The purpose of a feasibility study is to determine whether a business idea is worth
pursuing.
Equity capital is also called risk capital because these investors assume the primary risk
of losing their funds if the business fails.
All the profits of a sole proprietorship are taxed as current income of the owner even if
they are not withdrawn from the business.
The goals of e-commerce are not different from traditional offline businesses – to
increase sales, improve efficiency, and boost profits by serving customers better.
Leverage ratios measure the financing supplied by the firm’s owner against that
supplied by his creditors.
Management and leadership are essentially the same.
Economies of scale relate to which of Porter’s 5-forces?
A) Bargaining power of buyers
B) Threat of new entrants
C) Bargaining power of suppliers
D) Threat of substitutes
An analysis that determines the degree to which a product or service idea appeals to
potential customers and identifies the resources necessary to produce the product or
provide the service is referred to as ________.
A) product or service feasibility analysis
B) business prototyping
C) business plan analysis
D) financial feasibility analysis
For an entrepreneur, expanding into international markets ________.
A) guarantees its success in the marketplace
B) makes it a member of GATT automatically
C) helps it grow faster and survive competition better
D) leads to business failure for companies under $100 million in annual revenue
________ ratios help a business owner evaluate the company’s performance and
indicate how effectively the business employs its resources.
A) Liquidity
B) Leverage
C) Operating
D) Profitability
It is estimated that ________ percent of new businesses fail within two years, while
________ percent fail within five years.
A) 21; 51
B) 51; 64
C) 35; 41
D) 51; 31
Leadership is ________.
A) essential to a company’s success
B) not an easy skill to learn
C) influencing and inspiring others to work to achieve a common goal and then giving
them the power and the freedom to achieve it
D) All of the above
If a job candidate files charges of employment discrimination against a company, the
burden of proof in the case falls on ________.
A) the employer to prove that all pre-employment questions are job-related and
nondiscriminatory
B) the candidate to prove that some pre-employment questions and actions were
discriminatory
C) the Equal Employment Opportunity Commission representing the job candidate in
the lawsuit
D) None of the above
In an initial public offering, the underwriter, or investment banker, serves to ________.
A) advise and help prepare the company’s registration statement for the SEC
B) determine the price of the shares issued in the offering
C) sell the company’s stock through an underwriting syndicate of other investment
bankers it develops
D) All of the above
During the acquisition process, the potential buyer usually must sign a ________,
which is an agreement to keep all conversations and information secret and legally
binds the buyer from telling anyone any information the seller shares with her/him.
A) covenant not to compete
B) nondisclosure document
C) letter of intent
D) purchase agreement
The single most common reason for abandoning online shopping carts is ________.
A) shipping and handling charges were too high
B) delivery times were too long and the checkout process required too much
information and time
C) there was insufficient product information available
D) the inability to compare the final price before buying
The biggest benefit of a public stock offering is ________.
A) the capital infusion the company receives
B) the ability to use its stock to acquire other companies
C) a listing on a stock exchange
D) the ability to use its stock to attract and retain key managers and employees
The process of investigating the details of a company that is for sale to determine the
strengths, weaknesses, opportunities and threats facing it is known as the ________.
A) hidden market process
B) due diligence process
C) skimming process
D) business assessment process
Which of the following is not a barrier to entry?
A) Capital requirements
B) Large number of buyers
C) Specialized knowledge
D) Access to distribution channels
Mini Case 1-1: Hudson’s Dilemma
Bill Hudson was a real craftsman when it came to being a machinist. Bill had learned
almost all that he knew from Hugo Huffman, his first and only employer. Bill Hudson
was married and had three young children. He was 33 years old and had worked for
Hugo ever since he finished his tour in the Army. In 12 years, Bill had polished his
skills under the watchful and critical eye of Hugo Huffman. Hugo was quick to
recognize Bill’s talent for the trade. Bill had a positive attitude about learning and
displayed a drive for perfection that Hugo admired.
Hugo’s Machine Shop was a successful small business. Its success was based mostly on
the reputation for quality that had been established over its 42 years in operation. Hugo
had come to this country with his new wife, Hilda, when he was in his late twenties.
Now the business was a success, but Hugo remembered the early years when he and
Hilda had to struggle. Hugo wanted the business to continue to produce the highest
quality craftsman products possible. On a Friday evening, he called Bill into his office
at closing time, poured him a cup of half-day-old coffee, and began to talk with him
about the future.
“Bill, Hilda and I are getting old and I want to retire. It has been 42 years of fun but
these old hands need a rest. In short, Hilda and I would like you to buy the business. We
both feel that your heart is in this craft and that you would always retain the quality that
we have stood for.” Bill was taken back by the offer. He, of course, knew Hugo was
getting older, but had no idea Hugo would retire. Bill and his wife, Anna, had only
$4,200 in the bank. Most of Bill’s salary went for the normal costs of rearing three
children. Hugo knew Bill did not have the money to buy the business in cash, but he
was willing to take a portion of the profits for the next 15 years and a modest initial
investment from Bill.
Bill had, for the past four years, made most of the technical decisions in the shop. Bill
knew the customers and was well respected by the employees. He had never been
involved in the business side of the operation. He was a high school graduate but had
never taken business courses. Bill was told by Hugo that even after deducting the
percentage of the profits he would owe under the sales agreement, he would be able to
almost double his annual earnings. Bill would have to take on all the business functions
himself because Anna had no business training either.
In addition to the opportunity to create their own destiny and enjoy what they do,
entrepreneurs also benefit from the ability to ________.
A) earn tremendous wealth without risk and uncertainty
B) make a difference in an area important to them and be recognized for those efforts
C) create wealth without providing true value
D) exploit the opportunities that the free enterprise system offers
A Geographic Information System (GIS) ________.
A) is a software package combining the ability to draw detailed maps with the power to
search through databases
B) helps entrepreneurs discover important trends and characteristics in the population
that otherwise might go unnoticed
C) can be an incredibly powerful tool for determining the ideal location based on
specific criteria the entrepreneur establishes
D) All of the above
Which ratio would best give an owner an indication that the business is
undercapitalized?
A) Debt-to-net worth
B) Net sales to total assets
C) Average inventory turnover
D) Quick
Which of the following is a consumer right per the Consumer Bill of Rights?
A) Right to Sanity
B) Right to Know
C) Right to Profit
D) Right to Return
The first phase of determining where to locate a business is ________.
A) choosing a state in which the business owner wants to live
B) determining which city has the demographics that best fit the business
C) conducting a specific site analysis
D) determining which regions of the country are experiencing growth
In addition to treating employees with respect, smart entrepreneurs see customer service
as an investment that builds long-term value for their companies through ________.
A) listening to customers and providing superior service
B) setting standards and measuring performance
C) examining the company’s service cycle and empowering employees
D) All the above build long-term customer service value.
Once a company has invested time and money developing a unique new product, to
recoup some of the high R&D costs, they will likely use a ________ pricing strategy.
A) skimming
B) penetration
C) sliding-down-the-demand-curve
D) discount