Entrepreneurship Starting and Operating A Small Business, 5th edition Steve Mariotti Test Bank

Entrepreneurship Starting and Operating A Small Business, 5th edition BY Steve Mariotti

Email: richard@qwconsultancy.com

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) Chapter 1 Entrepreneurs and Entrepreneurship 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 Learning Objective: 1.1 Summarize what entrepreneurship is and what entrepreneurs do.

AACSB: Reflective Thinking 2) Entrepreneurs are often both owners and ________.

A) creditors B) employees C) customers D) suppliers Answer: B Diff: 2 Learning Objective: 1.1 Summarize what entrepreneurship is and what entrepreneurs do.

AACSB: Reflective Thinking 3) A necessity-based entrepreneur starts a business to exploit a perceived opportunity or to pursue one that they created.

Answer: FALSE Diff: 1 Learning Objective: 1.1 Summarize what entrepreneurship is and what entrepreneurs do.

AACSB: 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 that entrepreneurs "added value to scarce resources".

Diff: 3 Learning Objective: 1.1 Summarize what entrepreneurship is and what entrepreneurs do.

AACSB: Analytical Thinking

1 .

5) The economy of the United States is a ________ system.

A) free-enterprise B) controlled C) closed D) centralized Answer: A Diff: 1 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: 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 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: 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 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: 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 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: Reflective Thinking

2 .

9) The U.S. 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 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: 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 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: Reflective Thinking 11) Which of the following is not a characteristic of the free-market system?

A) Individuals and companies may compete for their own economic gains.

B) Private wealth and property ownership are permissible.

C) Prices are determined by a central authority.

D) Free-market forces primarily determine prices.

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

AACSB: Analytical Thinking 12) The free-market system is also called ________.

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

AACSB: Reflective Thinking

3 .

13) Benefits of becoming an entrepreneur include independence, satisfaction, financial reward, self-esteem, and contributions to society.

Answer: TRUE Diff: 2 Learning Objective: 1.2 Examine how free-enterprise economies work and how entrepreneurs fit into them.

AACSB: Analytical Thinking 14) The economy of the United States is a free-enterprise system.

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

AACSB: Analytical Thinking 15) Most of the world's businesses are ________ businesses.

A) small B) medium-sized C) large D) family-owned Answer: A Diff: 1 Learning Objective: 1.3 Describe small business.

AACSB: Analytical Thinking 16) 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 B) 100; 10 C) 500; 5 D) 500; 10 Answer: C Diff: 2 Learning Objective: 1.3 Describe small business.

AACSB: Analytical Thinking 17) Some of the world's greatest entrepreneurs have overcome challenges from their childhood and youth, including all of these except ________.

A) learning disabilities B) abuse C) extreme poverty D) financial prosperity Answer: D Diff: 3 Learning Objective: 1.3 Describe small business.

AACSB: Reflective Thinking 4 .

18) The corporate equivalent of paying owners a portion of the business's profits is called a ________.

A) bonus B) dividend C) capital D) revenue Answer: B Diff: 3 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Reflective Thinking 19) 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 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Analytical Thinking 20) 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 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Analytical Thinking 21) 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 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Reflective Thinking

5 .

22) 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 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Reflective Thinking 23) 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 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Analytical Thinking

6 .

24) 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 Learning Objective: 1.4 Understand the costs and benefits of entrepreneurship.

AACSB: Reflective Thinking 25) As a start-up, Uber has a current market valuation of over $50 billion. Uber is an example of a(n) ________.

A) unicorn B) lifestyle business C) intrapreneurship venture D) microenterprise Answer: A Diff: 2 Learning Objective: 1.5 Recognize the various entrepreneurial options.

AACSB: Reflective Thinking 26) 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 Learning Objective: 1.5 Recognize the various entrepreneurial options.

AACSB: Reflective Thinking 27) 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 Learning Objective: 1.6 Identify and evaluate opportunities to start your own business.

AACSB: Analytical Thinking

7 .

28) Entrepreneurs view problems as a(n) ________.

A) roadblock B) opportunity C) hurdle D) challenge Answer: B Diff: 3 Learning Objective: 1.6 Identify and evaluate opportunities to start your own business.

AACSB: Reflective Thinking 29) 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 on 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 Learning Objective: 1.6 Identify and evaluate opportunities to start your own business.

AACSB: Analytical Thinking 30) 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 Learning Objective: 1.6 Identify and evaluate opportunities to start your own business.

AACSB: Reflective Thinking 31) 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 Learning Objective: 1.7 Distinguish between ideas and opportunities.

AACSB: Analytical Thinking

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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 Learning Objective: 1.7 Distinguish between ideas and opportunities.

AACSB: Application of Knowledge 33) A(n) ________ is an idea that is based on what customers need or want and are willing to buy sufficiently often at a high enough price to sustain a business.

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

Answer: A Diff: 3 Learning Objective: 1.7 Distinguish between ideas and opportunities.

AACSB: Analytical Thinking 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 Learning Objective: 1.7 Distinguish between ideas and opportunities.

AACSB: Analytical Thinking 35) A(n) ________ is a legal and commercial relationship between the owner of a trademark, a service mark, trade name, or advertising symbol and an individual or group seeking to use that identification in a business.

A) franchise B) idea C) venture D) opportunity Answer: A Diff: 3 Learning Objective: 1.8 Explore the multiple paths to entrepreneurship.

AACSB: Analytical Thinking

9 .

36) In selling an existing business, due diligence is the exercise of reasonable care in the evaluation of the business opportunity.

Answer: FALSE Diff: 3 Learning Objective: 1.8 Explore the multiple paths to entrepreneurship.

AACSB: Analytical Thinking 37) The two primary forms of franchising are product/trade name franchising and business format franchising.

Answer: TRUE Diff: 3 Learning Objective: 1.8 Explore the multiple paths to entrepreneurship.

AACSB: Analytical Thinking 38) When you license a technology, you enter into a contract to use it by purchasing the right to own it.

Answer: FALSE Diff: 3 Learning Objective: 1.8 Explore the multiple paths to entrepreneurship.

AACSB: Analytical Thinking 39) If a business is not making a profit, the entrepreneur knows that ________.

A) no one wants to buy the product/service B) (s)he 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 Learning Objective: 1.9 Explain success signals for entrepreneurs.

AACSB: Analytical Thinking 40) Profit results from the entrepreneur's choices. In this concept, there is a term called "tradeoff." With the help of an example, explain what is meant by a "trade-off."

Answer: In business, trade-off is the act of giving up one thing for another. This is the choice that entrepreneurs make all the time and trade-offs affect the profitability of the enterprise. A common example of a trade-off that many entrepreneurs in the food business face is in the choice of ingredients. Let's suppose that oil is a key ingredient in the product that an entrepreneur makes. Let's say that olive oil costs one and a half times more than canola oil. If the entrepreneur believes that there are only minor taste differences between the two oils, a trade-off is whether to reduce cost by switching to canola oil, although doing that may have a small effect on the taste of the product. What the entrepreneur is giving up in taste, (s)he is gaining in profits.

Diff: 2 Learning Objective: 1.9 Explain success signals for entrepreneurs.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) Chapter 2 Pathways to Success: Processes and Instruments 1) Which of the following helps an entrepreneur with the go/no go decision?

A) Business plan B) Marketing plan C) Cash flow analysis D) Feasibility analysis Answer: D Diff: 1 Learning Objective: 2.1 Describe a feasibility analysis and choose when to create one.

AACSB: Analytical Thinking 2) Lean start-up is a hypothesis driven approach to business startup using iterative development.

Answer: TRUE Diff: 2 Learning Objective: 2.2 Articulate the lean start-up methodology.

AACSB: 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 Learning Objective: 2.3 Prepare a Business Model Canvas.

AACSB: 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 Learning Objective: 2.4 Identify primary business plan contents.

AACSB: Analytical Thinking

1 .

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 Learning Objective: 2.4 Identify primary business plan contents.

AACSB: 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 Learning Objective: 2.5 Summarize the various purposes for a business plan and the audiences for one.

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

Answer: FALSE Diff: 2 Learning Objective: 2.5 Summarize the various purposes for a business plan and the audiences for one.

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

Answer: TRUE Diff: 1 Learning Objective: 2.5 Summarize the various purposes for a business plan and the audiences for one.

AACSB: 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 Learning Objective: 2.5 Summarize the various purposes for a business plan and the audiences for one.

AACSB: Analytical Thinking

2 .

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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking

3 .

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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking 17) A competitive analysis is an important component of ________.

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

Answer: B Diff: 2 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Reflective Thinking

4 .

18) The four factors that form the 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking 19) Price should reflect the organization's ________.

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

Answer: D Diff: 3 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Reflective Thinking 20) Advertising is ________ promotion through media outlets.

A) paid B) free C) discounted D) personal Answer: A Diff: 1 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking 21) Telemarketing is a form of ________.

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

Answer: C Diff: 2 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking

5 .

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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking 24) A factor to consider when selecting a physical location is ________.

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

Answer: D Diff: 2 Learning Objective: 2.6 Differentiate the components of a business plan.

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

A) can; cannot B) cannot; cannot C) cannot; can D) can; can Answer: A Diff: 3 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Reflective Thinking

6 .

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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Reflective Thinking

7 .

30) What a business owns is called ________.

A) liabilities B) assets C) net worth D) owner's equity Answer: B Diff: 1 Learning Objective: 2.6 Differentiate the components of a business plan.

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

Answer: FALSE Diff: 2 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: Analytical Thinking

8 .

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 Learning Objective: 2.6 Differentiate the components of a business plan.

AACSB: 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 Learning Objective: 2.7 Recognize and demonstrate proper development and formatting of a business plan.

AACSB: 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 Learning Objective: 2.7 Recognize and demonstrate proper development and formatting of a business plan.

AACSB: 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 Learning Objective: 2.7 Recognize and demonstrate proper development and formatting of a business plan.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 2.7 Recognize and demonstrate proper development and formatting of a business plan.

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

Answer: TRUE Diff: 3 Learning Objective: 2.7 Recognize and demonstrate proper development and formatting of a business plan.

AACSB: 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 to read it.

Diff: 3 Learning Objective: 2.7 Recognize and demonstrate proper development and formatting of a business plan.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 3.1 Define your business.

AACSB: 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 Learning Objective: 3.1 Define your business.

AACSB: 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 Learning Objective: 3.1 Define your business.

AACSB: Reflective Thinking 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 Learning Objective: 3.1 Define your business.

AACSB: Analytical Thinking

1 .

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 Learning Objective: 3.1 Define your business.

AACSB: 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 Learning Objective: 3.1 Define your business.

AACSB: 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 Learning Objective: 3.1 Define your business.

AACSB: Analytical Thinking

2 .

8) The concept of "affordable loss" is a feature of ________ logic.

A) effectual B) circular C) causal D) linear Answer: A Diff: 1 Learning Objective: 3.2 Distinguish between entrepreneurial and managerial thinking.

AACSB: Reflective Thinking 9) ________ is the core values of an organization in action.

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

Answer: B Diff: 2 Learning Objective: 3.3 Articulate your core beliefs, mission, and vision.

AACSB: 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 Learning Objective: 3.3 Articulate your core beliefs, mission, and vision.

AACSB: 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 (s)he 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 Learning Objective: 3.3 Articulate your core beliefs, mission, and vision.

AACSB: Analytical Thinking

3 .

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

Answer: FALSE Diff: 2 Learning Objective: 3.3 Articulate your core beliefs, mission, and vision.

AACSB: Reflective Thinking 13) Which item below is not a primary route in the deliberative search process to create and identify opportunities?

A) The entrepreneur looks for business opportunities through a process of identification and selection, beginning with self-developed (or group-developed) ideas.

B) The entrepreneur attends various pitch competitions in search of ideas.

C) The entrepreneur starts with research on hot businesses, trends, or growth areas.

D) The entrepreneur has an idea for a product or service or has a problem to solve and searches for a market.

Answer: B Diff: 3 Learning Objective: 3.4 Decide how to approach business opportunities.

AACSB: 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 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: 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 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: Analytical Thinking

4 .

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

A) Opportunity B) Selection C) Service D) Quality Answer: A Diff: 2 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: Analytical Thinking 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 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: 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 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: Analytical Thinking 19) Entrepreneurs tend to be ________.

A) risk averse B) negative C) optimistic D) dispassionate Answer: C Diff: 1 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: Reflective Thinking

5 .

20) The factors of competitive advantage are quality, price, location, selection, service, speed/turnaround, convenience, getting the job done, brand status, newness, and customization.

Answer: TRUE Diff: 3 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: Analytical Thinking 21) Describe the factors of competitive advantage.

Answer: Competitive advantage comes from one (or a combination) of several 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?

7. Convenience - Is it easy to use your product? Is your product accessible?

8. "Getting the job done" - Does the product or service accomplish a task that has been problematic?

9. Brand/status - Will customers associate your product with a quality brand or with luxury and status?

10. Newness - Is your product new and novel? Is it on the leading edge of technology?

11. Customization - Can your product or service be tailored to the requirements of your customers?

Diff: 3 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: 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 United States' 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 (UPS).

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 Learning Objective: 3.5 Analyze your competitive advantage.

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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 include promotion as well.

Diff: 1 Learning Objective: 3.5 Analyze your competitive advantage.

AACSB: Reflective Thinking 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Analytical Thinking

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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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Application of Knowledge 28) Average gross profit per customer is average ________.

A) cost of sale - average sale per customer B) cost of tangible product - average cost of intangible product C) sale per customer - average cost of sale per customer D) sale per consumer + average sale per wholesaler Answer: C Diff: 2 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Analytical Thinking 30) Business leaders create wealth by ________.

A) avoiding the cost of hiring employees B) reducing their gross margins C) hiring employees to sell more units and generate more profit D) charging high prices to customers Answer: C Diff: 3 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Reflective Thinking

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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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

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

A) 1,900 B) 100 C) 1,910 D) 1,901 Answer: A Diff: 2 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Application of Knowledge 33) The foreign exchange rate is the ________.

A) relative value between one currency and another B) rate at which countries do business C) relative value between the dollar and foreign currencies D) relative value of last year's currency to this year's Answer: A Diff: 2 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: 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 1,000 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Application of Knowledge

9 .

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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Analytical Thinking 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

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

Answer: TRUE Diff: 2 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: 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 Learning Objective: 3.6 Prepare viability tests using the economics of one unit of sale.

AACSB: Reflective Thinking 10 .

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 Learning Objective: 3.7 Calculate the value of a business.

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11 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: 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 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: 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 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: 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 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: Analytical Thinking

1 .

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 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: 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 Learning Objective: 4.1 Discriminate between marketing and selling.

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

Answer: FALSE Diff: 1 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: Reflective Thinking 8) Explain why marketing is considered the business function that should drive all business 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 Learning Objective: 4.1 Discriminate between marketing and selling.

AACSB: 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 Learning Objective: 4.2 Summarize how market research prepares you for success.

AACSB: 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 Learning Objective: 4.2 Summarize how market research prepares you for success.

AACSB: Analytical Thinking 11) In doing research, there are several choices to help you. Among these are ________.

A) business libraries B) magazine articles C) Internet research D) All of the above.

Answer: D Diff: 1 Learning Objective: 4.2 Summarize how market research prepares you for success.

AACSB: Analytical Thinking 12) Your best option in market research is generally primary rather than secondary research.

Answer: TRUE Diff: 2 Learning Objective: 4.2 Summarize how market research prepares you for success.

AACSB: 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 Learning Objective: 4.3 Choose your research methods.

AACSB: 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 Learning Objective: 4.3 Choose your research methods.

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3 .

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 Learning Objective: 4.3 Choose your research methods.

AACSB: 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 Learning Objective: 4.3 Choose your research methods.

AACSB: 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Reflective Thinking

4 .

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 Learning Objective: 4.3 Choose your research methods.

AACSB: Reflective Thinking 20) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 21) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 22) There is a subtle difference between the ________ and the ________ of a product. One is a 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Reflective Thinking

5 .

23) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 24) ________ 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 25) Understanding the status and trends of an industry can be aided by ________.

A) checking out the Internet, public library, 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 26) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Reflective Thinking

6 .

27) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Reflective Thinking 28) Market research should be an integral part of your business.

Answer: TRUE Diff: 1 Learning Objective: 4.3 Choose your research methods.

AACSB: Reflective Thinking 29) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking 30) 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 Learning Objective: 4.3 Choose your research methods.

AACSB: Analytical Thinking

7 .

31) 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 Learning Objective: 4.4 Determine your target market segments.

AACSB: Analytical Thinking 32) 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 Learning Objective: 4.4 Determine your target market segments.

AACSB: Analytical Thinking 33) 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 Learning Objective: 4.4 Determine your target market segments.

AACSB: Analytical Thinking 34) The product life cycle phases include ________.

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

Answer: D Diff: 1 Learning Objective: 4.4 Determine your target market segments.

AACSB: Analytical Thinking

8 .

35) The product life cycle compares gross profit to sales as a product/service moves through its life stages.

Answer: FALSE Diff: 3 Learning Objective: 4.4 Determine your target market segments.

AACSB: Reflective Thinking 36) 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 Learning Objective: 4.4 Determine your target market segments.

AACSB: 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 Learning Objective: 4.4 Determine your target market segments.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 4.5 Position your product or service within your market.

AACSB: 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 Learning Objective: 4.5 Position your product or service within your market.

AACSB: 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 Learning Objective: 4.5 Position your product or service within your market.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) Chapter 5 Developing the 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 Learning Objective: 5.1 Explain the marketing mix.

AACSB: 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 Learning Objective: 5.1 Explain the marketing mix.

AACSB: 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 Learning Objective: 5.1 Explain the marketing mix.

AACSB: Analytical Thinking 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 Learning Objective: 5.1 Explain the marketing mix.

AACSB: Analytical Thinking

1 .

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 Learning Objective: 5.1 Explain the marketing mix.

AACSB: 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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: 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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: Reflective Thinking 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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: Reflective Thinking

2 .

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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: Reflective Thinking 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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: 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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: Analytical Thinking 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 Learning Objective: 5.2 Choose the attributes of your product or service.

AACSB: 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 Learning Objective: 5.3 Price your products for success.

AACSB: Reflective Thinking 3 .

14) According to author Jay Conrad 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 Learning Objective: 5.3 Price your products for success.

AACSB: 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 Learning Objective: 5.3 Price your products for success.

AACSB: Analytical Thinking 16) Pricing strategies include ________.

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

Answer: D Diff: 2 Learning Objective: 5.3 Price your products for success.

AACSB: 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 Learning Objective: 5.3 Price your products for success.

AACSB: 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 Learning Objective: 5.3 Price your products for success.

AACSB: Analytical Thinking 4 .

19) Location and distribution are major components of the "place" component.

Answer: TRUE Diff: 1 Learning Objective: 5.4 Find the best location for maximum efficiency and effective distribution.

AACSB: 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 Learning Objective: 5.5 Select the mix of promotion to use for your business.

AACSB: Analytical Thinking 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 Learning Objective: 5.5 Select the mix of promotion to use for your business.

AACSB: 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 Learning Objective: 5.5 Select the mix of promotion to use for your business.

AACSB: Reflective Thinking

5 .

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 Learning Objective: 5.5 Select the mix of promotion to use for your business.

AACSB: Analytical Thinking 24) There is no single correct way to determine your promotional budget.

Answer: TRUE Diff: 2 Learning Objective: 5.5 Select the mix of promotion to use for your business.

AACSB: Reflective Thinking 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 Learning Objective: 5.6 Identify the best advertising and sales promotion options.

AACSB: 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 Learning Objective: 5.7 Use publicity to your advantage.

AACSB: 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 Learning Objective: 5.7 Use publicity to your advantage.

AACSB: Analytical Thinking 6 .

28) 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 Learning Objective: 5.7 Use publicity to your advantage.

AACSB: 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 Learning Objective: 5.8 Add another P, philanthropy, to your business.

AACSB: Analytical Thinking 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 Learning Objective: 5.8 Add another P, philanthropy, to your business.

AACSB: 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 Learning Objective: 5.8 Add another P, philanthropy, to your business.

AACSB: Reflective Thinking

7 .

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 Learning Objective: 5.8 Add another P, philanthropy, to your business.

AACSB: 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 Learning Objective: 5.8 Add another P, philanthropy, to your business.

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

Answer: FALSE Diff: 3 Learning Objective: 5.8 Add another P, philanthropy, to your business.

AACSB: Reflective Thinking 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 Learning Objective: 5.8 Add another P, philanthropy, to your business.

AACSB: Reflective Thinking

8 .

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 Learning Objective: 5.9 Recognize the importance of a marketing plan.

AACSB: Analytical Thinking 37) Good marketers know that ________ 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 Learning Objective: 5.9 Recognize the importance of a marketing plan.

AACSB: 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 Learning Objective: 5.9 Recognize the importance of a marketing plan.

AACSB: Reflective Thinking 39) To break even, a business must sell enough units to ________.

A) cover all its costs B) cover its fixed costs C) earn a profit D) cover variable costs Answer: B Diff: 1 Learning Objective: 5.9 Recognize the importance of a marketing plan.

AACSB: Analytical Thinking

9 .

40) 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 Learning Objective: 5.9 Recognize the importance of a marketing plan.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Reflective Thinking 3) Entrepreneurs sell constantly to ________.

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

Answer: D Diff: 1 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Reflective Thinking 4) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Analytical Thinking

1 .

5) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Analytical Thinking 6) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Analytical Thinking 7) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Analytical Thinking 8) The essence of selling is teaching.

Answer: TRUE Diff: 1 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Reflective Thinking

2 .

9) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Analytical Thinking 10) 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 Learning Objective: 6.1 Explain the importance of personal selling skills.

AACSB: Analytical Thinking 11) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking

3 .

12) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 13) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 14) The most important thing to do during a sales call is ________.

A) listen 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 15) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Reflective Thinking

4 .

16) ________ 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 17) Successful businesses are built on ________.

A) repeat business B) frequent sales C) big sales D) highly profitable sales Answer: A Diff: 2 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Reflective Thinking 18) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 19) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Reflective Thinking

5 .

20) Which of the following is not a prequalification question?

A) Is this individual in my market?

B) Does (s)he need my product?

C) How will (s)he pay for it?

D) Can(s)he afford it?

Answer: C Diff: 3 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 21) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Information Technology 22) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 23) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking

6 .

24) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking 25) 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 Learning Objective: 6.2 Plan successful sales calls.

AACSB: Analytical Thinking

7 .

26) The type of sales team you create should be determined by what your competitors do.

Answer: FALSE Diff: 2 Learning Objective: 6.3 Explore options for adding a sales force.

AACSB: Analytical Thinking 27) 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Reflective Thinking 28) 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Reflective 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Reflective Thinking 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Reflective Thinking 8 .

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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Analytical Thinking 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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

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

Answer: TRUE Diff: 1 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Reflective Thinking 9 .

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 Learning Objective: 6.4 Recognize and arrange excellent customer service.

AACSB: Analytical Thinking 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 Learning Objective: 6.5 Define customer relationship management and interpret its value.

AACSB: 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 Learning Objective: 6.5 Define customer relationship management and interpret its value.

AACSB: Analytical Thinking

10 .

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 Learning Objective: 6.5 Define customer relationship management and interpret its value.

AACSB: 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 Learning Objective: 6.5 Define customer relationship management and interpret its value.

AACSB: Analytical Thinking

11 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 4) 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking

1 .

5) 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 6) The Thomas Register of American Manufacturers lists companies that specialize in creating ________.

A) products B) prototypes C) copyrights D) services Answer: B Diff: 1 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 7) 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 8) 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking

2 .

9) ________ 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 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 10) A critical cost for a beginning business is the seed capital.

Answer: TRUE Diff: 1 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 11) It is wise to keep a reserve equal to one-fourth of the start-up investment.

Answer: FALSE Diff: 2 Learning Objective: 7.1 Assess the costs of starting a business.

AACSB: Analytical Thinking 12) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 13) Other variable costs per unit subtracted from Total COGS per unit equals ________ per unit.

A) cost of goods sold B) contribution margin C) total other variable costs D) operating margin Answer: B Diff: 3 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking

3 .

14) If you sell $2,500 worth of product, pay COGS of $800 and other variable costs of $360, what is your gross profit?

A) $1,340 B) $1,700 C) $2,464 D) $2,500 Answer: A Diff: 1 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 15) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 16) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Application of Knowledge 17) Depreciation is a(n) ________ cost.

A) fixed operating B) variable C) flexible D) administrative Answer: A Diff: 2 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking

4 .

18) Which of the following is not a category of fixed costs?

A) Rent B) Advertising C) Capital D) Depreciation Answer: C Diff: 2 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 19) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 20) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Application of Knowledge 21) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Application of Knowledge

5 .

22) Total revenue divided by ________ = units sold.

A) selling price B) profit C) total operating costs D) cost Answer: A Diff: 2 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Application of Knowledge 23) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Application of Knowledge 24) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Application of Knowledge 25) In the phrase I SAID U R + "Other FXs", U R stands for ________.

A) utilities, rent B) unknown rates C) unforeseen revisions D) unforeseen rates Answer: A Diff: 3 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 6 .

26) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 27) ________ 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 28) Variable costs are expenses that must be paid regardless of whether sales are being generated.

Answer: FALSE Diff: 2 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 29) Fixed operating costs can change over time.

Answer: TRUE Diff: 1 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Reflective Thinking 30) Depreciation is the percentage of value of an asset added each year to reflect wear and tear on the asset.

Answer: FALSE Diff: 2 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking

7 .

31) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: Analytical Thinking 32) 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: 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 Learning Objective: 7.2 Describe fixed and variable costs.

AACSB: 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 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: 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 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: Analytical Thinking 8 .

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 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: 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 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: 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 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: Analytical Thinking 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 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: Reflective Thinking

9 .

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 to be able to calculate accurate Return on Investment and Return on Sales.

Diff: 3 Learning Objective: 7.3 Select financial record keeping for your business.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 8.1 Identify the four basic documents used to assess business health.

AACSB: 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 Learning Objective: 8.2 Understand an income statement.

AACSB: 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 Learning Objective: 8.2 Understand an income statement.

AACSB: Analytical Thinking 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 Learning Objective: 8.2 Understand an income statement.

AACSB: Application of Knowledge

1 .

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 Learning Objective: 8.2 Understand an income statement.

AACSB: 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 Learning Objective: 8.2 Understand an income statement.

AACSB: Reflective Thinking 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 Learning Objective: 8.2 Understand an income statement.

AACSB: Analytical Thinking

2 .

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 Learning Objective: 8.2 Understand an income statement.

AACSB: Analytical Thinking 9) Owner's equity is also called ________.

A) debt B) assets C) liabilities D) net worth Answer: D Diff: 2 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: 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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking

3 .

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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: 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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking 13) 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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking 14) 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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking

4 .

15) 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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking 16) The balance sheet equation tells us that assets - liabilities = net profit.

Answer: FALSE Diff: 1 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking 17) 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 Learning Objective: 8.3 Examine a balance sheet to determine a business's financing strategy.

AACSB: Analytical Thinking 18) To see how costs are affecting net profit, try analyzing the income statement by expressing each as a percentage of ________.

A) costs B) profit C) sales D) administrative expense Answer: C Diff: 1 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking

5 .

19) Which of the following is not something that can be invested?

A) Energy B) Time C) Expertise D) Money Answer: C Diff: 2 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Reflective Thinking 20) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 21) ROI is always calculated for ________.

A) a month B) a specific time period, such as a month or a year C) the length of a business's fiscal year D) a period of time Answer: B Diff: 3 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 22) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking

6 .

23) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Application of Knowledge 24) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 25) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Application of Knowledge 26) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking

7 .

27) Return on Sales (ROS) is also called a(n) ________ margin.

A) contribution B) gross C) profit D) operating Answer: C Diff: 2 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 28) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 29) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 30) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking

8 .

31) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 32) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking 33) 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: 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 Learning Objective: 8.4 Perform a financial ratio analysis on an income statement.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 8.5 Analyze a balance sheet.

AACSB: Analytical Thinking 36) If you extend credit, it is critical to minimize this number to keep cash flowing. This is called the ________ ratio.

A) receivable turnover B) inventory turnover C) collection-period D) debt-to-equity Answer: C Diff: 2 Learning Objective: 8.5 Analyze a balance sheet.

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

Answer: FALSE Diff: 1 Learning Objective: 8.5 Analyze a balance sheet.

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

Answer: TRUE Diff: 2 Learning Objective: 8.5 Analyze a balance sheet.

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

Answer: FALSE Diff: 3 Learning Objective: 8.5 Analyze a balance sheet.

AACSB: Analytical Thinking

10 .

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 Learning Objective: 8.5 Analyze a balance sheet.

AACSB: Analytical Thinking

11 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 9.1 Understand the importance of cash flow management.

AACSB: Analytical Thinking 2) 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 Learning Objective: 9.1 Understand the importance of cash flow management.

AACSB: Reflective Thinking 3) 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 Learning Objective: 9.1 Understand the importance of cash flow management.

AACSB: Analytical Thinking 4) Cash flow is the lifeblood of a business.

Answer: TRUE Diff: 1 Learning Objective: 9.1 Understand the importance of cash flow management.

AACSB: Reflective Thinking

1 .

5) 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 Learning Objective: 9.1 Understand the importance of cash flow management.

AACSB: Reflective 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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: 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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: 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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: Reflective Thinking

2 .

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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: Analytical Thinking 10) Once a business is operational, an entrepreneur needs to keep an eye on ________, which is 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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: Analytical Thinking 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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: Analytical Thinking 12) 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 Learning Objective: 9.2 Describe the working capital cycle.

AACSB: Application of Knowledge 3 .

13) ________ = cash on hand + cash receipts - cash disbursement.

A) Profit B) Revenue C) Cash flow D) Gross profit Answer: C Diff: 1 Learning Objective: 9.3 Read a cash flow statement.

AACSB: 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 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Application of Knowledge 15) 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 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking 16) 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 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking

4 .

17) 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 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking 18) Every time an entrepreneur spends cash, (s)he takes a risk. If one buys ________, then 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 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking 19) To manage cash flow, you should project ________ and then subtract expenses you expect to incur.

A) gross receipts B) gross sales C) cash receipts D) net income Answer: C Diff: 1 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking 20) The cash flow statement is: cash flow = cash on hand + credit and cash sales - cash disbursements.

Answer: FALSE Diff: 2 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking 21) Both cash inflows and outflows can be managed to control overall cash flow.

Answer: TRUE Diff: 2 Learning Objective: 9.3 Read a cash flow statement.

AACSB: Analytical Thinking

5 .

22) 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 Learning Objective: 9.4 Analyze receivables for cash management.

AACSB: Analytical Thinking 23) 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 Learning Objective: 9.5 Use accounts payable management to manage cash.

AACSB: Reflective Thinking 24) A burn rate is the ________.

A) number of months a business can survive without making sales B) amount of cash per month a business can spend before it runs out of cash C) amount of cash a business burns on rent per month D) number of days a business can survive without making sales Answer: B Diff: 3 Learning Objective: 9.6 Define capital budgeting.

AACSB: Analytical Thinking 25) 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 Learning Objective: 9.6 Define capital budgeting.

AACSB: Analytical Thinking 26) ________ value is the amount an investment is worth discounted back to the present.

A) Earnings B) Future C) Present D) Tangible Answer: C Diff: 2 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Analytical Thinking

6 .

27) 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 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Analytical Thinking 28) 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 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Application of Knowledge 29) 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 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Reflective Thinking 30) ________ value of money is the amount an investment is worth discounted back to the present.

A) Present B) Future C) Time D) Prediscounted Answer: A Diff: 2 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Analytical Thinking

7 .

31) 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 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Application of Knowledge 32) Future value is a component of the time value of money; however, present value is not.

Answer: FALSE Diff: 1 Learning Objective: 9.7 Calculate the time value of money.

AACSB: Reflective Thinking 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 Learning Objective: 9.8 Plan for taxes.

AACSB: Analytical Thinking 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 Learning Objective: 9.8 Plan for taxes.

AACSB: Analytical Thinking

8 .

35) Because entrepreneurs do not have Social Security tax taken out of their income by their employer, they must pay a(n) ________ tax.

A) self-employment B) sales C) operating D) capital assets Answer: A Diff: 1 Learning Objective: 9.8 Plan for taxes.

AACSB: 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 Learning Objective: 9.8 Plan for taxes.

AACSB: 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 Learning Objective: 9.8 Plan for taxes.

AACSB: Analytical Thinking 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 Learning Objective: 9.8 Plan for taxes.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 9.8 Plan for taxes.

AACSB: 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 Learning Objective: 9.8 Plan for taxes.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) Chapter 10 Financing Strategy and Tactics 1) Statistics indicate that 45% of all small businesses ________ year(s).

A) survive ten plus B) fail after three C) survive five or more D) fail after the first Answer: C Diff: 1 Learning Objective: 10.1 Understand funding categories and risk.

AACSB: Analytical Thinking 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 Learning Objective: 10.1 Understand funding categories and risk.

AACSB: Analytical Thinking 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: Reflective Thinking

1 .

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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: Analytical Thinking 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: Analytical Thinking

2 .

9) 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: Analytical Thinking 10) 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: Analytical Thinking 11) 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 Learning Objective: 10.2 Assess your financing preferences.

AACSB: Analytical Thinking 12) ________ 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 Learning Objective: 10.3 Define gifts and grants.

AACSB: 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 Learning Objective: 10.4 Evaluate the pros and cons of debt financing.

AACSB: 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 Learning Objective: 10.4 Evaluate the pros and cons of debt financing.

AACSB: Analytical Thinking 15) If $5,000 is borrowed at 9% interest 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 Learning Objective: 10.4 Evaluate the pros and cons of debt financing.

AACSB: Application of Knowledge 16) 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 Learning Objective: 10.4 Evaluate the pros and cons of debt financing.

AACSB: Analytical Thinking 17) The equity investor assumes greater risk than the debt lender.

Answer: TRUE Diff: 2 Learning Objective: 10.5 Explore the pros and cons of equity financing.

AACSB: Analytical Thinking

4 .

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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 21) Which of the following is not a type of community development loan fund?

A) Community development banks B) Public employee credit unions C) Community development credit unions D) Venture capital Answer: B Diff: 2 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking

5 .

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 to maximize cash flow C) personally guarantee that you will be responsible for the business loan D) incorporate to avoid taxation Answer: C Diff: 3 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking

6 .

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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Reflective Thinking 27) Some federal agencies provide grants, loans, and/or loan guarantees for businesses that meet specific criteria. One of these is the U.S. ________.

A) Interstate Commerce Commission (ICC) B) Small Business Administration (SBA) C) Federal Land Bank (FLB) D) Agricultural Extension Agency (AEA) Answer: B Diff: 2 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 28) Lender financing occurs when a business establishes trade credit with the lender.

Answer: FALSE Diff: 1 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 7 .

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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: 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 Learning Objective: 10.6 Identify sources of capital for your business.

AACSB: Analytical Thinking 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 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: Analytical Thinking

8 .

34) The greater the potential reward, the ________.

A) riskier the investment is likely to be B) more the investment is likely to cost C) less risky the investment is likely to be D) longer it will take to show a return Answer: A Diff: 1 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: Reflective Thinking 35) Corporations sell equity in the form of ________.

A) debt B) ownership C) stock D) perks Answer: C Diff: 1 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: 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 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: Reflective Thinking 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 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: Reflective Thinking 39) High risk = high reward and conversely, low risk = low reward.

Answer: TRUE Diff: 1 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: 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 Learning Objective: 10.7 Appraise stocks and bonds as investment alternatives.

AACSB: Analytical Thinking

10 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: Analytical Thinking 7) The limited liability company (LLC) combines the best features of partnerships and corporations and can be an excellent choice for small businesses with a limited number of owners.

Answer: TRUE Diff: 2 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: Analytical Thinking 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.1 Choose a legal structure for your business.

AACSB: 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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: 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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: Analytical Thinking 12) ________ are the building blocks of business.

A) Letters of agreements B) Contracts C) Personal relationships D) Customer services Answer: B Diff: 3 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: 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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: 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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: Reflective Thinking

4 .

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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: Analytical Thinking 16) Some contracts specify that conflicts may be settled through ________ instead of court.

A) negotiation B) coercion C) arbitration D) small claims Answer: C Diff: 1 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: Analytical Thinking 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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: 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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: Reflective Thinking

5 .

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 Learning Objective: 11.2 Discover the importance of contracts.

AACSB: Analytical Thinking 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 Learning Objective: 11.3 Recognize key components of commercial law.

AACSB: Analytical Thinking 21) Of the three types of bankruptcies, Chapter 7 or Liquidation is the best choice to take.

Answer: FALSE Diff: 3 Learning Objective: 11.3 Recognize key components of commercial law.

AACSB: Analytical Thinking 22) Obtain a trademark 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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: 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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: Analytical Thinking 6 .

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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: Reflective Thinking 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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: 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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: 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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: Reflective Thinking

7 .

28) A copyright protects a songwriter, author, or visual artist. It keeps someone else from copying or appropriating the work.

Answer: TRUE Diff: 1 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: Analytical Thinking 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 70 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 U.S. 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 Learning Objective: 11.4 Evaluate ways to protect your intellectual property.

AACSB: 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: Analytical Thinking

8 .

32) ________ protects people from having property or wealth stolen, lost or destroyed. There are many kinds and 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: Analytical Thinking 37) 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 Learning Objective: 11.5 Plan to protect your tangible assets and manage risk.

AACSB: Analytical Thinking 38) 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 Learning Objective: 11.6 Select the types of licenses, permits, and certificates required.

AACSB: Analytical Thinking 39) 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 Learning Objective: 11.6 Select the types of licenses, permits, and certificates required.

AACSB: Analytical Thinking

10 .

40) 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 Learning Objective: 11.6 Select the types of licenses, permits, and certificates required.

AACSB: Analytical Thinking

11 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 Learning Objective: 12.1 Examine the significance of operations in a business.

AACSB: 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 Learning Objective: 12.1 Examine the significance of operations in a business.

AACSB: 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 Learning Objective: 12.2 Develop a production-distribution chain for your business.

AACSB: 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 Learning Objective: 12.2 Develop a production-distribution chain for your business.

AACSB: Analytical Thinking

1 .

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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: Reflective Thinking 7) The inventory method where you look at the inventory on hand, and when the stock level of an item appears to be low, and then you reorder is called ________.

A) basic control B) proximal management C) estimation D) visual control Answer: D Diff: 1 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: Analytical Thinking

2 .

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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: Analytical Thinking 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: Analytical Thinking

3 .

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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: Analytical Thinking 15) The visual control approach to inventory management is a scientific method.

Answer: FALSE Diff: 2 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.3 Manage suppliers and inventory.

AACSB: 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 Learning Objective: 12.4 Recognize the value of the facilities, location, and design decisions.

AACSB: Analytical Thinking 4 .

18) 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 Learning Objective: 12.4 Recognize the value of the facilities, location, and design decisions.

AACSB: Analytical Thinking 19) 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 Learning Objective: 12.4 Recognize the value of the facilities, location, and design decisions.

AACSB: Analytical Thinking 20) 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 Learning Objective: 12.4 Recognize the value of the facilities, location, and design decisions.

AACSB: Analytical Thinking 21) Home-based entrepreneurs have special considerations other businesses don't have.

Answer: TRUE Diff: 1 Learning Objective: 12.4 Recognize the value of the facilities, location, and design decisions.

AACSB: 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking

5 .

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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: 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) ISO14000 Answer: A Diff: 2 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking

6 .

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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: 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, and employee motivation Answer: C Diff: 3 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking

7 .

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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking 34) The central focus of total quality management (TQM) is continuous improvement.

Answer: TRUE Diff: 1 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Reflective Thinking 35) Continuous improvement is always identifying and implementing changes throughout an organization to focus on the requirements of internal and external customers.

Answer: TRUE Diff: 1 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Reflective Thinking

8 .

36) Six Sigma was developed in 2010 by Apple.

Answer: FALSE Diff: 1 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Reflective Thinking 37) In Six Sigma, DMAIC stands for define, measure, analyze, improve, and coordinate.

Answer: FALSE Diff: 1 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Reflective Thinking 38) Benchmarking is the comparison of a company's performance against that of companies in the same industry, or against best practices, standards, or certification criteria.

Answer: TRUE Diff: 1 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Reflective Thinking 39) 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, (s)he will have a business concept that can be profitable and with the potential for generating even greater revenues in the future.

Diff: 3 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Reflective Thinking 40) 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 Learning Objective: 12.5 Evaluate product quality methodologies.

AACSB: Analytical Thinking

9 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) 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 business person to become a millionaire C) the first entrepreneur to franchise a business D) the first self-made female millionaire Answer: D Diff: 2 Learning Objective: 13.1 Identify leadership styles.

AACSB: 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: Reflective Thinking 3) A leader is someone who gets things done through ________.

A) coercion B) power C) influence D) force Answer: C Diff: 2 Learning Objective: 13.1 Identify leadership styles.

AACSB: Reflective Thinking 4) When a business grows too big for the entrepreneur to run it alone, (s)he 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: Analytical Thinking

1 .

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 Learning Objective: 13.1 Identify leadership styles.

AACSB: Analytical Thinking 6) If a business owner wants his/her pay to be a variable operating cost, a ________ is most appropriate.

A) bonus B) wage C) salary D) commission Answer: D Diff: 2 Learning Objective: 13.1 Identify leadership styles.

AACSB: Reflective Thinking 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: Reflective Thinking

2 .

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 be too.

A) asset optimization B) expense constraints C) profit expectations D) tone Answer: D Diff: 2 Learning Objective: 13.1 Identify leadership styles.

AACSB: Reflective Thinking 10) Great leaders are ________.

A) pessimists B) coercive C) power hungry D) optimists Answer: D Diff: 1 Learning Objective: 13.1 Identify leadership styles.

AACSB: 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: Reflective Thinking

3 .

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 (s)he 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 (s)he 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 (s)he 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: 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 team building 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 Learning Objective: 13.1 Identify leadership styles.

AACSB: Analytical Thinking

4 .

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 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: Analytical Thinking 15) Hiring employees is called ________.

A) assessment B) controlling C) management D) recruitment Answer: D Diff: 1 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: Analytical Thinking 16) The job ________ identifies the knowledge, skills, and abilities required to perform the specific tasks of the job.

A) rotation B) enlargement C) enrichment D) profile Answer: D Diff: 2 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: 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 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: Analytical Thinking

5 .

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 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: 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 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: 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 (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 Learning Objective: 13.2 Summarize the role of managers in adding employees.

AACSB: Analytical Thinking

6 .

21) The ________ of an organization is the shared beliefs, values, and attitudes.

A) mission B) culture C) structure D) vision Answer: B Diff: 2 Learning Objective: 13.3 Evaluate roles in creating and managing culture and structure.

AACSB: Analytical Thinking 22) 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 Learning Objective: 13.3 Evaluate roles in creating and managing culture and structure.

AACSB: Analytical Thinking 23) 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 Learning Objective: 13.3 Evaluate roles in creating and managing culture and structure.

AACSB: 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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: Analytical Thinking

7 .

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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: Analytical Thinking 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 (s)he 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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: 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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: 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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: Analytical Thinking

8 .

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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: 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 (s)he 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 Learning Objective: 13.4 Understand the functions of human resources management.

AACSB: 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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: Analytical Thinking

9 .

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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: 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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: 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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: 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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: Ethical Understanding and Reasoning

10 .

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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: 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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: 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 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: Analytical Thinking 39) As a business, ethical practices involve doing the right things and doing them ethically.

Answer: TRUE Diff: 1 Learning Objective: 13.5 Pursue ethical leadership to build an ethical organization.

AACSB: 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 Learning Objective: 13.6 Incorporate social responsibility into your company.

AACSB: Analytical Thinking

11 .

Entrepreneurship: Starting and Operating a Small Business, 5e (Glackin/NFTE) Chapter 14 Franchising, Licensing, and Harvesting: Cashing in Your Brand 1) ________, 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 Learning Objective: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB: Analytical Thinking 2) ________ 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 Learning Objective: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB: Analytical Thinking 3) 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 Learning Objective: 14.1 Assess how you want to grow your business and eventually exit from it.

AACSB: Analytical Thinking 4) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking

1 .

5) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 6) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 7) Which business is an example of a franchise?

A) Sears B) McDonald's C) Federal Express D) United States Postal Service Answer: B Diff: 1 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Application of Knowledge 8) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Application of Knowledge

2 .

9) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 10) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 11) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 12) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

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13) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Application of Knowledge 14) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 15) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: Analytical Thinking 16) The benefits of franchising include growth with medium capital investment, lower marketing but higher promotional costs, and royalties.

Answer: FALSE Diff: 2 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

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17) 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: 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 Learning Objective: 14.2 Describe how a company can expand via licensing and franchising.

AACSB: 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: Analytical Thinking 20) It typically requires at least ________ years to develop a company worth harvesting.

A) 20 B) 15 C) 12 D) 10 Answer: D Diff: 2 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

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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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: Analytical Thinking 22) William Petty's article on harvesting quotes Stephen 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: Analytical Thinking 23) 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: Analytical Thinking 24) 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

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25) 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: Analytical Thinking 26) 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: Analytical Thinking 27) Harvesting means to sell, take public, or merge a company to yield proceeds for the owner(s).

Answer: TRUE Diff: 1 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: 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 Learning Objective: 14.3 Examine options for harvesting and exiting 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 Learning Objective: 14.3 Examine options for harvesting and exiting a business.

AACSB: 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 year's sales peak Answer: A Diff: 3 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: 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 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: 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 Learning Objective: 14.4 Compare 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 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: 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 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: Analytical Thinking 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 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: 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 Learning Objective: 14.4 Compare 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 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: 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 Learning Objective: 14.4 Compare ways to harvest a business.

AACSB: 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 Learning Objective: 14.4 Compare 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. Merger - 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 Learning Objective: 14.4 Compare ways to harvest a business.

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