Newplant has the most experienced production employees and the lowest unit costs in
its industry, indicating that it had benefited from
a. experience curve efficiencies.
b. learning effects.
c. economies of scale.
d. economies of scope.
The most immediate goal of a company once it becomes highly leveraged is to
a. make an operating profit.
b. purchase additional assets.
c. restructure its logistics systems.
d. service the debt.
Union contracts are among the many __________ factors in valuing a business.
a. nominative
b. nonessential
c. nonquantitative
d. nonqualitative
Considering the nature of its products, a cement fabricator that specializes in the
manufacture of bird baths is likely to go global to
a. gain access to critical raw materials.
b. capitalize on special features of location.
c. obtain specialized human resources.
d. cut costs.
To be eligible to be an S corporation, a firm must
a. have more than 75 stockholders.
b. have no nonresident alien stockholders.
c. have two or more classes of stock outstanding.
d. be international in scope.
You Make the CallSituation 1
Bill Moss and several other small business owners joined a trade mission to China to
explore market opportunities there. The group learned that China has a population of
1.3 billion and is the third-fastest-growing export market for small- and medium-sized
U.S. firms. Average annual income for farmers in China is approximately $285 per
person; typical urban income is about $827, with an average of $1,557 a year in more
prosperous cities like Shanghai. In any given year, the Chinese software market grows
by 30 percent and the number of Internet users quadruples. Furthermore, the demand
for management consulting services is increasing, especially information technology
consulting. Members of the group were surprised by the number of people who had cell
phones and regularly surfed the Internet, especially in large urban centers such as
Beijing, Shanghai, and Guangzhou. On the downside, they found that counterfeit goods
(from clothing and leather goods to software and CDs) were readily available at a
fraction of the cost of legitimate merchandise and that local merchants expressed an
interest in doing business only with vendors with whom they had established
relationships.
Sources: Data from http://www.china.org.cn/english/2002/Feb/26975.htm and
http://www.china.org.cn/BAT/28231.htm.
Question 1 What types of businesses would prosper in China? Why?
Question 2 What are the challenges and risks associated with doing business in China?
Question 3 What steps should Moss take to address these challenges and risks in order
to increase his chance of success in the market?
The best feature of an organizational structure that evolves naturally is its
a. economy.
b. clarity.
c. practicality.
d. use of staff positions.
Managerial and professional employees in small businesses need training so that
a. individuals are developed to replace the founder in the case of a hostile takeover.
b. they can adequately carry out their assigned responsibilities.
c. outplacement services would be easier to set up.
d. available tax benefits for the company can be realized.
One of the most important features of the franchise contract is the provision related to
a. the sale or transfer of the franchise to a government entity.
b. changes in management.
c. termination and transfer of the franchise.
d. termination of contracts with suppliers.
Pro forma financial statements can answer the following question:
a. How profitable can the firm be, given past sales and expense relationships?
b. How much and what type of financing has been used in the firms operations?
c. If projected sales and sales-expense relationships are accurate, how profitable will the
firm be?
d. Has the firm been doing a good job of managing its cash flows?
An analysis of which of the following records is important in maintaining good
customer relations?
a. Cash records
b. Fixed asset records
c. Accounts receivable records
d. Accounts payable records
Unethical business practices often decline when firms
a. collude with one another.
b. face challenging business situations.
c. set a flexible code of ethics.
d. cooperate to organize a Better Business Bureau.
A monthly production schedule is an example of a
a. strategic plan.
b. short-range plan.
c. tactical plan.
d. operational plan.
Which of the following is one of the factors that determines the nature and degree of
competition in an industry, as identified by Michael Porter in his book Competitive
Advantage?
a. The interest of small businesses
b. Bargaining power of competitors
c. Threat of substitute products or services
d. The macroeconomy
In earlier years, leveraged buyouts became synonymous with the ________ LBO.
a. bust-up
b. build-up
c. owner-financed
d. publicly-funded
Which of the following is not part of the communication process?
a. Source
b. Message
c. Perception
d. Channel
To obtain a replacement for an employee taking short-term leave under provisions of
the Family Leave Act, an employer might most appropriately use
a. public employment agencies.
b. employee referrals.
c. help-wanted advertising.
d. temporary help agencies.
Sustainable competitive advantage can be achieved only when the entrepreneur
a. is quick to copy the approaches taken by rivals firms that are successful.
b. combines environmental potentials with organizational capabilities to create
customer value.
c. has a deep understanding of the latest technologies available to the firm.
d. is committed to employment independence.
Which of the following is least likely to have an unbiased interest in having a
prospective franchisee sign a franchise contract?
a. Investment banker
b. Franchise consultant
c. Franchisor
d. Legal counsel
Which of the following is a cause for erosion of a small firm’s focus strategy?
a. Consumer demand grows.
b. New firms reconstruct the industry.
c. Differences between segments grow larger.
d. The focus strategy is imitated.
_____ provides a self-balancing mechanism.
a. A single-entry system
b. A double-entry system
c. The accrual method
d. The cash method
In a printing plant’s production process, ink constitutes
a. an input.
b. a throughput.
c. an output.
d. a process.
A five year-old asset has a remaining depreciable value of $75,000. It has been
depreciated at five percent per year. How many years remain before its depreciated
value will be $0.
a. 5
b. 10
c. 15
d. 20
John Berryhill is interested in joining with a large corporation in a cooperative venture
to share risks and pool resources for his small auto parts manufacturing business, so the
strategy option he is exploring could best be described as
a. an international strategic alliance.
b. exporting.
c. importing.
d. international cost shifting.
Intermediaries exist because
a. they can perform the distribution function better than the producer or user of the
product.
b. they reach geographic areas with much less expense.
c. risk levels are low.
d. customer needs are highly specialized.
When forecasting capital requirements for a proposed venture, the analyst should
consider
a. the investment needed for startup, since capital needs for future growth can be
assessed later.
b. personal expenses, especially when the entrepreneur receives no income from other
sources.
c. only the most optimistic scenario for the business.
d. only the most pessimistic scenario for the business.
The traditional physical store is sometimes referred to as the _______________ store.
a. classic commerce
b. real experience
c. tangible alternative
d. bricks-and-mortar
In drawing up a code of ethics, a small business owner should adopt a code
a. provided by the Ethics Resource Center of Washington, D.C.
b. that outlines ethical principles and gives examples.
c. that outlines ethical principles but avoids examples.
d. suggested by the Better Business Bureau.
A common weakness in small business financing is
a. the disproportionately large investment in liquid assets.
b. the disproportionately small investment in liquid assets.
c. the disproportionately large investment in personal savings relative to debt financing.
d. the disproportionately small investment in personal savings relative to debt financing.
A build-up leveraged buyout involves
a. developing the business to make it an attractive takeover target.
b. acquiring businesses that occupy a higher level in the market channel.
c. a longer time horizon than a bust-up leveraged buyout.
d. constructing a larger enterprise to be taken public via an IPO.
The amount of the business owners’ initial investment, owners’ later investment in the
business, and retained earnings comprise
a. debt capital.
b. accrued expenses.
c. owners’ long-term debt.
d. owners’ equity capital.
The mission statement is best described as the
a. path that will lead to successful initiation of a startup.
b. potential of the business, as conceived.
c. entrepreneur’s personal hopes for the future.
d. intended strategy and business philosophy for making the entrepreneur’s vision a
reality.
An entrepreneurial team is a group composed of
a. individuals who work together in the same firm as entrepreneurs.
b. the entrepreneur plus the firm’s banker, CPA, and attorney.
c. the firm’s managers.
d. SBA officials who provide counseling to aspiring entrepreneurs.
Given that they often compete against powerful companies, it is imperative that
entrepreneurs
a. try to make their businesses as large as capital will permit.
b. achieve a level of complacency that will allow them to maintain their sanity.
c. exploit the opportunities that are available to them.
d. consider diversifying into multiple markets to protect against bankruptcy.
Which of the following is not a good source of secondary data for small businesses?
a. software programs that offer useful information.
b. the Small Business Administration.
c. company records.
d. relevant Web sites.
You Make the CallSituation 2
Amy Wright is the owner of Fit Wright Shoes, a manufacturer of footwear located in
Alice, Texas. Her company has pledged that all customers will have a lifetime
replacement guarantee on all footwear bought from the company. This guarantee
applies to the entire shoe, even though another company makes parts of the product.
Question 1 Do you think a lifetime guarantee is too generous for this kind of product?
Why or why not?
Question 2 What impact will this policy have on quality standards in the company? Be
specific.
Question 3 What alternative customer service policies would you suggest?
In service businesses, quality performance is closely linked to customer service.
A consulting firm that typically does not have clients visit its business location would
have minimal premises liability exposure.
Small firms must be roughly competitive in wage or salary levels in order to attract
well-qualified personnel.
In some cases, selling in international markets can actually be helpful to domestic
operations.
Entrepreneurs typically focus on the positive potential of the startupwhat will happen if
everything goes right.
Define liquidity and describe the two general methods that can be used to measure
liquidity.
The accounting return on investment technique reveals how many dollars in average
profits are generated per dollar of investment.
You Make the CallSituation 2
The following financial statements are for the Cherokee Communications Corporation.
The company provides pay phone service at many of the small convenience stores in
the southwestern United States, primarily in Texas and New Mexico. The business was
“meeting plan” until 2005, when a problem developed.
Question 1 Using financial ratios, compare the firm’s financial performance for 2004
and 2005.
Question 2 What do you think might have happened from 2004 to 2005?
You Make the CallSituation 4
Rance Swensen believes that his small company’s products will always sell in the
market as they have in the past. They are good, sturdy products but their designs are
becoming obviously dated to everybody except Rance. A curious phenomena that
Rance has observed is that while product sales are currently still rising, profits are
declining.
Question 1 What could you tell Rance about the product life cycle that would explain
this phenomena and the danger it poses to the future success of the firm?
Question 2 Why is the product life cycle important to small business managers?
A building’s functional attributes determine its suitability for the operation of a
business.
The advice of lawyers and accountants, if employed, should be strictly followed.
When a parent retires completely and turns the firm over to a son or daughter, the firm
ceases to be a family business.
What is political risk?
A brand includes only the verbal identification of a product.