Any person capable of ________ may legally become a business partner.
a. assenting to liability
b. contracting
c. contributing capital
d. having a claim on assets
Fine Framings, a small framing shop, uses markup pricing to arrive at a final selling
price. The firm sells its frames at a price of $10, given a $6 unit cost. Fine Framings’
markup on the selling price is _____ , and its markup on cost is _____.
a. 66.66%, 40%
b. 40%, 66.66%
c. 40%, 60%
d. 55%, 45%
Miriam Motif is an example of Stanley and Danko’s The Millionaire Next Door. She is
___ more times likely to be a millionaire than those who work for others.
a. two
b. four
c. ten
d. forty
When people become infatuated with a business idea, they tend to ___________ the
difficulty of developing market receptivity to that idea.
a. ignore
b. underestimate
c. overestimate
d. quickly calculate
In order to be appropriately considered a market, a group of customers or potential
customers must have
a. purchasing power.
b. market power.
c. satisfied needs.
d. correlated needs.
The established motivations behind global expansion include all of the following,
except
a. promoting the independence of the enterprise.
b. gaining access to resources.
c. expanding markets.
d. cutting costs.
You Make the CallSituation 1
Bill and Francis Waugh founded Casa Bonita. They started with a single fast-food
Mexican restaurant in Abilene, Texas. At the time, they both worked seven days a week.
From that small beginning, they expanded to 84 profitable restaurants located in Texas,
Oklahoma, Arkansas, and Colorado. Over the years, other restaurant owners expressed
an interest in buying the firm; however, the Waughs were not interested in selling. Then
an English firm, Unigate Limited, offered them $32 million for the business and said
Bill could remain the firm’s CEO. The Waughs were attracted by the idea of having $32
million in liquid assets. They flew to London to close the deal. On the flight home,
however, Bill began having doubts about their decision to sell the business. He thought,
“We spent 15 years of our lives getting the business where we wanted it, and we”ve lost
it.” After their plane landed in New York, they spent the night and then flew back to
London the next day. They offered the buyers $1 million to cancel the contract, but
Unigate’s management declined the offer. The Waughs flew home disappointed.
Question 1 How could the Waughs be disappointed with $32 million?
Question 2 What should the Waughs have done to avoid this situation?
Question 3 What advice would you offer Bill about continuing to work for the business
under the new owners?
We would expect an opportunistic entrepreneur to be
a. paternalistic.
b. reluctant to delegate authority.
c. unwilling to plan for future growth.
d. well educated in non-technical matters.
The heart of Electronic Customer Relationship Marketing is a
a. focus on customization.
b. conscientious work force.
c. flexible distribution system.
d. consumer-centric data warehouse.
The influence of ____________ is shown when an entrepreneur sends personal
messages of condolence to customers because her mother who founded the firm always
sent them when she was operating the firm.
a. organizational complexities
b. cultural configuration
c. immutable principles
d. core values
The problem caused by Allan Lichter’s graphics firm’s lack of internal financial controls
could have been avoided if the accounting clerk in charge of accounts receivable had
not also been in charge of
a. accounts payable.
b. the company’s lock box.
c. company’s payroll account.
d. petty cash.
Bovine Ice Cream is a small frozen-dairy business that engages in contractual
agreements with transportation intermediaries in order to move its products from its
manufacturing facility to distant markets. Bovine Ice Cream is employing _____ for its
shipping needs.
a. common carriers
b. public carriers
c. private carriers
d. contract carriers
Customer accessibility is the most critical factor in evaluating a specific site for a
a. clothing manufacturer.
b. drugstore.
c. plumber.
d. software development company.
A Krispy Kreme franchise located inside of the local Wal-Mart store is a type of
franchise operation referred to as
a. folded.
b. internalized.
c. cooperative.
d. piggyback.
Harvesting owners generally prefer ________ over ________.
a. cash, stock
b. debt, equity
c. equity, debt
d. stock, cash
Most franchise experts recommend that the UFOC be examined carefully by
a. regulators that specialize in such documents.
b. a franchise attorney and an accountant.
c. everyone associated with the potential startup.
d. suppliers that may be used if the startup is successful.
Financial statements are not likely to be used by
a. a firm’s management.
b. prospective creditors.
c. bankers.
d. trade intermediaries.
Written Instruments, a maker of plastic ballpoint pens targeted at school-aged children,
decided to market an additional line of pens. However, this small business was
concerned that the introduction of a new ballpoint pen would reduce sales of the
existing product in its current market niche. Therefore, Written Instruments created a
high-quality, felt-tip pen targeted at business executives in order to expand sales. This
company was employing a _____ product strategy.
a. multiple products/one market
b. multiple products/multiple markets
c. one product/multiple markets
d. modified product/multiple markets
Ethical issues
a. seldom involve legal issues.
b. are questions of right and wrong.
c. are always clearly defined.
d. often resolve themselves.
Divisions in society with different levels of social prestige are called
a. reference groups.
b. cultures.
c. social classes.
d. perceptual categories.
If the net present value of a proposed investment is negative,
a. the cost of the investment is less than the present value of the future cash flows.
b. the investment earns the required rate of return.
c. the present value of the future cash flows would be unaffected by the proposed
investment.
d. the firm should not make the investment, since the present value of the future cash
flows is less than the cost of the investment.
As a farmer, Larry Rogers received assistance from the U.S. Agricultural Extension
Service. Having sold the farm, he is planning to start a farm supply store and has been
told that the federal government provides comparable help to small businesses through
a. Small Business Development Centers (SBDCs.)
b. the Service Corps of Retired Executives (SCORE.)
c. sponsorship of student consulting team projects.
d. New Business Incubators (NBIs.)
Information taken from warranty cards would be stored in which category of a customer
profile?
a. Customer contacts
b. Descriptive information
c. Responses to marketing stimuli
d. Transactions
A unique, attractive feature of a BOP is that both real and personal property
are valued on
a. an appraised cash value basis.
b. a market-adjusted depreciated value basis.
c. a replacement-cost basis.
d. a proximal-to-value basis.
In a family business, the interests of the family and the interests of the business are best
described as
a. overlapping.
b. conflicting.
c. coinciding.
d. having no relationship with each other.
Tom Jones is a college student with no business experience. Jones is most likely to
worry about his decision to become a franchisee primarily because of the
a. restrictions on business operations.
b. restrictions on company growth.
c. requirement to work at least 40 hours per week.
d. increase in entrepreneurial independence.
Guaranty loans are
a. made by private lenders.
b. guaranteed up to 50 percent by the SBA.
c. made through foreign banks.
d. limited to $100,000.
Discounted cash flow (DCF) techniques compare the present value of future cash flows
with
a. the present value of capital.
b. the investment outlay.
c. project costs adjusted for inflation.
d. all of these answers.
Which of the following groups would be most interested in a business plan for a new
venture?
a. Customers
b. Bankers
c. Supervisors
d. The Internal Revenue Service.
You Make the CallSituation 2
Scott Prewitt, 23, his brother Steven Prewitt, 29, and his brother-in-law Tony Mansoor,
21, have no experience in the restaurant business. But one of their goals is to start their
own business and move their families from Jackson, Mississippi, to the mountains of
western North Carolina. They are considering buying a Back Yard Burgers franchise.
As of March 4, 2003, the Back Yard Burgers, Inc., restaurant system comprised 122
units, including 80 franchised stores. The franchise, with headquarters in Memphis,
Tennessee, specializes in charbroiled, freshly prepared food. The company began
franchising in 1988 and currently has only U.S. franchises. The company uses a double
drive-through concept for most of its restaurants, including the franchise that Prewitt
and his family are considering. The Prewitt family is concerned about their
inexperience and the harsh weather in the snowy mountains of North Carolina.
Sources: http://www.backyardburger.com; and Tracy Stapp, “Never Say Die,”
Entrepreneur, December 2002, p. 130.
Question 1 How concerned do you think this family should be about their
inexperience? Why?
Question 2 Will the proposed location in the mountains be a potential problem for this
type of restaurant? Why or why not?
Harvesting a business by releasing the cash flows as dividends creates the worst tax
disadvantage for _______ .
a. C-corporation shareholders
b. partnerships
c. S-corporation shareholders
d. sole proprietors
Warranties are important for products
a. that are relatively inexpensive.
b. that are frequently purchased.
c. that are relatively complex to repair.
d. regardless of how they are positioned in the market.
The death of a majority stockholder of a corporation results in the dissolution of the
corporation.
The money that owners invest in the business is called owners’ equity.
Employee stock ownership plans provide a way for employees with stock in a firm to
cash out their ownership position.
A quality circle is a group of inspectors who use statistical quality control methods.
You Make the CallSituation 3
For years, a small distributor of welding materials had followed the practice of most
small firms, treating the board of directors as merely a legal necessity. Composed of
two co-owners and a retired steel company executive, the board was not a working
board. But the company, run informally with traditional management methods, was
profitable.
After attending a seminar, the majority owner decided that a board might be useful for
more than legal or cosmetic purposes. Thus, he invited two outsidersboth division heads
of larger corporationsto join the board. This brought the membership of the board to
five. The majority owner believed the new members would be helpful in opening up the
business to new ideas.
Question 1 Can two outside members on a board of five make any real difference in the
way the board operates?
Question 2 Evaluate the owner’s choices for board members.
Question 3 What will determine the usefulness or effectiveness of this board? Do you
predict that it will be useful? Why or why not?
Limited partners have limited personal liability.
Improving productivity for an overall operation involves analysis of machine set up and
groups initiatives.
Investors prefer lengthy business plans because they need details before making an
investment decision.
Personnel programs are the same for small companies as for Wal-Mart or Sears, just on
a much smaller scale.
Regardless of the nature of the business, providing exceptional customer service can
give small firms a competitive edge.
Recent business-application technologies that enable home-based businesses to
compete are also contributing to an increase in the number of these firms.
You Make the CallSituation 2
Derek Dilworth, owner of a small manufacturing firm, is trying to rectify the firm’s thin
working capital situation by carefully managing payments to major suppliers. These
suppliers extend credit for 30 days, and customers are expected to pay within that time
period. However, the suppliers do not automatically refuse subsequent orders when a
payment is a few days late. Dilworth’s strategy is to delay payment of most invoices for
10 to 15 days beyond the due date. Although he is not meeting the “letter of the law,” he
believes that the suppliers will go along with him rather than lose future sales. This
practice enables Dilworth’s firm to operate with sufficient inventory, avoid costly
interruptions in production, and reduce the likelihood of an overdraft at the bank.
Question 1 What are the ethical implications of Dilworth’s payment practices?
Question 2 What impact, if any, might these practices have on the firm’s supplier
relationships? How serious would this impact be?
A sales commission compensation plan is a type of time-based compensation system.
Point out the advantages to a small business of leasing employees.
Improperly managed stockpiling is harmful to cash flow and should be minimized if
possible.
One of the advantages B2C businesses have over traditional retailers is that they can
quickly change product mixes and prices, as well as the appearance of the store (that is,
the Web site).
You Make the CallSituation 3
Judy Patterson, Connie Post, and Kriste Burnside were all friends, working together in
the accounting department of a local manufacturing business in Waco, Texas. They
enjoyed working out at a local exercise facility during their lunch hour.
One day, they learned that the owner of the gym was planning to move to Arizona and
needed to sell the business. “We kind of hoped the owners of the company we worked
for would buy it so we”d have free memberships,” said Patterson. But that didn’t
happen, so the three friends formed a corporation to consider the purchase of the
franchise.
Source: Mike Copeland, “Trio on Learning Curve,” Waco Tribune-Herald, April 30,
2000, p. 4B.
Question 1 What sources of information about this franchise would you recommend
that the friends consider?
Question 2 Is their work-out experience sufficient to prepare them for ownership of this
franchise?
Question 3 Would the three friends be making a wise decision if they decided to buy
this franchise? Why or why not?