Excess cash should be
a. invested.
b. used to purchase assets.
c. used to pay dividends.
d. kept on hand.
The primary advantage an entrepreneur gains by leasing rather than buying facilities is
a. receipt of an investment tax credit.
b. a decrease in investment risk.
c. a decrease in the amount of promotion required.
d. a customized layout.
Which of the following would least concern a corporate manager considering joining a
small firm?
a. Lack of bureaucratic red tape
b. Lack of money
c. Limited managerial staff
d. Lack of marketing research talent
Reasons for developing a startup, rather than pursuing other alternatives, include all of
the following except
a. invention of a new product or service.
b. the existence of established customers or clientele.
c. freedom to select location, equipment, products/services, employees, suppliers, and
bankers.
d. avoidance of undesirable precedents, policies, procedures, and legal commitments of
existing firms.
An example of a Type C startup idea is
a. a new microsponge technology allowing oils to be contained inside billions of
microscopic sponges.
b. a baby stroller that pushes more easily and is more difficult to overturn than previous
designs.
c. opening a new hamburger stand on the corner with no unique product differentiation.
d. using satellite dish technology to form a mobile satellite transmitter and receiver
business.
Naomi needs to earn a twelve percent return from investing in her cousin’s business.
Under the NPV method of discounting cash flows, if the business can earn only a ten
percent return, she will not satisfy her
a. expected cost of capital.
b. internal rate of return.
c. opportunity cost.
d. required rate of return.
Compared to firms that provide a good lifestyle for the owner but little in the way of
attractive returns, a firm with potential for high growth and large profits has ________
possible sources of financing.
a. fewer
b. about the same number of
c. more
d. many more
The major problem with the _____ method of determining promotional expenditures is
the tendency to spend more when sales are increasing and less when they are declining.
a. percentage of sales
b. what it will take to do the job
c. sales plus
d. what can be spared
If the firm’s rate of return on its assets is _______than the cost of borrowing, then the
owners’ rate of return on equity will _______ as the firm uses ______ debt
a. greater, increase, less
b. greater, decrease, more
c. greater, increase, more
d. less, increase, more
The owner of Alison Sportswear, a small manufacturer of women’s tennis apparel, uses
a computer in preparing a business plan. She finds that a major advantage of using a
computer is that
a. the planner can easily generate reams of material.
b. spreadsheets enable the planner to prepare and make changes to the financial reports.
c. the programs are easy to load and use.
d. it eliminates the need for proofreading the final product.
The plant maintenance function includes
a. repairs, but not inspections.
b. inspections, but not repairs.
c. both repairs and inspections.
d. neither inspections nor repairs.
After harvesting, many entrepreneurs experience conflicts that are ___________ in
nature.
a. financial
b. practical
c. emotional
d. tactical
Advertising via the Web is appealing because this medium
a. has demonstrated that it is effective in attracting potential customers.
b. offers an intense one-way transfer of information.
c. is available 24 hours a day.
d. is a reliable way of getting a firm’s message out.
The debt ratio relationship can also be stated as the
a. current ratio.
b. acid-test ratio.
c. debt-equity ratio.
d. current-debt ratio.
A primary source of financing for most smaller companies is
a. trade credit.
b. long-term bank loans.
c. mortgages.
d. asset-based notes.
Which of the following is not a constraint on management in small firms?
a. Bureaucratic red tape
b. Lack of money
c. Limited managerial staff
d. Lack of marketing research talent
From a company-owned plant in Pakistan, Howard Eden manufactures specialty
apparel items for his small business, Garments of Eden. Because of overseas operations
of the U.S. military in the region, Eden fears that his plant may be sabotaged or that the
local government may attempt to take over the facility. Specifically, his fears are about
a. exchange rate risk.
b. economic risk.
c. societal risk.
d. political risk.
Self-insurance means
a. owning an insurance company.
b. owning stock in an insurance company.
c. saving to have money to cover possible future losses.
d. having coverage on the owner of the business.
Important rules of thumb in naming a product include all of the following except
a. choosing a descriptive name.
b. selecting a name that is easy to pronounce and remember.
c. selecting a name that can be used appropriately for only a single product line.
d. using a name that can have legal protection.
Within the framework of a break-even analysis, an examination of _____ is conducted
to determine the quantity at which the product, with an assumed price, will generate
enough revenue to start earning a profit.
a. costs
b. revenues
c. sales forecasts
d. costs and revenue
Websense Inc. found that ___ percent of employees in small businesses it surveyed
visited Web sites unrelated to their work.
a. 49
b. 18
c. 26
d. 64
A prospective small business owner wonders what types of ethical problems may prove
most difficult. If the business is typical, the owner should realize that problems are most
likely to relate to
a. environmental issues.
b. relationships with customers and competitors.
c. human resource decisions.
d. banking relationships.
Carlo is concerned with his firm maintaining adequate levels of its product stocks.
Which records should he to analyze to help ensure sufficient stock is on hand to meet
customer demands?
a. Accounts payable records
b. Accounts receivable records
c. Cash records
d. Inventory records
The availability of exit options is an important determinant of the appeal of the firm to
a. suppliers.
b. investors.
c. the employees of the company.
d. the management of the company.
The founder of a firm is least likely to be described as a
a. creative person.
b. good manager.
c. risk taker.
d. courageous person.
The most widely used specialty item is the
a. calendar.
b. pen.
c. lighter.
d. key chain.
Which of the following statements about a sales forecast is true?
a. It is an essential part of the business plan.
b. It can apply to any period of time.
c. It must be stated in terms of dollars or another widely accepted currency (e.g.,
Euros).
d. It is of limited use to startups.
Permission to incorporate a business comes from the
a. board of directors.
b. stockholders.
c. government, usually through a secretary of state.
d. corporate officers.
The drawbacks of becoming a franchisor include
a. speed of expansion.
b. reduction in control.
c. reduced capital requirements.
d. increased management motivation.
_____ percent of small businesses do not even purchase business insurance to protect
their enterprises.
a. Five
b. Fifteen
c. Twenty-five
d. Thirty
A small computer retailer makes every effort to satisfy customer needsboth before and
after the sale. However, this retailer regards social problems such as hunger and
juvenile crime as being beyond the scope of his business. We can correctly describe this
firm’s management as having recognized
a. some degree of social responsibility in its commitment to customers.
b. the existence of social responsibilities but having failed to do anything about them.
c. ethical obligations to customers but no social responsibilities.
d. social responsibility as the domain of big business.
The use of debt can
a. increase a firm’s return on equity.
b. reduce a firm’s risk.
c. improve a firm’s inventory turnover ratio.
d. enhance market response to a firm’s performance.
In passing on ownership of a family business, the owner’s primary concern should be
a. tax considerations.
b. allowing each child to have an equal voice in the business.
c. the functioning of the business in the future.
d. nonfamily members of the firm.
Strategic buyers evaluate acquisition candidates according to the
a. stand-along, cash-generating potential of a target business.
b. synergies they think the target business will create.
c. potential of the target business to preserve employment.
d. quality of the business strategy of the target firm.
Assume you are responsible for managing accounts receivable in a small business.
What are some of the methods you would use?
Any weakness in the management of a new business will mean its certain failure, since
no one outside the business will be able to provide management assistance.
Manufacturers are one type of business that must be located conveniently for
customers.
To function successfully, owners of home-based businesses need to establish both
spatial and nonspatial boundaries between the business and the home.
The role of a Web site can range from merely offering content and information to
enabling complex business transactions.
The payback period technique measures how long it will take to recover the initial cash
outlay and the total amount of interest unearned over the payback period as an
opportunity cost.
It is important that small firms gain a competitive advantage, which cannot be quickly
imitated.
You Make the CallSituation 2
A young journalist is contemplating launching a new magazine that will feature
wildlife, plant life, and nature around the world. The prospective entrepreneur intends
for each issue to contain several feature articlesabout the dangers and benefits of forest
fires, the features of Rocky Mountain National Park, wildflowers found at high
altitudes, and the danger of acid rain, for example. The magazine will make extensive
use of color photographs, and its articles will be technically accurate and interestingly
written. Unlike National Geographic, the proposed publication will avoid articles
dealing with the general culture and confine itself to topics closely related to the natural
world. Suppose you are a prospective investor examining a business plan prepared by
this journalist.
Question 1 What are the most urgent questions you would want the marketing plan to
answer?
Question 2 What details would you look for in the management plan?
Question 3 Do you think this entrepreneur would need to raise closer to $1 million or
$10 million in startup capital? Why?
Question 4 At first glance, would you consider the opportunity potentially attractive?
Why or why not?
Advertising on the World Wide Web is still too new and untested to challenge
traditional media for promotional dollars.
In the business analysis stage of the product development process, every new-product
idea must be carefully analyzed in terms of several financial considerations.
The internal rate of return method estimates the rate of return that can be expected from
a contemplated investment.
Considering the business analysis stage of the product development process, a product
that is completely new to a small firm should not be added to the product mix, in most
cases, unless it is consistent withor somehow related tothe existing product mix.
Customer profiles primarily reflect demographic variables such as age, gender, and
marital status, but they can also include behavioral, psychological, and sociological
information.
The boost to employee motivation and effort that results from ownership will vary
significantly from firm to firm.