Professional Documents
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Contents
Chapter 1: The Foundations of Entrepreneurship
Self-Study Quiz...........................2
Self-Study Quiz 4
Self-
Question 1.
Entrepreneurial activity is essential to a strong economy and a recent GEM study
noted that entrepreneurs are most likely to launch their businesses between the
ages of:
2359
1935
3544
3049
2544
Question 2.
Economies that were state controlled and centrally planned are now fertile for
growing small businesses. The countries being part of this group include the
following EXCEPT:
Canada
China
Eastern European countries
Russia
Vietnam
Question 3.
Which of the following is NOT a common profile characteristic of a typical
entrepreneur?
Enjoy managing people
Deep sense of responsibility
High level of optimism and self confidence
Calculated risk taker
More energetic than the average person
Question 4.
Small business creates 60 percent to 80 percent of all new jobs in the United States.
The majority of these businesses are involved in what type of industry?
Construction
Manufacturing
Food
Service and Retail Industries
Financial
Question 9.
Ways to avoid becoming a failure statistic includes the following EXCEPT:
Create a competitive edge
Borrow the total investment needed
Have a passion
Have adequate startup capital
Understand the company's financial statements
Question 10.
Setting your business apart from the competition can include ______, _____, _____,
and ______.
customer service; convenience; speed; quality
give away samples; low rent location; high volume traffic; quality
customer service; taking credit cards; low inventory; speed
inventory; increase credit availability; close store early; lack of focus on customer
service
low payroll; convenience; uniforms; appointments
Executive summaries should appear first, but should be written after the rest of the
business plan.
Executive summaries should be at least 5 pages long and provide information about
the strategy of the firm.
Executive summaries should contain information about the pricing and cost
structure of the firm.
A and B are true.
Question 8.
When describing your firm's marketing strategy, which of the following is NOT a
factor in defining your target market?
Describing where potential customers live and work
Estimating the ages, income level, and other pertinent demographics
Estimating the number of goods that each customer would buy
Understanding needs and wants
Determining the basis of differentiation in the minds of the target market
Question 9.
What financial statements are necessary to include in a business plan for either an
existing business or startup?
Monthly sales forecast, income statement, balance sheet
Balance sheet, operating ratio statement, break even statement
Balance sheet, cash flow statement, sales statement
Ratio analysis, balance sheet, income statement
Balance sheet, income statement, cash flow statement
Question 10.
When delivering a business plan presentation to investors and creditors, it is a good
idea to ________.
be as detailed as possible, covering all of the points of the business plan
keep it simple and use visual aids
use technical terminology to emphasize your knowledge of the industry
improvise as you present your speech to emphasize your personality
allow all of the founders of the business an opportunity to present their
contributions to the venture
Question 3.
Why is the purchase of a franchise sometimes considered to be a better option than
starting a business independently, from scratch?
The upfront costs are lower for the rights to a franchise than they are for a new
independent business.
The franchiser will absorb the first few years' losses as a part of the services
provided.
The franchisee receives a business system, training, support, advice, and brand
recognition that an independent entrepreneur would not receive.
The franchisee receives a portion of the profits of the parent company, whereas the
independent entrepreneur would not.
The franchiser will come into the franchisee's company and operate it until it
becomes profitable, which would never be an option for the independent
entrepreneur.
Question 4.
Since franchises are so widespread, often nationally and internationally
interspersed, how is advertising handled between the franchiser and franchisee?
The franchiser does all of the marketing for the franchisee, in return for royalties.
The franchisee pays the franchiser to arrange for all of the advertising that is to be
performed.
The franchiser puts national ads in the papers and on the television, and anything
else is up to the franchisee.
The franchisee pays a marketing fee to support company-wide advertising, and is
also often required to spend a predetermined amount on advertising in the local
market to support her location.
There is no prevalent pattern for how advertising is conducted within a franchise
system. It varies from franchise to franchise.
Question 5.
Which of the following is NOT considered to increase the success rate of franchisees
when included by the franchise, as noted in a recent survey.
Requires prior industry experience
A strong brand name
No absentee ownership
Offers training programs to improve knowledge and skills
Provides financial assistance
Question 6.
Where can an entrepreneur find the most accurate information about the total cost
of opening a certain franchise?
In the local newspaper
Franchise Disclosure Document
On the parent company's web site
From other entrepreneurs that have opened the franchise
From the government offices of the state wherein the parent company has
incorporated
Question 7.
The following are all factors to consider whether you are franchise material.
Patience
General business skills
People skills
Leadership ability
All of the above
Question 8.
Which of the following is a factor that can signal that a franchiser does NOT have
underlying issues?
Reassurance that there is no need to read the contract - his word is as strong as oak
Reassurance that there is no need to go to the expense of hiring an attorney - her
attorney will help you through the confusing parts
Promises that you will earn your required rate of return, without documentation of
this outcome from other locations
A low franchisee turnover rate
Presentation of a one-time only, sign-today discount on franchise fees
Question 9.
Which of the following characteristics would suggest that a franchise might prove to
be a good business opportunity?
The franchise's business concept has already been proven by a number of
established competitors in the marketplace offering the same product.
The franchise offers a hot, trendy product that is unproven in the market.
The franchise is so new that it has not been covered by the media, and thus you will
be one of the first franchisees in the nation.
Favorable information from past franchisees
The franchise turnover rate is around 25%.
Question 10.
What current trends are impacting franchising?
Multiple units
International potential
Master franchising
Smaller non-traditional locations
All of the above
Question 3.
To acquire a business, the following steps require consideration.
Consider financing options
Consider skills and interests
Consider potential opportunities
Investigate potential candidates
All of the above
Question 4.
The first step in buying a business is ________.
searching the market for a profitable business for sale
conducting a self-audit to determine the ideal business type for you
Balance sheet approaches are not precise, being as figures on the balance sheet are
only estimates. Future earnings are more precise figures.
Earnings-based approaches to calculating the value of an existing business
mathematically incorporate important considerations such as opportunity cost and
future earnings potential.
Question 6.
What types of marketing tactics work well for smaller businesses?
Competing based upon price
Dressing in crazy outfits and standing in traffic
Spending large amounts on television advertising
Focusing on the individualized needs of their customers
Piggybacking on the ads run by larger, related organizations
Question 7.
What is a unique selling point (USP)?
A short phrase that expresses what the business can do uniquely for its customers
A postal service organization that delivers packages
A public statement that reveals that the company is for sale
A price point that is agreed upon by customers and sellers
A phrase that describes how the business will sell its products
Question 8.
What is one competitive edge that small businesses can excel at, because of their
size?
Lower pricing strategies
Higher advertising spending
Innovation
Supplier relationships
Market research gathering
Question 9.
Time compression management includes the following principles EXCEPT:
Speed in which products are brought to market
Shortening customer response time in manufacturing
Reducing administrative time to fill an order
Shortening customer response time in delivery
Payment flexibility
Question 10.
What is the marketing mix?
The right mix of advertising and pricing to attract your target market
The major elements of a marketing strategy - product, place, price, and promotion
The mixture of advertising and public relations efforts that best suits your target
market
The set of decisions that must be made before deciding upon which target market
to address
The way that your customer sees themselves in the mixture of your entire
marketplace
Giving away something "free," such as information, in addition to the goods that
you sell on your site
Choosing a URL address that is similar to a competitor's address, in hopes that
customers will be confused or mistaken
Advertising through a pop-up window that will not close without deliberate
consumer effort
Question 5.
Small business opportunities to connect with customers online include?
RSS
Widgets
Phone
A and B
All of the above
Question 6.
What are the three types of search engine results?
Natural listings, categorical listings, and industry listings
Industry listings, product listings, and alphabetical listings
Alphabetical listings, geographic listings, and industry listings
Natural listings, alphabetical listings, and paid listings
Natural listings, paid listings, and paid inclusion
Question 7.
What elements should an entrepreneur incorporate into her business's web site?
Lists of product lines that make sense to the entrepreneur
Aesthetics and design that capture the personality of the entrepreneur
Text describing in detail and at length the items the customer is purchasing
An easy-to-remember URL
Elaborate, high-definition graphic displays and frames
Question 8.
What does the term "bounce rate" mean when it refers to e-commerce?
The number of times a customer clicks on an advertisement
The number of stores a customer visits each time she gets onto the Internet
The amount of time that has passed since the customer last purchased an item on
the Internet
The amount of time that has passed since the customer last logged onto the
Internet
The percentage of visitors to a company's web site who view a single page and
leave without viewing other pages
Question 9.
What does conversion rate do for Internet merchants?
It looks at what sites individuals visited most over a day's time across the Internet.
It measures the proportion of visitors who actually make a purchase.
It does a quick credit report on the customer to gauge whether the customer's
transaction may be fraudulent.
It filters the blog for a given time period to determine what topics are most
important to site visitors.
It looks through the visitors' web browser history to determine if the visitor has gone
to a competitor's site.
Question 10.
How can an e-commerce small business protect itself from credit card fraud?
By verifying the purchase by asking for the 3-digit card verification value on the
back of the card
By setting up an inexpensive firewall
By offering high-end goods that no thief would attempt to purchase
By requiring the customer to send in a copy of the card and their driver's license
before being added to a customer list
By asking for the customer's checking account information as well as credit card
information
The amount that is left after variable and fixed costs have been taken from total
revenues to serve as profit
The amount that is left after variable and fixed costs have been taken from total
revenue to contribute to community causes
The amount that is left after variable costs, taxes, and interest have been taken out
of total revenues
The amount that is left after fixed costs have been taken from total revenue, that
may be allocated among the total number of units sold
Question 9.
Which of the following best represents the pricing equation for a break-even pricing
strategy?
Selling Price = Contribution Margin * Quantity Produced
Selling Price = Customer's Preferred Price - Desired Profit per Item
Selling Price = Variable Cost per Item + Fixed Costs
Selling Price = ((Variable costs Quantity Produced) + Total Fixed Costs))/Quantity
Produced
Selling Price = Variable Costs + Quantity Produced
Question 10.
In the United States, credit card users typically spend ____ % more than if they used
cash.
10
20
12
16
0
The entrepreneur fails to understand that more sales will not be profitable.
The entrepreneur fails to take into account the interest rate on the loan she will
have to take out to cover the sales increase.
The entrepreneur fails to take into consideration the backlash from customers upon
realizing that they have to cover his cash deficit.
The entrepreneur fails to take into account the price drop he will have to use to
generate the increase in sales.
Question 3.
Why is a cash budget useful to an entrepreneur?
A cash budget allows the entrepreneur to determine how many items need to be
sold to remain profitable.
A cash budget shows chronologically when inflows and outflows of cash can be
expected.
A cash budget allows the entrepreneur to determine how the company will generate
new sales.
A cash budget does not take into account the employees' salaries, which can be
removed through layoffs.
The cash budget helps entrepreneurs determine when it would be a good idea to
bring on additional product lines.
Question 4.
What is the primary cause of cash flow problems cited by entrepreneurs?
Generating those first sales
Having to pay employee salaries
Collecting accounts receivable promptly
Excruciatingly high utility bills
Suppliers' hesitancy to extend credit to new buyers
Question 5.
The three primary areas of cash flow problems are ________.
employees, new products, and advertising
current assets, sales, and net income
unemployment insurance, workers' compensation, and severance pay
utility bills, sales tax, and income tax withholding
pilfering
scraping
masting
bartering
Question 10.
How might leasing improve an entrepreneur's cash position?
The lessor gives the entrepreneur cash back on each payment the entrepreneur
makes on the piece of equipment.
Leasing allows entrepreneurs to gain access to needed equipment without the large
down payments that would normally be required to finance the purchase of the
same equipment.
Leasing allows the entrepreneur to go for several months at a time without making
a payment on the equipment the entrepreneur is using.
Leasing allows entrepreneurs to pay only when they first begin turning a profit.
Leasing allows entrepreneurs a chance to profitably sublease the equipment.
Capital
Question 3.
How much do the majority of entrepreneurs require in startup capital?
$500,000 - $750,000
Less than $100,000
More than $1,000,000
$750,000 - $1,000,000
More than $2,000,000
Question 4.
What is a disadvantage of debt capital when considered with equity capital?
Debt capital requires prearranged repayments of interest and principal.
Raising debt capital forces the entrepreneur to give up control of management and
operations.
Raising debt capital requires the entrepreneur to pay dividends to its creditors.
Using debt capital puts a firm at a disadvantage from a tax standpoint.
Using debt capital lowers a firm's image in the eyes of customers.
Question 5.
What is an angel investor?
An investor that can make an investment within a typical 48-hour turnaround time
A wealthy individual who invests in businesses for an equity stake
A small business that puts its extra income into other small businesses
An investor that puts her money into nonprofit organizations
An investor that leaves a majority interest of his estate to small businesses
Question 6.
Over the course of a year, a typical venture capital firm will fund _____ out of the
roughly 1100 proposals it receives.
1 to 5
10 to 15
15 to 20
100 to 200
200 to 250
Question 7.
Which of the following is NOT an advantage to taking the venture public?
More control over decision making
Ability to raise a great deal of capital
Improved corporate image
Improved access to future financing
Ability to attract and retain employees
Question 8.
What is the most important criterion, from a lender's perspective, of a firm that
applies for a loan?
The management team at the helm of the business
The profitability of the business
The ability of the business to produce cash through its business model
The industry that the business operates within
The market research that the organization has performed
Question 9.
How does the Small Business Administration (SBA) assist entrepreneurs in finding
financing?
The SBA writes business plans for small businesses to carry to creditors that they
would like to approach for a loan.
The SBA helps small businesses clear out their inventory so that they appear more
attractive to potential investors.
The SBA offers a free financial screening for entrepreneurs that are seeking loans.
The SBA loans out money directly to entrepreneurs.
The SBA backs a large percentage of each loan that qualified entrepreneurs receive
from affiliated lenders.
Question 10.
What is the purpose of state-backed capital access programs (CAPs)?
CAPs are programs in which the state lends money directly to the entrepreneur.
CAPs require upfront payments by the entrepreneur, matched by the state, that
become insurance against default on loans given to entrepreneurs.
CAPs are loan education programs that, once completed, qualify the entrepreneur
for special financing.
CAPs are programs that introduce entrepreneurs to the many options that are
available through lenders.
CAPs prequalify entrepreneurs for state-backed loans based on their personal
background.
It would allow for increased profitability through reduced transportation costs for
distributors.
It would not be beneficial for an entrepreneur to locate her business near a
competitor.
The offerings of both businesses may attract more customers to the vicinity.
It could help the entrepreneur improve her image by being associated with the
competitor.
Question 4.
What is the concept of trade area size?
It is the size of the region from which a firm can reasonably expect to draw
customers.
It is the size of the trading floor of the local area merchant exchange.
It is the distance between your firm and its nearest three competitors.
It is the size of the Metropolitan Statistical Area (MSA) that your firm operates
within.
It is the distance between your firm and the nearest indoor or outdoor mall area.
Question 5.
What is one of the drawbacks to doing business in a central business district?
The foot traffic is not prevalent around the business.
High rental rates for retail space.
The business will have a lower image because of the downtown location.
The city will impose an extra sales tax on the business because of its central
location.
It will be difficult to find employees that want to work at the business.
Question 6.
_____ percent of all small businesses are home-based businesses.
Ten
Twenty-five
Fifty-two
Seventy-one
Ninety
Question 7.
Question 2.
What types of services do export management companies offer entrepreneurs?
Management services in foreign markets
Education and training on exporting
Product and service innovation for foreign markets
Provision of a foreign distribution channel through which they may sell goods
Negotiation with foreign governments to allow the firm's products to be sold
Question 3.
What do foreign partners bring to a foreign joint venture?
Relief from domestic tax burdens
Knowledge of the local market targeted for expansion
Product innovation
Relief from competitors in the domestic market
Provision of a better management team for the domestic market
Question 4.
What is the downside to developing a master franchise design for foreign expansion
of your service business?
Because the firm turns over the management of franchises in a country to a master
franchiser, the company has the least control in this arrangement.
Because the contracts that bind international franchises to the parent company
cannot be upheld in an international court, the master franchiser could take the
business model and develop it as his own business.
Many countries do not allow the master franchise design to be used within their
borders, so the design is only applicable to a handful of markets.
Many governments see the high profitability of the master franchise model and
nationalize the business, taking all profits for the local government.
Many customers see the master franchise design as cultural imperialism by U.S.
companies, and therefore boycott the franchise businesses.
Question 5.
Small business in the U.S. represents nearly _____ percent of export sales from the
country.
1
10
20
65
90
Question 6.
What agency can assist entrepreneurs in securing financing to support their export
strategies?
the Securities and Exchange Commission
the Export Banking Association
the U. S. Chamber of Commerce
the Central Intelligence Agency
the Federal Trade Commission
Question 7.
The WTO acts as an export management company, assisting entrepreneurs from all
of its member nations.
The WTO monitors human working conditions in businesses around the world.
Employees, upon reaching twenty years' tenure with the company, have the option
of purchasing the company at a value the owner sets.