A current ratio is calculated by dividing
a. current assets by current liabilities.
b. accounts receivable by daily credit sales.
c. current assets plus accounts receivable by current liabilities.
d. credit sales by accounts receivable.
Planning for an IPO requires
a. maintaining an accounting process that cleanly separates the business from the
entrepreneur’s personal life.
b. selecting a strong board of directors that can and will offer valuable business advice.
c. managing the firm so as to produce a successful track record of performance.
d. all of these
Net cash flow and net profit are
a. opposites.
b. different.
c. identical.
d. identical after adjustment for depreciation.
Different types of small business ownership opportunities include all of the following
except
a. startups.
b. bailouts.
c. family businesses.
d. franchises.
Equity investors cannot demand more than
a. those who have invested debt in the enterprise.
b. what is earned.
c. anticipated future financing.
d. established cash flows.
A document called the _____ has, in recent years, been the accepted format for
satisfying franchise disclosure requirements.
a. Uniform Franchise Offering Circular
b. Franchise Offering Circular
c. Franchise Circular Agreement
d. Uniform Franchise Circular Agreement
Assets that are relatively liquid are classified as
a. current assets.
b. fixed assets.
c. short-term assets.
d. other assets.
The cash flow statement measures cash flows on
a. an annual basis.
b. an accrual basis.
c. a cash-basis.
d. a normalized basis.
To maintain it performance, the small business must launch a new competitive
advantage
a. and keep that competitive advantage alive.
b. and make adjustments to that competitive advantage over time.
c. that rival firms can see and respond to.
d. before the current strategy has run its course.
Crumpton Industries reduced its unit costs when it expanded its productive capacity,
indicating that it has benefited from
a. experience curve efficiencies.
b. learning effects.
c. economies of scale
d. economies of scope
For many new firms, the most important reason to lease rather than buy a facility is
a. avoidance of a large cash outlay.
b. freedom in modifying the building.
c. avoidance of interest payments.
d. avoidance of liability lawsuits.
Most of those who invest in startups limit their investing to firms with potentially high
returns in a ________ period.
a. 6-12 month
b. 1-2 year
c. 3-5 year
d. 5-10 year
Credit granted by retailers to final consumers who purchase for personal or family use
is referred to as
a. trade credit.
b. personal credit.
c. open credit.
d. consumer credit.
An “A” class item in the ABC method of inventory management is a ______ item.
a. critical
b. noncritical
c. most valuable
d. least valuable
Sustainable competitive advantage is
a. rarely appreciated by the firm’s owners.
b. of little consequence to profitability.
c. an idealized position that is unachievable in reality.
d. a value-creating industry position that is likely to endure over time.
Attending a wedding is most likely an attempt to satisfy which category of need?
a. physiological
b. psychological
c. spiritual
d. social
Which of the following is not a technique for prospecting?
a. Impersonal referrals
b. Personal referrals
c. Public records
d. Agency-initiated contacts
In selecting the type of legal organization to use for a new small business, which of the
following is a major consideration?
a. Profitability
b. Management control
c. Available benefits
d. Procedures for termination or liquidation
Maintenance that includes inspections and other activities needed to prevent machine
breakdowns is called
a. corrective maintenance.
b. full-scale maintenance.
c. preventive maintenance.
d. partial maintenance.
The question “How many dollars in average profits are generated per dollar of average
investment?” is answered using
a. accounting return on investment.
b. investment outlay valuation.
c. net present value.
d. internal rate of return.
Theft due to a burglary would be classified as a
a. real property loss.
b. personal property loss.
c. consumer loss.
d. direct loss.
The most important influence on ethics in a small business is
a. the accountant or bookkeeper who keeps honest financial records.
b. the salesperson who quotes a fair price to customers.
c. the founder or owner whose values are put into practice.
d. the existence of a written code of ethics.
Key factors to consider when conducting the business analysis phase of the new product
development process include all of the following except
a. cost of development and introduction.
b. total product development.
c. available personnel and facilities.
d. the product’s relationship to existing product lines.
One of the biggest reasons Web sites fail to retain customers is
a. privacy concerns.
b. pure and simple boredom.
c. slow downloading.
d. the poor performance of Web-based businesses in order fulfillment.
Going public can be beneficial to a firm by helping it
a. create a liquid currency to fund future acquisitions.
b. avoid becoming a takeover target in the future.
c. erect a shield against the fluctuations of the stock market.
d. offer better compensation packages to attract superior management talent.
Lenders tend to view buyouts favorably because the acquired business has all of the
following EXCEPT:
a. a credit history
b. existing assets
c. a customer base
d. seller financing
A recent IRS report shows that ____ percent of businesses are established as
corporations.
a. 8
b. 13
c. 21
d. 33
A business plan should generally project financial and operational aspects of the
proposed business for the first
a. six months.
b. one year.
c. three to five years.
d. seven years.
A data file that is electronically sent to the customer’s computer when other requested
materials are downloaded from a Web site is known as
a. a cookie.
b. a saucer.
c. an inverted collector.
d. a contact signature.
When a small business owner is thinking of going global, he or she should first decide
whether
a. the firm has the necessary “deep pockets” to follow through.
b. domestic operations are capable of subsidizing overseas operations.
c. the firm has the technology necessary to get into the international game.
d. the company is up to the task.
Drill presses or lathes would be grouped together in a
a. process layout.
b. product layout.
c. grid layout.
d. continuous-flow layout.
One of the reasons that entrepreneurs today are focusing more on international business
is that
a. global communications are now possible.
b. they are likely to have experience with operations in foreign nations.
c. technologies today are sophisticated, expensive to develop, and quickly replaced.
d. global involvement brings a dimension of prestige to the firm’s reputation.
While not always true for small firms, large multinationals can deal with currency
fluctuations by
a. using forward contracts and foreign-currency options.
b. locating all their plants in the country that offers the most advantageous exchange
position.
c. limiting sales in each country market to reduce exposure to any one currency.
d. following the advice of the international sales manager.
Line organization uses a dual chain of command.
One of the drawbacks of becoming a franchisor is the reduction in control.
Physical distribution of products includes only transportation.
A buildup process requires a small business to identify all potential buyers in a target
market’s submarkets and then combine these estimates to determine the calculated
demand.
A strength of the accounting return on investment technique is that it is based on
accounting profits rather than cash flows received.
A market is best defined as a geographical area that is of commercial interest to the
entrepreneur.
When the Souto Brothers founded Rowland Coffee Roasters, they decided it was best
for their enterprise to compete against rivals based on price.
An owner-manager is a person who founds a new business.
You Make the CallSituation 3
John Martin and John Rose decided to start a new business to manufacture
noncarbonated soft drinks. They believed that their location in East Texas, close to high
quality water, would give them a competitive edge. Although Martin and Rose had
never worked together, Martin had 17 years of experience in the soft drink industry.
Rose had recently sold his firm and had funds to help finance the venture; however, the
partners needed to raise additional money from outside investors. Both men were
excited about the opportunity and spent almost 18 months developing their business
plan. The first paragraph of their executive summary reflected their excitement:
The “New Age” beverage market is the result of a spectacular boom in demand for
drinks with nutritional value from environmentally safe ingredients and waters that
come from deep, clear springs free of chemicals and pollutants. Argon Beverage
Corporation will produce and market a full line of sparkling fruit drinks, flavored
waters, and sports drinks that are of the highest quality and purity. These drinks have
the same delicious taste appeal as soft drinks while using the most healthful fruit juices,
natural sugars, and the purest spring water, the hallmark of the “New Age” drink
market.
With the help of a well-developed plan, the two men were successful in raising the
necessary capital to begin their business. They leased facilities and started production.
However, after almost two years, the plan’s goals were not being met. There were cost
overruns, and profits were not nearly up to expectations.
Question 1 What problems might have contributed to the firm’s poor performance?
Question 2 Although several problems were encountered in implementing the business
plan, the primary reason for the low profits turned out to be embezzlement. Martin was
diverting company resources for personal use, even using some of the construction
materials purchased by the company to build his own house. What could Rose have
done to avoid this situation? What are his options after the fact?
If a firm extends a janitorial cleanser from the industrial market to reach the home
market, it is following a one product/multiple markets strategy.
In the past, firms tended to introduce new products in the United States first and then
sell them in other developed nations, giving no attention to less-advanced countries
because of their weak consumer purchasing power.
The offer by a friend to sponsor you as an Amway distributor might be called a
precipitating event.
Though common in large firms, small businesses cannot afford self-insurance.
Inquiries by a potential customer that do not lead to a sale can still create what is known
as a “promising prospect.”
Investors always think ahead about how to exit an enterprise, but the entrepreneur
should not have this focus since the business will perform better if it is managed with
day-to-day operations in mind.
Discuss the problem of reluctant parents and ambitious children in a family business.
Propose solutions.
Identify the four basic objectives of preparing a written plan prior to starting a new
venture.