay damages to the other party who signed the contract.

D) It can be costly.

Answer: A Diff: 2 Page Ref: 363 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Analytical thinking

3

11) A(n) is an agreement between two or more parties that is enforceable by law.

A) trust B) contract C) understanding D) None of the above.

Answer: B Diff: 2 Page Ref: 361 Learning Object.: 11.2 Discover the importance of contracts.

12) are the building blocks of business.

A) Letters of agreements B) Contracts C) Personal relationships D) Customer services Answer: B Diff: 3 Page Ref: 361 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Analytical thinking 13) A good contract will spell out , or unforeseeable "acts of God" beyond anyone's control, for which neither party is responsible.

A) contingencies B) liabilities C) amendments D) disasters Answer: A Diff: 2 Page Ref: 362 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Analytical thinking 14) An injured party whose rights in a contract have been breached can bring a(n) against the other party.

A) arbitration B) motion C) mediation D) lawsuit Answer: D Diff: 1 Page Ref: 363 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Reflective thinking

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15) The time period in which legal action may be taken is the A) limit of liability B) statute of legal obligations C) statute of limitations D) None of the above.

Answer: C Diff: 2 Page Ref: 363 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Analytical thinking 16) Some contracts specify that conflicts may be settled through A) negotiation B) coercion C) arbitration D) small claims Answer: C Diff: 1 Page Ref: 363 Learning Object.: 11.2 Discover the importance of contracts.

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instead of court.

17) The four "A's" of a successful contract include .

A) avoid misunderstanding and assure work B) assure payment and avoid liability C) assess risk and analyze profit D) Both A and B. Answer: D Diff: 3 Page Ref: 362 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Analytical thinking 18) Contract drafting and review is something the business owner can do and should do using law books at the local library.

Answer: FALSE Diff: 2 Page Ref: 361 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Reflective thinking 19) Why are contracts useful to business owners?

Answer: Having the details of an agreement specified in a written contract allows a business owner to make plans knowing that the arrangements are clear and that the other party is obligated by law to fulfill his/her part of the agreement. Showing a contract to a vendor or lender can help secure credit or a loan because there is proof that the entrepreneur has the business to pay back the loan. Contracts are also useful, because if a supplier breaches a contract, for example, and as a result the business loses sales, the owner can use the contract as a basis to recover damages from the liable party.

Diff: 3 Page Ref: 361 Learning Object.: 11.2 Discover the importance of contracts.

AACSB Category: Analytical thinking 5

20) Every corporation is recognized and treated under the law as A) an entity, much like a person, that has expenses and earnings B) a small business C) a large business D) if it were its owners and employees Answer: A Diff: 1 Page Ref: 365 Learning Object.: 11.3 Recognize key components of commercial law.

AACSB Category: Analytical thinking

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21) Of the three types of bankruptcies, Chapter 7 or Liquidation is the best choice to take.

Answer: FALSE Diff: 3 Page Ref: 365 Learning Object.: 11.3 Recognize key components of commercial law.

AACSB Category: Analytical thinking 22) Obtain a trademark in order to .

A) protect your logo B) register your business name C) protect all your intellectual property D) protect your business name Answer: A Diff: 1 Page Ref: 367 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Analytical thinking 23) Infringement of intellectual property is .

A) a business tactic B) a crime C) profitable D) legal in some states Answer: B Diff: 2 Page Ref: 367 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Analytical thinking 24) If you invent something and don't patent it, it falls into the public domain, meaning that .

A) you can sell your invention publicly without paying the U.S. Patent Office B) anyone can manufacture your invention and profit from selling it without paying you C) you can sell the right to manufacture the invention D) you can save a lot of money Answer: B Diff: 3 Page Ref: 370 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Reflective thinking 6

25) The form of protection offered under U.S. law to the authors of "original works of authorship" is a(n) .

A) patent B) electronic right C) trademark D) copyright Answer: D Diff: 1 Page Ref: 369 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Analytical thinking 26) What is used to identify and distinguish the source of a service rather than a product?

A) sales mark B) trademark C) service mark D) intellectual property Answer: C Diff: 2 Page Ref: 367 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Analytical thinking 27) You do not need a patent unless you .

A) have invented a product that you intend to market yourself or sell to a manufacturer B) believe that someone else could successfully sell the product by copying your invention C) Both of the above.

D) None of the above.

Answer: C Diff: 2 Page Ref: 370 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Reflective thinking 28) A copyright protects a songwriter, author, or visual artist. It keeps someone else from copying or appropriating the work.

Answer: TRUE Diff: 1 Page Ref: 369 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

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29) Explain the difference between a copyright and a trademark and how each is useful.

Answer: A copyright is the form of legal protection offered to literary, musical, and artistic works. The owner of a copyright has the sole right to print, reprint, sell and distribute, revise, record and perform the work under copyright. The copyright protects a work for the life of the author/artist plus seventy years.

A trademark, in contrast, protects a logo (short for logotype), which is an identifying symbol for a product or business. A logo is printed on the business's stationery, business cards, and flyers.

Once a logo has been registered with the United States Patent Office to protect it from being used by others, it becomes a registered trademark. A company uses a trademark so that people will recognize its product instantly, without having to read the company name, or even having to think about it. Rights to a trademark are reserved exclusively for its owner. To infringe on a trademark is illegal.

Diff: 3 Page Ref: 367, 369 Learning Object.: 11.4 Evaluate ways to protect your intellectual property.

AACSB Category: Analytical thinking 30) You purchase $250,000 worth of insurance to protect your restaurant with a $10,000 deductible. How much money are you entitled to receive as a payout if a fire destroys your store which is valued at $250,000?

A) $240,000 B) $10,000 C) $250,000 D) $240,000 less co-payment Answer: A Diff: 1 Page Ref: 371 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Application of knowledge 31) To protect against lawsuits brought by anyone injured by your product, you will need to buy .

A) liability insurance B) business insurance C) casualty insurance D) an umbrella policy Answer: A Diff: 1 Page Ref: 372 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Analytical thinking

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32) protects people from having property or wealth stolen, lost or destroyed. There are many kinds and in order to purchase it you pay a monthly, quarterly or annual .

A) Insurance/carrying cost B) Insurance/premium C) Insurance/dividend D) Insurance/maintenance fee Answer: B Diff: 2 Page Ref: 371 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Analytical thinking 33) A low deductible will yield a .

A) lower premium B) higher coverage plan C) has no impact on the premium D) higher premium Answer: D Diff: 2 Page Ref: 372 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Analytical thinking 34) A is the amount of loss or damage that you agree to cover before any insurance coverage takes over.

A) deductible B) carrying cost C) premium D) co-insurance Answer: A Diff: 1 Page Ref: 371 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Analytical thinking 35) insurance compensates employees for loss of income and for medical expenses due to job-related injuries.

A) Short-term disability B) Disability C) Injury D) Worker's compensation Answer: D Diff: 1 Page Ref: 372 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

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36) insurance is designed to cover you in the event that a business (its employees) fails to do something that causes harm to a customer.

A) Negligence B) Errors and omissions C) Product liability D) Casualty Answer: B Diff: 2 Page Ref: 372 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

37) A(n) is an official document that gives you the right to carry out a specific activity, such as an outdoor festival.

A) license B) certificate C) permit D) entitlement Answer: C Diff: 3 Page Ref: 375 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Analytical thinking 38) Federal, state and local may apply to a business and may affect what it can do, how it can do it, and when and where it can operate.

A) regulations B) grants C) taxes D) zoning Answer: A Diff: 2 Page Ref: 375 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

39) Permits, licenses, or certificates may be required for your business. Local, county, and state government offices, as well as chambers of commerce, are good places to contact for this information.

Answer: TRUE Diff: 2 Page Ref: 375 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

AACSB Category: Analytical thinking

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40) Explain the three types of insurance most states require business owners to carry.

Answer: 1) Worker's compensation - compensates employees for loss of income and pays medical expenses in job-related injuries.

2) Disability - compensates employees for loss of income due to a disabling injury or illness.

3) If you have an automobile or truck that is owned or leased by the business, you must carry commercial fleet insurance to cover your liability for personal injuries in an accident, damages to any vehicle involved, and injuries to others.

Diff: 3 Page Ref: 372 Learning Object.: 11.5 Plan to protect your tangible assets and manage risk.

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Chapter 12 Operating for Success 1) permit businesses to deliver what is promised when it is promised.

A) Expeditors B) Operations C) Sales D) Brokers Answer: B Diff: 1 Page Ref: 386 Learning Object.: 12.1 Examine the significance of operations in a business.

AACSB Category: Analytical thinking 2) The set of actions that produce goods and services is called .

A) shipping B) operations C) manufacturing D) processing Answer: B Diff: 1 Page Ref: 386 Learning Object.: 12.1 Examine the significance of operations in a business.

AACSB Category: Analytical thinking 3) Which of the following is not a step in the production-distribution chain?

A) A retailer buys 6 rings.

B) A consumer enters a jewelry shop and buys a ring.

C) A consumer wears jewelry to work.

D) A goldsmith crafts 10 rings.

Answer: C Diff: 1 Page Ref: 386 Learning Object.: 12.2 Develop a production-distribution chain for your business.

AACSB Category: Application of knowledge 4) Explain the traditional production-distribution chain.

Answer: The manufacturer (or producer) creates the goods and sells them to a wholesaler (or distributor) who in turn sells them to a retailer where the final consumer purchases them.

Diff: 1 Page Ref: 386 Learning Object.: 12.2 Develop a production-distribution chain for your business.

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5) The amount of inventory to order that will total the minimum total ordering and holding costs is called the .

A) Economic Order Quantity (EOQ) B) Economic Reorder Point (ERP) C) Reorder Point (ROP) D) Cost Accounting Point Answer: A Diff: 1 Page Ref: 389 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 6) Lost sales and goodwill are potentially significant costs that may arise from A) too little inventory B) too much inventory C) Both A and B D) poor customer service with inventory Answer: A Diff: 3 Page Ref: 388 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Reflective thinking

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7) The inventory method where you look at the inventory on hand, and when the stock level of an item appears to be low, you reorder is called .

A) basic control B) proximal management C) estimation D) visual control Answer: D Diff: 1 Page Ref: 388 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 8) A critical component of Supply Chain Management is A) identifying and securing suppliers B) managing inventory C) Both of the above.

D) Neither of the above.

Answer: C Diff: 2 Page Ref: 388 Learning Object.: 12.3 Manage suppliers and inventory.

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9) The three factors included in the calculation of the Reorder Point are A) demand, lead time, and safety stock B) supply, price, and safety stock C) demand, inventory, and price D) supply, demand, and holding costs Answer: A Diff: 3 Page Ref: 389 Learning Object.: 12.3 Manage suppliers and inventory.

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10) If the lead time for garage doors is 2 weeks, and you sell 100 doors per week, and you always want at least 20 doors in stock, what is the Reorder Point?

A) 320 B) 220 C) 420 D) 440 Answer: B Diff: 3 Page Ref: 389 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Application of knowledge 11) Suppliers may be found through .

A) newspapers and magazines B) trade shows, conferences, and catalogs C) All of the above.

D) None of the above.

Answer: C Diff: 1 Page Ref: 388 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 12) Factors to consider when selecting a include charging a price you are willing to pay and timely delivery.

A) customer B) supplier C) sales representative D) manufacturer Answer: B Diff: 1 Page Ref: 388 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking

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13) are the amounts of inventory or raw materials and work-in-process kept to guarantee service levels.

A) Safety stock levels B) Sufficiency levels C) Minimum lots D) Minimum-Maximum balance Answer: A Diff: 1 Page Ref: 389 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 14) is the management of sourcing, procuring, production, and logistics to go from raw materials to end consumers across multiple intermediate steps.

A) Supply Chain Management B) Total Quality Management C) The Production-Distribution Chain D) Supply Channel Answer: A Diff: 3 Page Ref: 387 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 15) The visual control approach to inventory management is a scientific method.

Answer: FALSE Diff: 2 Page Ref: 389 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 16) Tell how to calculate Reorder Point (ROP) and Economic Order Quantity (EOQ).

Answer: ROP is found by multiplying the average demand per unit of lead time by the lead time and adding the safety stock. EOQ is found by multiplying 2 times the annual demand by the ordering costs and dividing this quantity by the carrying cost per unit in dollars or other currencies.

Diff: 2 Page Ref: 389 Learning Object.: 12.3 Manage suppliers and inventory.

AACSB Category: Analytical thinking 17) Which of the following is not a key factor in deciding on a location for the business?

A) access to suppliers B) access for customers C) proximity to your accountant D) labor pool Answer: C Diff: 2 Page Ref: 391 Learning Object.: 12.4 Recognize the key factors to consider in the location decision.

AACSB Category: Analytical thinking 4

18) The factor-rating for location decisions uses criteria that are prioritized but not weighted. The purpose is to eliminate subjective considerations.

Answer: FALSE Diff: 2 Page Ref: 393 Learning Object.: 12.4 Recognize the key factors to consider in the location decision.

AACSB Category: Analytical thinking 19) Manufacturing, warehousing, and have similar considerations for the type and size of facility.

A) retailing firms B) services firms C) distribution firms D) not-for-profit organizations Answer: C Diff: 3 Page Ref: 395 Learning Object.: 12.5 Explore the design of facilities and their layouts.

AACSB Category: Analytical thinking 20) If you are considering starting a business venture in your home, thoroughly investigate zoning ordinances, civic association rules, and .

A) the neighborhood B) deed restrictions C) distance from the Interstate D) proximity to city hall Answer: B Diff: 2 Page Ref: 398 Learning Object.: 12.5 Explore the design of facilities and their layouts.

AACSB Category: Analytical thinking 21) Home-based entrepreneurs have special considerations other businesses don't have.

Answer: TRUE Diff: 1 Page Ref: 398 Learning Object.: 12.5 Explore the design of facilities and their layouts.

AACSB Category: Reflective thinking 22) The statistical methods, within Six Sigma, are designed to eliminate defects to a failure rate of defects per one million opportunities, or a 99.9997% success rate.

A) 3.4 B) 34 C) 0.34 D) .344 Answer: A Diff: 2 Page Ref: 402 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking

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23) Which of the following is given by the President of the United States?

A) Malcolm Baldrige National Quality Award B) ISO9000:2001 C) Benchmarking Excellence Award D) National Merit for Success Award Answer: A Diff: 2 Page Ref: 402 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 24) One sub-methodology employed in Six Sigma is DMAIC which stands for A) describe, measure, assess, improve, and control B) define, measure, analyze, improve, and control C) define, minimize, assess, improve, and collect D) describe, maximize, analyze, improve, and compact Answer: B Diff: 3 Page Ref: 402 Learning Object.: 12.6 Evaluate product quality methodologies.

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25) Engineers from what company developed Six Sigma in the 1980s?

A) Intel B) General Motors C) Motorola D) General Electric Answer: C Diff: 1 Page Ref: 402 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 26) The family of standards for quality management systems established by the International Organization for Standardization is .

A) ISO9000 B) ISO8800 C) ISO2008 D) ISO 14000 Answer: A Diff: 2 Page Ref: 401 Learning Object.: 12.6 Evaluate product quality methodologies.

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27) Which of the following is not part of process management?

A) measuring tasks B) optimizing tasks C) monitoring tasks D) costing tasks Answer: D Diff: 2 Page Ref: 401 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 28) are three of the eight quality management principles for organizational improvement.

A) Conflicted supplier relationships, process approach, and leadership B) Customer focus, leadership, and policy approach C) Customer focus, continual improvement, and involvement of people D) Continuous improvement, cost control, employee motivation Answer: C Diff: 3 Page Ref: 401 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 29) A measure of quality that may be used in Total Quality Management (TQM) is A) on-time delivery B) compliance with product specifications C) repeat rates D) All of the above.

Answer: D Diff: 3 Page Ref: 402 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 30) What organization administers the Malcolm Baldrige National Quality Award?

A) United Nations (UN) B) National Aeronautical and Space Administration (NASA) C) National Institute of Standards and Technology (NIST) D) National Merit Award Administration (NMAA) Answer: C Diff: 2 Page Ref: 403 Learning Object.: 12.6 Evaluate product quality methodologies.

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31) Comparing one company's performance against that of other companies in the same industry or against best practices, standards, or certification criteria is called .

A) quality comparison B) profiling C) benchmarking D) qualify deployment Answer: C Diff: 1 Page Ref: 400 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 32) Organizations applying for the Baldrige Award are judged on A) customer and market focus B) leadership and strategic planning C) process management and human resources focus D) All of the above.

Answer: D Diff: 3 Page Ref: 403 Learning Object.: 12.6 Evaluate product quality methodologies.

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33) , an American economist, argued that business should focus on making quality products instead of maximizing profits - and that profit would follow.

A) Conrad Hilton B) W. Edwards Deming C) Paul Samuelson D) Adam Smith Answer: B Diff: 3 Page Ref: 399 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 34) The central focus of total quality management (TQM) is continuous improvement.

Answer: TRUE Diff: 1 Page Ref: 402 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Reflective thinking

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35) Explain why "profits follow quality."

Answer: In the early 1950s, W. Edwards Deming argued that business should focus on making quality products instead of on maximizing profits - and that profit would follow from that focus.

Initially, Americans did not believe this, and Deming worked with the Japanese. They began focusing on quality and soon proved that Deming's theory that profits follow quality was correct.

The high quality of Japanese cars and stereos won over customers worldwide.

It is the consistent quality of your product or service that will lead to profits. If one can develop a way to deliver quality consistently, he will have a business concept that can be profitable and with the potential for generating even greater revenues in the future.

Diff: 3 Page Ref: 399, 400 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Reflective thinking 36) Compare and contrast 2 organization-wide quality initiatives such as Lean Manufacturing, Benchmarking, ISO9000, Six Sigma, TQM, and Baldrige.

Answer: Students should address such issues as whether it is a certification or an award, who is involved, and what the criteria are, if any. They may touch upon the simplicity or complexity of the process and who originated the concept.

Diff: 3 Page Ref: 400-403 Learning Object.: 12.6 Evaluate product quality methodologies.

AACSB Category: Analytical thinking 37) A for technology is important for decision-making before investment.

A) trial subscription B) consultant C) cost/benefit analysis D) competition research Answer: C Diff: 2 Page Ref: 403 Learning Object.: 12.7 Implement technology to benefit your business.

AACSB Category: Analytical thinking 38) Retail point-of-sales systems, restaurant menu order systems, and concert venue ticketing systems are all examples of .

A) custom software applications B) industry-specific technology C) systems for large businesses D) indirect marketing Answer: B Diff: 2 Page Ref: 404 Learning Object.: 12.7 Implement technology to benefit your business.

AACSB Category: Reflective thinking

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39) In general, a web site or electronic storefront is not necessary for retail businesses.

Answer: FALSE Diff: 1 Page Ref: 405 Learning Object.: 12.7 Implement technology to benefit your business.

AACSB Category: Analytical thinking 40) What steps can an organization take to incorporate technology and why might they be beneficial (name at least 3)?

Answer: Technology can work to a business's advantage if they use it effectively. Even if the business is not "technological," it can apply technology to make business operations more efficient and effective. The technology could be as simple as a telephone or as complex as a specialized piece of medical equipment. Companies should be aware of their options, but should be wary of adopting technology just for the "wow" factor. A cost/benefit analysis for technology implementation is as important as for any other substantive investment.

Advances in technology that ordinary people can use have been an important part of the entrepreneurial wave of the last decade. With this in mind: 1) Every entrepreneur should have access to a computer.

2) Every business should have a Web site and electronic mail access.

3) Every business should hire employees who are conversant and comfortable with technology.

4) Every entrepreneur should be aware of the specialized computer software and equipment that is designed for his/her industry.

One of the best investments an owner can make for a business is to buy a computer. Even the most basic model equipped with basic software can be used to: 1) Utilize the Internet.

2) Create stationery and business cards.

3) Produce professional letters and check spelling, grammar, and syntax.

4) Keep financial records.

5) Maintain an updated mailing list of customers and print mailing labels.

The phone is still one of the businessperson's most important technological tools. An entrepreneur can turn a phone into an answering service for the business by using a voice-mail system, or he/she can hire an answering service to provide a more personal touch. Either approach is acceptable - until you have staff to answer customer inquiries; although today some companies use automated telephone answering systems even if they have hundreds or thousands of employees.

Diff: 3 Page Ref: 403-405 Learning Object.: 12.7 Implement technology to benefit your business.

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Chapter 13 Management, Leadership, and Ethical Practices 1) Madam C. J. Walker was an entrepreneur who became .

A) the first female pharmacist in America B) the first African-American businessperson to become a millionaire C) the first entrepreneur to franchise a business D) the first self-made female millionaire Answer: D Diff: 2 Page Ref: 417 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Application of knowledge 2) Research indicates that is the most important characteristic required for successful leadership.

A) self esteem B) business knowledge C) drive D) intelligence Answer: A Diff: 2 Page Ref: 417 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking 3) A leader is someone who gets things done through A) coercion B) power C) influence D) force Answer: C Diff: 2 Page Ref: 417 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking

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4) When a business grows too big for the entrepreneur to run it alone, he/she should consider .

A) franchising the business B) taking management classes to become a better manager C) slowing down marketing efforts to bring the business's growth back under control D) raising capital and using it to hire managers Answer: D Diff: 1 Page Ref: 421 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Analytical thinking

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5) A share of a company's profits paid to an investor is called a A) commission B) stock C) dividend D) return Answer: C Diff: 1 Page Ref: 419 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Analytical thinking 6) If a business owner wants his/her pay to be a variable operating cost, a appropriate.

A) bonus B) wage C) salary D) commission Answer: D Diff: 2 Page Ref: 418 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking

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is most

7) Why are entrepreneurs not always the best managers for their businesses?

A) Managers are better at coming up with fresh ideas for new businesses than entrepreneurs are.

B) Entrepreneurs have a difficult time motivating employees.

C) Entrepreneurs tend to be creative types who get bored with the day-to-day details of running a business.

D) They tend to have short attention spans.

Answer: C Diff: 3 Page Ref: 420 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking 8) One of the most important things you can do when you start a business is to learn how to manage your so that you can get more done with efficiency.

A) sales B) time C) costs D) None of the above.

Answer: B Diff: 2 Page Ref: 419 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking

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9) No matter the size of a business, the leader sets the for how the organization operates. If the leader is chaotic, chances are the business will be too. If the leader is well organized and efficient, the business may well be too.

A) asset optimization B) expense constraints C) profit expectations D) tone Answer: D Diff: 2 Page Ref: 417 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking 10) Great leaders are .

A) pessimists B) coercive C) power hungry D) optimists Answer: D Diff: 1 Page Ref: 417 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Reflective thinking 11) A pacesetting style of leadership consists of a leader who sets very high personal performance standards and challenges employees to meet them too.

Answer: TRUE Diff: 2 Page Ref: 418 Learning Object.: 13.1 Identify leadership styles.

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12) Why is it important for an entrepreneur to pay him/herself regularly in a consistent manner out of the business's earnings?

Answer: Entrepreneurs who do not pay themselves regularly tend to overstate their return on investment, because they have not taken their pay out of the net profit and treated the pay as a cost. This can also increase the amount of tax the business will owe. Anything that reduces the net profit reduces the tax on net profit. Of course, the entrepreneur will have to pay income tax on the money he/she receives as pay from the business, but generally the entrepreneur will come out ahead by treating some of the business profit as self-payment.

Another reason an entrepreneur should pay him/herself from the business is that it enables him/her to be honest about whether or not your business is really worth his/her time and look at the opportunity cost of running the business. Could he/she be making more money working for someone else, for example? Thinking entrepreneurially includes a realistic consideration of whether the entrepreneur would be happier or more successful not running a business.

Finally, the entrepreneur will be less tempted to make ethical mistakes (such as dipping into the business profits to buy personal items and luxuries), if he/she establishes, early on, a consistent method of paying him/herself from the business that is always included in the business's financial record keeping.

Diff: 3 Page Ref: 418, 419 Learning Object.: 13.1 Identify leadership styles.

AACSB Category: Analytical thinking 13) According to expert Daniel Goleman, what are the main managerial styles, their advantages and disadvantages/drawbacks?

Answer: 1) Coercive style - Coercion is to force (or coerce) someone to do something. This style can be effective in a disaster scenario or with problem employees who need a forceful manager. In most situations, however, this style destroys or hurts employee morale. It can decrease employee's flexibility and the effectiveness of the business.

2) Authoritative style - This style takes a "come with me" approach, setting the goal but letting the employees find the best way to achieve it. This style works well if the leader is an expert. It does not work well if the leader is not an expert, and the subordinates are.

3) Affiliative Style - This is a "people first" style. It is effective in a teambuilding stage but can be ineffective if the employees need direction.

4) Democratic style - This style gives employees a strong voice in how the company is run. This style can build morale and work with employees capable of handling responsibility. It is less effective when employees need strong leadership. This style emphasizes consensus decision making and schedules lots of meetings to work things through.

5) Pacesetting style - This style sets high performance standards. This is good when employees are self-motivated, but this style can overwhelm those not committed to the business.

6) Coaching style - This style focuses on helping employees grow through training and support.

It is good for starting a business, but it is less useful with an experienced team, or those who may be resistant to change.

Diff: 3 Page Ref: 418 Learning Object.: 13.1 Identify leadership styles.

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14) What is the difference between strategic planning and operational planning?

A) Strategic plans are for one year or less and have very specific objectives, while operational plans are more vague and long-term.

B) Strategic planning covers the short-term day-to-day workings of a business, while operational planning sets out long-term goals.

C) Strategic planning sets out strategies for the business to achieve long-term growth and other goals, while operational planning covers the day-to-day operations of the business.

D) Strategic planning is reserved for middle management in large companies.

Answer: C Diff: 3 Page Ref: 421 Learning Object.: 13.2 Describe the basic tasks handled by managers.

AACSB Category: Analytical thinking 15) Hiring employees is called .

A) assessment B) controlling C) management D) recruitment Answer: D Diff: 1 Page Ref: 421 Learning Object.: 13.2 Describe the basic tasks handled by managers.

AACSB Category: Analytical thinking 16) The identifies the knowledge, skills, and abilities required to perform the specific tasks of the job.

A) job rotation B) job enlargement C) job enrichment D) job profile Answer: D Diff: 2 Page Ref: 422 Learning Object.: 13.2 Describe the basic tasks handled by managers.

AACSB Category: Analytical thinking 17) Which of the following is not a primary function of management?

A) planning B) organizing C) optimizing D) controlling Answer: C Diff: 3 Page Ref: 421 Learning Object.: 13.2 Describe the basic tasks handled by managers.

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18) When checking a job applicant's references, you should create a few questions that are pertinent to the job being filled and the related career paths.

Answer: TRUE Diff: 3 Page Ref: 424 Learning Object.: 13.2 Describe the basic tasks handled by managers.

AACSB Category: Analytical thinking 19) You may not be able to afford full-time employees for your business early on, but you can still hire quality people without having to provide full-time salaries and benefits. Describe some methods for doing so.

Answer: 1) Bring people who have the skills the business needs in as partners. Partners share the risks and rewards of the venture, and will co-own the business. They are entitled to a share of the profits.

2) Hire experts to work on specific tasks on a contract or hourly basis. For example, a business might hire a professional accountant to work one day per month on its record keeping.

3) Hire part-time employees who are paid an hourly wage or a set fee for a certain amount of time per week or per month.

4) Use interns who work for free in exchange for experience that helps them build their resumes and become more employable.

Diff: 3 Page Ref: 422 Learning Object.: 13.2 Describe the basic tasks handled by managers.

AACSB Category: Analytical thinking 20) What are the steps in the employee recruiting process?

Answer: 1) Define the job: What are the skills needed to do the job?

2) Post the job: Put a job ad in newspapers, solicit employee referrals, online sites such as Indeed (http://www.indeed.com) and Monster.com (http://www.monster.com), as well as industry-specific sites 3) Screen resumes.

4) Assess skills.

5) Interview candidates. Using the resumes, select the ones you want to meet face-to-face.

Before the interview, select questions that explore the individual's fit for the job.

6) Check references. Make sure that the person has done what they say they have done, and check with at least two previous employers or colleagues to talk about the person's character and skills.

7) Negotiate pay/salary. How much pay and benefits will the individual receive?

8) Hire. Paperwork will need to be done.

9) Orientation: Introduce the new employee to the firm. Teach him/her about the company and the job.

Diff: 3 Page Ref: 422-427 Learning Object.: 13.2 Describe the basic tasks handled by managers.

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21) The of an organization is the shared beliefs, values, and attitudes.

A) mission B) culture C) structure D) vision Answer: B Diff: 2 Page Ref: 428 Learning Object.: 13.3 Develop your organizational culture.

AACSB Category: Analytical thinking 22) The Mission of an organization is the shared beliefs, values, and attitudes among employees - also referred to as "how things are done around here."

Answer: FALSE Diff: 1 Page Ref: 428 Learning Object.: 13.3 Develop your organizational culture.

AACSB Category: Analytical thinking 23) An organizational structure in which each person reports to one supervisor is called a organization.

A) line B) staff C) flat D) smooth Answer: A Diff: 2 Page Ref: 428 Learning Object.: 13.4 Determine your organizational structure.

AACSB Category: Analytical thinking 24) Which is not a good method for preventing legal complications when you must lay off or fire employees?

A) Document your reasons for firing employees to prove that they did not perform their duties correctly.

B) Have employees sign an agreement when they're hired saying they will not sue if they are ever laid off.

C) Provide severance, which is continued salary for a limited time, and make serious efforts to help laid-off employees find a new job.

D) Have appropriate employees sign a no-compete agreement.

Answer: B Diff: 3 Page Ref: 434 Learning Object.: 13.5 Understand the functions of human resources management.

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25) The department that hires, trains, and develops company employees is called A) employment office B) hiring and firing C) human resources D) personnel Answer: C Diff: 1 Page Ref: 430 Learning Object.: 13.5 Understand the functions of human resources management.

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26) Which is not an effective way to protect yourself from a wrongful termination suit brought by an employee whom you have fired?

A) I can keep documentation of all my reasons for firing the employee to prove that he/she violated company ethics or was not performing his/her duties.

B) I can conduct regular reviews of employee performance.

C) I can give notification in writing and work on corrections.

D) I can hire a lawyer to protect me from lawsuits.

Answer: D Diff: 3 Page Ref: 434 Learning Object.: 13.5 Understand the functions of human resources management.

AACSB Category: Analytical thinking 27) The act of Congress that requires employers to pay men and women the same amount for the same work is called .

A) The Equal Opportunity Act B) The Equal Pay Act C) The Work Compensation Act D) Anti-discrimination Act Answer: B Diff: 1 Page Ref: 431 Learning Object.: 13.5 Understand the functions of human resources management.

AACSB Category: Application of knowledge 28) As you hire employees, you will need to become aware of laws and taxes, including .

A) anti-discrimination laws B) payroll taxes C) Fair Labor Standards Act and The Equal Pay Act of 1963 D) All of the above.

Answer: D Diff: 3 Page Ref: 431 Learning Object.: 13.5 Understand the functions of human resources management.

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29) Many companies staff their human resources organizations using a ratio of one HR executive per employees.

A) 50 -100 B) 50 - 200 C) 10 - 50 D) 250 - 1000 Answer: B Diff: 3 Page Ref: 431 Learning Object.: 13.5 Understand the functions of human resources management.

AACSB Category: Application of knowledge 30) What is a wrongful termination suit? How can you protect your company from it?

Answer: A wrongful termination suit is a lawsuit that may be brought against a company by an employee who thinks that he/she was fired without a just cause. An employee cannot be fired just because his/her supervisor dislikes the employee. The company must prove that the employee was failing at the job or violated company ethics. Ways to protect a company against wrongful termination suits include: 1) Conduct regular employee performance reviews. Have each employee read and sign his/her review.

2) If an employee is violating rules, notify him or her in writing (and keep a copy for your records). If things still do not improve, and you have to let the employee go, you will have proof that there were problems with his/her performance.

3) If employees must be laid off because business is slow, offer them severance, which is continued salary for a limited time. Make serious efforts to help them find a new job.

Diff: 3 Page Ref: 434 Learning Object.: 13.5 Understand the functions of human resources management.

AACSB Category: Analytical thinking 31) Companies that have faced ethical scandals typically did not have in place to ensure that managers did not misuse funds or otherwise behave illegally or unethically.

A) better business regulations B) penalties C) corporate governance D) a code of ethics Answer: C Diff: 2 Page Ref: 437 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

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32) Which of the following is not a good method of ensuring that money is handled ethically in your business?

A) Always have two people in the room when the business mail is opened, so no one can steal a check.

B) Pay yourself, as the owner, strictly out of the profits earned by the business.

C) Require every check issued by the business to be signed by two executives.

D) Make sure the employees that handle the money are licensed and bonded.

Answer: B Diff: 3 Page Ref: 437 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Analytical thinking 33) The standards and rules in businesses that help someone decide right from wrong are called .

A) corporate governance B) laws C) ethics D) morals Answer: C Diff: 1 Page Ref: 434 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Ethical understanding and reasoning 34) A business behavior might be legal but still not be .

A) invalid B) ethical C) wrong D) profitable Answer: B Diff: 2 Page Ref: 434 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Ethical understanding and reasoning 35) Corporate scandals at Enron, WorldCom-MCI, and other firms are examples of failure of .

A) corporate public relations B) corporate governance C) corporate ethics D) corporate violations Answer: B Diff: 2 Page Ref: 437 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

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36) As your business grows, have its financial records (its "books") checked annually by a reputable .

A) CPO B) accountant C) lawyer D) software program Answer: B Diff: 1 Page Ref: 437 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Analytical thinking 37) Make sure your business is run in an ethical manner by .

A) keeping accurate records and using financial controls B) never taking company profits just to pay yourself C) creating an advisory board D) All of the above.

Answer: D Diff: 1 Page Ref: 437 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Analytical thinking 38) Some basics of corporate governance include keeping accurate records, using financial controls, creating an advisory board, using company profits as personal funds as needed.

Answer: FALSE Diff: 3 Page Ref: 437 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Analytical thinking 39) As a business, ethical practices involve doing the right things and doing them ethically.

Answer: TRUE Diff: 1 Page Ref: 438 Learning Object.: 13.6 Pursue ethical leadership to build an ethical organization.

AACSB Category: Reflective thinking 40) is the ethical obligation of a company to its community.

A) Corporate governance B) Social entrepreneurship C) Corporate social responsibility D) None of the above.

Answer: C Diff: 1 Page Ref: 438 Learning Object.: 13.7 Incorporate social responsibility into your company.

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Chapter 14 Franchising, Licensing, and Harvesting: Cashing in Your Brand 1) Licensing is .

A) the right to sell knockoffs of a product B) the right to start a business and run it exactly as the licensor wants it run C) the right to operate a business D) renting your brand or other intellectual property to increase sales Answer: D Diff: 2 Page Ref: 461 Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB Category: Analytical thinking 2) , or spreading out the brand among many products and product lines can increase market share, but it can also the company.

A) Product line extension/unfocus B) Alliances/focus C) Diversification/focus D) Diversification/unfocus Answer: D Diff: 2 Page Ref: 460 Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB Category: Analytical thinking 3) is the addition of offerings beyond the company's core product or service.

A) Franchising B) Diversification C) Licensing D) Complementing Answer: B Diff: 1 Page Ref: 460 Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB Category: Analytical thinking 4) One way to grow your business is to use diversification, which is the addition of offerings beyond your core product or service.

Answer: TRUE Diff: 1 Page Ref: 460 Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.

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5) Explain replication strategies and harvesting and how they differ.

Answer: Franchising and licensing are called replication strategies, because they are ways to obtain money from a business by letting other people copy, or replicate, it.

Another method of obtaining money from a business is to harvest it. Harvesting means the company has been sold, taken public, or merged with a larger company.

Harvesting differs from replication in that the entrepreneur is no longer involved once the business is harvested, but walks away with a chunk of the business's value as cash or stock.

Diff: 3 Page Ref: 461 Learning Object.: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB Category: Analytical thinking 6) Once you have established your brand, you can develop new products and use the brand to promote it. This marketing strategy is called .

A) line extension B) branding C) line promotion D) brand extension Answer: A Diff: 2 Page Ref: 461 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 7) A is a business that markets a product or service in the manner prescribed by the parent business.

A) license B) franchise C) replica D) branch Answer: B Diff: 1 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 8) Which business is an example of a franchise?

A) Sears B) Burger King C) Federal Express D) The U.S. Postal Services Answer: B Diff: 1 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Application of knowledge

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9) If you are a franchisor and you charge a royalty of 5% on revenue and you have franchisees that have revenues of $1 million, $2 million, $1.5 million, and $2.5 million, how much would you earn in royalties?

A) $3,500,000 B) $3,000,000 C) $300,000 D) $350,000 Answer: D Diff: 1 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Application of knowledge 10) A identifies the products or services of a company and differentiates them from those of competitors.

A) copyright B) product line C) mission D) brand Answer: D Diff: 1 Page Ref: 461 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 11) Licensors must be careful that a licensee .

A) franchises the brand to as many others as possible B) doesn't damage the licensing company's name C) controls every aspect of the licensor's business D) doesn't fail to pay royalties Answer: B Diff: 2 Page Ref: 461 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 12) What did Ray Kroc do when he franchised McDonald's that set the bar for future franchise operations?

A) He provided training and support to franchisees to ensure that quality would be consistent in every McDonald's restaurant.

B) He licensed the McDonald's name to a wide variety of products such as hats and shirts.

C) He sold franchises in competing territories to encourage franchise owners to compete and come up with new innovations for the company.

D) He improved the quality of hamburgers and customer service.

Answer: A Diff: 2 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

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13) A represents the company's promise to consistently deliver a specific set of benefits to customers.

A) product life cycle B) product line extension program C) brand D) customer service policy Answer: C Diff: 2 Page Ref: 461 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 14) If you buy a McDonald's franchise and agree to pay a royalty fee of 12.5% annually, how much money will you owe McDonald's at the end of a year in which you sell $98,000 of product?

A) $12,000 B) $12,100 C) $12,200 D) $12,250 Answer: D Diff: 1 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Application of knowledge 15) Which of the following is not a benefit of franchising to the franchisor?

A) growth with minimal capital investment B) higher marketing and promotional costs C) royalties D) the minimal number of regulations regarding franchising Answer: B Diff: 2 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 16) Benefits of franchising for the franchisor include .

A) lower marketing and promotional costs B) growth with minimal capital investment C) royalty payments D) All of the above.

Answer: D Diff: 1 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

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17) The benefits of franchising include growth with medium capital investment, lower marketing but higher promotional costs, and royalties.

Answer: FALSE Diff: 2 Page Ref: 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 18) What is franchising and how is it different from licensing?

Answer: A franchise is a business that markets a product or service in the exact manner prescribed by the founder or successors of the parent company. As an entrepreneur, you could develop a concept and business operation that can be reproduced and sold to other entrepreneurs.

They would pay you a fee for the right to run the business exactly the way that you direct and pay you a royalty as well. In contrast, in licensing you rent your brand or other intellectual property to sell products.

Diff: 2 Page Ref: 461, 462 Learning Object.: 14.2 Describe how businesses use licensing to profit from their brands.

AACSB Category: Analytical thinking 19) Which of the following is a harvest strategy, not an exit strategy?

A) merger B) IPO (initial public offering) C) acquisition D) franchising Answer: D Diff: 3 Page Ref: 463 Learning Object.: 14.3 Explain how a business can be franchised.

AACSB Category: Analytical thinking 20) It typically requires at least years to develop a company worth harvesting.

A) twenty B) fifteen C) twelve D) ten Answer: D Diff: 2 Page Ref: 463 Learning Object.: 14.3 Explain how a business can be franchised.

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21) The harvest or exit strategies set out in a business's plan is important not only to the entrepreneur but also to .

A) consumers B) the IRS C) investors D) employees Answer: C Diff: 2 Page Ref: 463 Learning Object.: 14.3 Explain how a business can be franchised.

AACSB Category: Analytical thinking 22) William Petty's article on harvesting quotes Steven Covey who says, .

A) "The key to being effective in life is, 'beginning with the end in mind'."

B) "Your chance to sell or to merge typically occurs within the first two years of the life of the business."

C) "You may have only one chance to harvest your business."

D) None of the above.

Answer: A Diff: 3 Page Ref: 463 Learning Object.: 14.3 Explain how a business can be franchised.

AACSB Category: Analytical thinking 23) Harvesting means to sell, take public, or merge a company to yield proceeds for the owner(s).

Answer: TRUE Diff: 1 Page Ref: 463 Learning Object.: 14.3 Explain how a business can be franchised.

AACSB Category: Analytical thinking 24) If you want to buy a business that is growing rapidly, what is the best valuation method to use to determine a fair price for it?

A) book value method B) market-based approach C) future earnings method D) pay-back method Answer: C Diff: 3 Page Ref: 465 Learning Object.: 14.4 Use methods of valuing a business.

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25) One way to value a business is to . In general, the business should sell for 3 to 5 times its annual net earnings.

A) look at a multiple of its net earnings B) look at a comparison with similar businesses C) use an appropriate benchmark D) look at a professional appraisal Answer: A Diff: 3 Page Ref: 464 Learning Object.: 14.4 Use methods of valuing a business.

AACSB Category: Analytical thinking 26) Ways to value a business include comparison to other firms, benchmarking, or looking at a multiple of net earnings. Any of the methods is an attempt to arrive at a .

A) future value B) net present value C) fair market value D) profit maximizing price Answer: C Diff: 3 Page Ref: 465 Learning Object.: 14.4 Use methods of valuing a business.

AACSB Category: Analytical thinking 27) In valuing a business, the methods that buyers and sellers can use include A) market-based value B) book value C) future earnings D) Any of the above.

Answer: D Diff: 2 Page Ref: 465 Learning Object.: 14.4 Use methods of valuing a business.

AACSB Category: Analytical thinking 28) One of the methods for computing a company's valuation is called the market-based technique. This means to look at a company as assets minus liabilities.

Answer: FALSE Diff: 2 Page Ref: 465 Learning Object.: 14.4 Use methods of valuing a business.

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.

29) Describe three simple methods that can be used to estimate a selling price for a business: Answer: 1) Compare it to other businesses. If you are looking to sell your dry-cleaning business, for example, check out how much other dry-cleaning businesses in your area are bringing in when they are sold.

2) Look at benchmarks to see how the business is performing within its industry. In most industries, there are one or two key benchmarks used to help value a business.

3) Look at a multiple of net earnings. One rule of thumb says a business can sell for around three times its annual net earnings. If the business earns $100,000 net profit per year, for example, it could be expected to sell for $300,000.

Diff: 3 Page Ref: 464 Learning Object.: 14.4 Use methods of valuing a business.

AACSB Category: Analytical thinking 30) At what stage of starting and running your business should you inform investors of your exit strategy? It should be .

A) in the business plan B) in your first annual report C) when you are ready to exit the business D) the years sales peak Answer: A Diff: 3 Page Ref: 469 Learning Object.: 14.5 Compare five ways to harvest a business.

AACSB Category: Analytical thinking 31) This is an exit strategy when an entrepreneur sells his or her company to its managers.

A) a merger B) a management buy-out C) a management takeover D) employee buy-out Answer: B Diff: 1 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

AACSB Category: Analytical thinking 32) This harvest option has the advantage of financing growth that the company could not achieve on its own.

A) increase the free cash flow B) management buyout C) employee stock ownership plan D) merger or acquisition Answer: D Diff: 3 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

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33) A disadvantage of harvesting cash over time as an exit strategy is that A) the managers find out what the company is really worth B) the owner doesn't have to look for a buyer C) the owner will lose money D) it can take a long time to complete Answer: D Diff: 3 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

AACSB Category: Analytical thinking 34) One of the advantages of an Employee Stock Ownership Plan is that A) the owner will have to look for buyers in the general public B) it will prevent employees from having control of the company C) employees will likely quit and leave D) ESOPs offer tax breaks to the company Answer: D Diff: 3 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

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.

35) To take a business public means to sell its stock on the stock market. The acronym for the first offering of a business' stock is .

A) FIFO B) ALPO C) IPO D) IMPO Answer: C Diff: 1 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

AACSB Category: Analytical thinking 36) Harvesting options include .

A) an IPO B) merging or being acquired C) increasing cash flows and a management buy-out D) All of the above.

Answer: D Diff: 3 Page Ref: 466, 467 Learning Object.: 14.5 Compare five ways to harvest a business.

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37) When one is merging or being acquired, .

A) it is typically a quick and emotionless process B) it is typically concluded within a few weeks C) it can be an emotionally draining experience and take over a year D) None of the above.

Answer: C Diff: 2 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

AACSB Category: Analytical thinking 38) Three of the most common harvesting options include increasing the free cash flow, management buyout, and management stock ownership plan.

Answer: FALSE Diff: 3 Page Ref: 467 Learning Object.: 14.5 Compare five ways to harvest a business.

AACSB Category: Analytical thinking 39) Why is it not a good idea to tell investors in your business plan that your exit strategy is simply "to take the business public"?

Answer: Many entrepreneurs think it is enough to simply tell investors that someday the business will sell stock publicly on the stock market ("go public"), and the investors' share of the business will be worth a lot of money. Of the thousands of new ventures launched every year in the United States, however, only a small percentage actually ever go public. Yet, according to David Newton, in entrepreneur.com (January 15, 2001), over 70 percent of all formal business plans presented to angel investors and venture capitalists name "going public" as the primary exit strategy. Most try to estimate that going public will happen within just four years from the launch date. Simply claiming that your business will "go public" may get a skeptical reaction from your potential investors. Investors understand that you cannot guarantee an exit strategy, but you can show in your business plan that you understand that for most small businesses going public is a fantasy. Instead, choose an exit strategy that you think is most feasible for your business and describe it in detail in your business plan, so investors know how you intend to enable them at some point to receive a return on their investment in your business.

Diff: 3 Page Ref: 469 Learning Object.: 14.5 Compare five ways to harvest a business.

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40) What are the four basic exit strategy possibilities? Describe them.

Answer: 1) Acquisition - you create a business that someone will want to acquire at a future period. Your strategy could be that you want to create a business that will be valuable for a current competitor or a member of your distribution channel. The plan is that the purchase of your firm will pay you and your investors more than you put into the business. A rule of thumb for a small business is that the purchase price should be three times the firm's annual net profit.

2) Earn out - with this strategy, you buy out your investors' share of the business. You will need projected cash flow statements that show the business will generate extremely strong positive cash flows. The purchase price you will pay to investors will rise over time.

3) Debt - Equity Exchange - if investors are lending you money, you can decide to give them equity in return for a reduction of debt. This will reduce interest expense also. With this type of exchange, you can determine the pace at which you reduce the debt your company owes.

4) Merge - This strategy is similar to the first, but with a merger, two companies join to create an entirely new venture. Companies do this to combine their strengths. For example, one has great products but a weak distribution network, while the other firm has weaker products but an excellent distribution net. These firms complement each other. With a merger (or acquisition), money or shares will be paid to original investors upon completion of the merger.

Diff: 3 Page Ref: 468 Learning Object.: 14.5 Compare five ways to harvest a business.

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