Entrepreneur Carrie McAbee’s purchase of a Hair Diamond kiosk franchise is an
example of
a. how an entrepreneur’s lack of due diligence can lead to business failure.
b. the opportunities that piggyback franchises offer to entrepreneurs.
c. how important franchisor support can be to a franchisee’s success.
d. why marginal businesses do not make good franchise opportunities.
In general, a person can be an opinion leader, even if he or she is not
a. knowledgeable.
b. visible.
c. exposed to the mass media.
d. a nationally recognized public figure.
If Hillary wants to purchase refrigerator on credit. If she uses an installment plan, which
of the following is most likely to occur?
a. She will be required to make a down payment.
b. She will not be charged taxes.
c. By law, finance charges on her account cannot exceed 20 percent of the purchase
price.
d. She will not get a discounted price on her purchase.
Individuals or firms that possess the legal right to open multiple outlets in a given area
are referred to as
a. development franchisees.
b. area developers.
c. piggyback franchisees.
d. multiple-unit owners.
A systematic step-by-step method for on-the-job training of non-managerial employees
is known as
a. On-the-Job Training.
b. Employee Development Training.
c. Job Instruction Training.
d. Intensive Job Orientation.
Substitute products
a. often place a ceiling on prices charged within an industry.
b. represent those items manufactured by direct rivals within an industry.
c. are usually cheaper than the products they can replace.
d. are always a serious threat to rivals in an industry.
Mini Makers, a small manufacturer of action figures, is formulating a budget for next
year’s promotional activities. The company decides to budget $50,000 for promotional
expenses (an amount equal to its nearest competitor’s allotment.) Mini Makers is using
the _____ method of budgeting.
a. spending as much as the competition
b. what it will take to do the job
c. percentage of sales
d. what can be spared
Which of the following refers to the fact that subordinates are to report to only one
superior?
a. span of control.
b. informal organization.
c. formal organization
d. chain of command.
An example of an idea for a new startup from a hobby is
a. a coin collector, who bought and sold coins for years to build a personal collection,
deciding to become a coin dealer.
b. a furniture salesperson seeing the possibility of opening a new furniture store in a
different area of the city.
c. a sharpshooter, who shot holes in a pair of her boyfriend’s jeans during an argument,
hearing him get complimented on the way they look.
d. a purposeful exploration to find a new idea.
Roger Childers owns and runs a printing firm with twelve employees. As a result of his
extensive personal interaction with these employees, Childers realizes that
a. the employees pretty well understand where the business is going.
b. a chain of command is unnecessary.
c. personnel policies would be overly restrictive.
d. marketing research is part of everyone’s job.
Pro forma statements required by bankers include all of the following EXCEPT
a. balance sheets
b. cash flow statements
c. income statements
d. personal financial statements
The efficiency with which inputs are transformed into outputs is a definition of
a. input/output production.
b. in/out transformation.
c. quality production.
d. productivity.
Entrepreneurs often produce innovations related to
a. multiple patents.
b. new ways of doing business.
c. competitive intelligence.
d. market identification.
In general, opinion leaders are considered to be knowledgeable, visible, and exposed to
mass media.
Hollywood Amusement, a small independent movie theater, decreased the price of
admission from $5 to $4. Prior to the price decrease, the business sold 1,000 tickets
each month. After the price decrease, it experienced ticket sales of 1,500 a month. If the
change in sales is attributable only to the change in price, Hollywood Amusement faces
____ for its movie tickets.
a. inelastic demand
b. constant demand
c. variable demand
d. elastic demand
Damage to a building by fire is an example of
a. a benign neglect loss.
b. a direct loss.
c. a tort-based liability claim.
d. a depreciated cash value loss.
The income from a limited partnership is taxed at the same rate as
a. ordinary income
b. municipal dividends
c. C corporation dividends
d. extraordinary income
Secondary and trade schools are a likely source of
a. managers.
b. personnel to fill positions requiring no specific work experiences.
c. accountants.
d. high-potential employees.
Colorful Concoctions, a maker of children’s crayons, decided to price its boxes of
crayons below the long-term market price. The firm agreed to reduce its profit margin
from 30 percent to 5 percent in the short-term in order to increase market share and
discourage other firms from entering the crayon market. Colorful Concoctions was
implementing a
a. variable pricing strategy.
b. skimming price strategy.
c. penetration pricing strategy.
d. price lining strategy.
LIBOR is_________________ the prime rate.
a. approximately equal to
b. considerably higher than
c. considerably lower than
d. a lagging indicator of
In the analysis of a market, the customer profile should include a
a. description of consumer weaknesses.
b. summary of production plans.
c. a detailed discussion of major customer benefits provided by the product and/or
service.
d. a profile of major markets not targeted.
The Widget Company sells 1,000 widgets annually at a price of $35 each. If the
company’s pricing policies adhere to a 40% markup of selling price, the cost of each
widget is
a. $14.
b. $21.
c. $28.
d. $32.
In passing leadership of a family firm to a new generation, a problem may be
encountered because of the existing
a. paternalistic culture.
b. collaborative family culture.
c. participative business culture.
d. advisory board governance pattern.
June has always believed that the grocery store nearby doesn”t have fresh produce. This
________ may cause her to avoid the local store and shop at a store across town.
a. attitude
b. cognitive dissonance
c. motivation
d. perceptual categorization
Current assets include all of the following EXCEPT
a. accounts payable
b. accounts receivable
c. cash
d. inventories
Organizations that provide both space and management services to new businesses are
a. almost always funded solely by the government.
b. usually organized by Small Business Development Centers.
c. referred to as business incubators.
d. often put together by management consultants to create consulting opportunities.
Orientation applies most specifically to training given
a. during the employment review.
b. after selection, but prior to reporting for work.
c. during the first two or three days on the job.
d. during the first year of employment.
A home-based business is one located in
a. a local area of family-occupied houses.
b. the city of the business owner.
c. the city recognized as the industry home, where similar businesses are located.
d. the owner’s personal residence.
Compared to large corporations, small businesses
a. play just as important a part in the economy.
b. attract more attention and make more headlines in the media.
c. are not as important to the well-being of society.
d. are highly visible.
A(n) ___________ would be the choice for a form of organization if you intend to
provide extensive fringe benefits for owners or employees that would not be treated as
taxable income to employees.
a. sole proprietorship
b. partnership
c. C corporation
d. Limited liability company
Certified Business Brokers (http://www.certifiedbb.com) in Houston, Texas, deal with
mergers and acquisitions of small and mid-sized companies in the United States. This
business is defined in the text as a(n) __________ firm for entrepreneurs seeking to
purchase a business
a. matchmaker
b. acquisition agent
c. coordinating specialist
d. prospector
Which of the following is true with respect to revolving charge accounts?
a. A down payment is normally required.
b. Charged purchases may not exceed the credit limit.
c. A fixed amount must be paid monthly, regardless of the outstanding balance.
d. Finance charges increase as the outstanding balance increases.
Small firms suffer a recruiting handicap because of the ability of large companies to
offer more freedom on the job.
Discuss the use of compensation and incentives in recruiting employees for small
businesses.
Compare the two investment proposals below, using the payback period method. The
projected cost of each investment proposal is $100,000.
A brick-and-mortar store is actually a general term that refers to any retail outlet dealing
in building supplies.
List and briefly comment on the three main considerations in constructing a channel of
distribution.
List and describe the major types of consumer credit.
The discounted cash flow technique measures the present value of future benefits from
an investment as compared to the investment outlay.
List and briefly explain the different types of property.
When prospective entrepreneurs prepare to write a business plan, they should first
consider the amount of time and money they have to spend.
The sole purpose of a business plan is to persuade potential investors to supply funding
for the business.
Accounts payable consist of payments due from a firm’s customers.
The basic factors that determine how a firm is financed include the following: the firm’s
past economic performance, the nature of its assets, the maturity of the firm, and the
personal preferences of owner(s) with respect to the marketing mix.
Core competencies are those resources and capabilities that provide a firm with a
competitive advantage over its rivals.
Many owner-managers work from 60 to 80 hours a week.
You Make the CallSituation 2
Ed and Barbara Bonneau started their wholesale sunglass distribution firm 30 years ago
with $1,000 of their own money and $5,000 borrowed from a country banker in Ed’s
hometown. The firm grew quickly, selling sunglasses and reading glasses to such
companies as Wal-Mart, Eckerd Drugs, and Phar-Mor. In addition, the Bonneaus
enjoyed using the company to do good things. For example, they had a company
chaplain, who was available when employees were having family problems, such as a
death in the family. Although the company had done well, the market had matured
recently and profit margins narrowed significantly. Wal-Mart, for example, was
insisting on better terms, which meant significantly lower profits for the Bonneaus.
Previously, Ed had set the prices that he needed to make a good return on his
investment. Now, the buyers had consolidated, and they had the power. Ed didn’t enjoy
running the company as much as he had in the past, and he was finding greater pleasure
in other activities; for instance, he served on a local hospital board and was actively
involved in church activities.
Just as Ed and Barbara began to think about selling the company, they were contacted
by a financial buyer, who wanted to use their firm as a platform and then buy up several
sunglass companies. After negotiations, the Bonneaus sold their firm for about $20
million. In addition, Ed received a retainer fee for serving as a consultant to the buyer.
Also, the Bonneaus’ son-in-law, who was part of the company’s management team, was
named the new chief operating officer.
Question 1 Do you agree with the Bonneaus’ decision to sell? Why or why not?
Question 2 Why did the buyers retain Ed as a consultant? (In answering this question,
you might consider the quote by Bonneau in the chapter 12.)
Question 3 Do you see any problem with having the Bonneaus’ son-in-law become the
new chief operating officer?
Bait advertising is considered unethical because the business lures customers with an
attractive price only to try to convince them to purchase more expensive products or
services.
You Make the CallSituation 4
Growth prospects have never been brighter for this 22-year-old manufacturer of
custom-designed skylights, which has grown to more than $2 million in annual sales by
letting light into homes, museums, symphony halls, upscale commercial buildings, and
more. The California company ended last year with its strongest sales quarter since its
current owners bought the business in 1995. Some 60 percent of its revenues come from
jobs within California, where construction has remained steady throughout the
economic downturn. Furthermore, the energy crisis has driven up demand for skylights,
which pay for themselves in energy savings.
The manufacturer’s state-of-the-art products also protect furniture and carpeting against
fading from sunlight. The owners of the business are selling because they intend to
move overseas. Their 22 staffers, including two installation crews and four sales and
marketing professionals, appear willing to stay and help a new owner “illuminate” a
variety of new growth opportunities.
The asking price is $675,000, with 60 percent down. The owners will consider
financing a portion of the deal.
Source: Based on Jill Andresky Frazer, “A Blue-Sky Deal,” Inc., Vol. 24, No. 7(July
2002), p. 40.
Question 1 Should a prospective buyer of this firm investigate other possible reasons
why the owners might want to sell? Why or why not?
Question 2 What sales and revenue numbers are needed to evaluate the asking price?
Question 3 What nonquantitative factors might have an impact on the fairness of the
asking price?