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Ch 8 – pre lecture

The Global Entrepreneurship Monitor (GEM) shows that people living in high-income countries tend to be much more willing to start their own businesses than people who live in low-income countries
t/f
false
Which of the following is a similarity between venture capital firms and angel investors?
a.
?Both invest in start-up companies with high growth potential in exchange for a share of ownership.

b.
?Both require an entrepreneur to provide a minimum of twenty-five to thirty percent of the start-up costs.

c.
?Both charge very high interest rates and structure loans to be repaid in months rather than years.

d.
?Both only finance large corporations that operate in universal and generic markets.

a.Both invest in start-up companies with high growth potential in exchange for a share of ownership.
People with an external locus of control:
a.
?are extremely self-reliant.

b.
?feel that they have complete control over their lives.

c.
?are more likely to take responsibility for their own failure.

d.
?feel buffeted by forces such as random luck.

d.feel buffeted by forces such as random luck.
The primary reason many people become entrepreneurs is to:
a.
?make more money.

b.
?avoid risk uncertainty.

c.
?avoid difficult challenges.

d.
?revolutionize business models.

a. make more money
Entrepreneurs usually view the world in black and white. They seldom consider the many shades of gray that other people see when they look at the same issues. t/f
false
?Which of the following is an advantage of starting a business from scratch?
a.
?Relationships with customers, suppliers, and other stakeholders are established.

b.
?One does not have to deal with the prior owner’s bad decisions and mistakes.

c.
?Getting financing and credit is less challenging as investors are previously known.

d.
?The concept, organizational structure, and operating practices are already in place.

b. One does not have to deal with the prior owner’s bad decisions and mistakes.
?Which of the following is a powerful contribution made by small businesses to the U.S. economy?
a.
?Accounting for all private sector output

b.
?Powering the stock market

c.
?Vitalizing rural towns

d.
?Vitalizing inner cities

d. vitalizing inner cities
?Michael is a middle-aged professional who lost his job five months ago when his former employer downsized. He has been actively looking for work since then but has not been able to find a job that truly utilizes his abilities or that offers an income anywhere close to what he earned in his previous position. He is beginning to feel that the only way to survive his current situation is to start his own business. Michael might well become a:
a.
?venture capitalist.

b.
?necessity entrepreneur.

c.
?frictional worker.

d.
?freelance entrepreneur.

b.necessity entrepreneur.
David is a high school senior interested in starting his own computer repair business. David’s interest in starting his own business will have no effect on the long-term recovery of the economy. t/f
false
?Damien is a programmer in a software firm. He has recently received a promotion and an annual bonus. He believes that this is a result of random luck as he does not work very hard. Damien has _____.
a.
?an external locus of control

b.
?learned optimism

c.
?entrepreneurial self-reliance

d.
?a low tolerance for failure

a. an external locus of control
The nation of Rhodasia has the lowest entrepreneurship rate globally. A new government headed by Prime Minister Arnold Wenger aims to make the country’s business environment more supportive toward burgeoning entrepreneurs. Which of the following measures should be taken to increase the entrepreneurship rate in Rhodasia?
a.
?Increasing unemployment insurance available to employees

b.
?Eliminating complex regulations placed on businesses

c.
?Mandating that all businesses must provide employee healthcare

d.
?Initiating employment protection laws

b.Eliminating complex regulations placed on businesses
Marion has an innovative idea for better disposal of garbage. Hence, he starts a business to implement this idea that he believes will succeed. He is also aware of the risks involved in starting the business. However, Marion tends to put in only six hours a day into building his business; some days, he finds it difficult to put in any time. Which of the following entrepreneurial characteristics does Marion lack?
a.
?Tolerance of uncertainty

b.
?Energy

c.
?Confidence

d.
?Vision

b. energy
Ethan is in the process of launching his new business venture that specializes in electronic waste recycling. During this period, he is in constant touch with Lloyd, who has seen success in this niche market. Which of the following entrepreneurial development strategies is Ethan utilizing?

a.
?Gaining experience

b.
?Accessing Small Business Administration (SBA) resources

c.
?Gaining theoretical knowledge

d.
?Learning from others

d. learning from others
Jacob is in urgent need of financing for his rapidly-growing online travel business, Travelmuch. Since Jacob does not usually pay off his loans on time, his credit score is very low. He feels overwhelmed and thinks that it would be ideal if he gets some guidance on how to run the business. Given his situation, which of the following key sources of funding would be ideal for Jacob?
a.
?An initial public offering

b.
?A commercial bank loan

c.
?A venture capital firm

d.
?A Small Business Administration (SBA) loan

c. a venture capital firm
Ted’s new company is experiencing a steady decline in profit. He needs external financing to prevent his company’s profits from declining further. Considering the fact that he wants to exercise ownership and control over the firm for as long as possible, Ted is likely to find angel investors who are interested in helping him meet his financial needs. t/f
false
Which of the following statements is true of the impact of federal regulations on entrepreneurship?
a.
?Regulations and entrepreneurship are not interdependent.

b.
?Entrepreneurs owning small businesses are in favor of strict regulations.

c.
?Extensive regulations can impede entrepreneurship.

d.
?Lack of regulations can stop entrepreneurship from thriving.

c.Extensive regulations can impede entrepreneurship.
Rudy owns a small metal fabrication business that employs 23 workers. As the owner of a small business, one of the major advantages that Rudy will enjoy when competing against larger firms will be a lesser burden of complying with government regulations. t/f
false
Which of the following firms supported by the Small Business Administration (SBA) provides free, comprehensive counseling for small businesses from qualified volunteers?
a.
? A venture capital firm

b.
? An angel investor

c.
? A Small Business Development Center

d.
? The Service Corps of Retired Executives

c. A Small Business Development Center
Which of the following is an intimidating difficulty that small businesses face?

a.
?Obstacles in technology

b.
?High health insurance costs

c.
?High overhead costs

d.
?Lack of customer service

b. high health insurance costs
Deborah dreams of owning a pub in the heart of the city she lives in. She wants to have a music band right next to the bar playing her favorite rock ballads. She also has creative ideas for the food on the menu. Since Deborah already has the funds needed to start the pub, which of the following suggestions is most likely to help Deborah realize her dream?
a.
?Deborah should buy a pub that is already established as that will provide her with better chances of implementing her ideas.

b.
?Deborah should know that starting a small business will mean very high overhead costs.

c.
?Deborah should buy a franchise of a well-known pub as that will provide her with more opportunities for creativity.

d.
?Deborah should start from scratch as that will allow her to implement her own concept, decision, and structure.

d. Deborah should start from scratch as that will allow her to implement her own concept, decision, and structure.
In the context of the US economy, small businesses:
a. do not create a significant % of new jobs
b. contribute to a very small % of the gross GDP
c. have an insignificant impact on the state of the economy
d. are often the first to contract when times are tough
d. are often the first to contract when times are tough
Which of the following is a drawback of buying a franchise?
a. Half of the franchisees of a brand fail in their first year of operations.
b.
?The buyer has to finance the operation of the franchise.
c.
?If the national brand suffers, so does the franchisee.
d.
?Getting to know the business model may take time
c. if the national brand suffers so does the franchise
Loren LLC is a small bicycle store that competes effectively with much larger companies since it focuses exclusively on selling bicycles for senior citizens and orthopedic patients. The company has been successful since it has:?
a.
?attracted the best talent in the bicycle market.
b.
?worked to undercut larger competitors.
c.
?exploited a small but profitable market niche.
d.
?acquired a patent for these bicycles.
c. exploited a small but profitable market niche
The Small Business Administration microloan program lends an average of $13,000 to start-up businesses through community nonprofit organizations. t/f
true
Three downsides to buying a franchise include high initial costs, the ongoing percent-of-sales royalty fees, and the franchise requirements, which, in effect, reduce the owner’s independence. t/f
true
Overhead costs for small businesses:
a.
?tend to be much higher than they are for large businesses as a percentage of total expenses.
b.
?primarily arise because small businesses must hire many consultants and advisers from outside.
c.
?are often lower than they are for big companies, giving small businesses a competitive opportunity.
d.
?are about the same as they are for big companies when measured as a percentage of total expenses.
c. are often lower than they are for big companies, giving small businesses a competitive opportunity.
Small businesses often have an advantage in foreign markets, where customers want to deal directly with a company’s top management. t/f
true
Which of the following statements is true of necessity entrepreneurship in high-income countries?
a.
?Necessity entrepreneurship is nonexistent.
b.
?The risks of necessity entrepreneurship are low.
c.
?Necessity entrepreneurship is a major source of income.
d.
?The rate of necessity entrepreneurship is low.
d. the rate of necessity entrepreneurship is low
For entrepreneurs, there is usually a correlation between dollars earned and hours worked. t/f
true
Small business start-ups are likely to find that getting commercial loans is:

a.
?one of the easiest and most flexible ways of obtaining financing because local bankers are usually eager to establish relationships with new companies.

b.
?the best way to obtain all the financing they need as lenders usually get an ownership stake in the companies.

c.
?difficult because commercial lenders are reluctant to give loans to firms that do not have an established record of successful performance.

d.
?relatively difficult because start-ups require much higher financing costs than other sources.

c. difficult because commercial lenders are reluctant to give loans to firms that do not have an established record of successful performance.
While raising start-up funds from friends and family, it is:

a.
?acceptable to not document the financing.

b.
?essential to involve them in company dealings.

c.
?acceptable to not repay them.

d.
?essential to keep the relationship as professional as possible.

d. essential to keep the relationship as professional as possible
Which of the following bodies assists entrepreneurs by guaranteeing loans from local commercial lenders?
a.
?The Small Business Administration

b.
?The Patent and Trademark Office

c.
?The Federal Reserve

d.
?The Department of the Treasury

a. the SBA
Which of the following statements is true of necessity entrepreneurship in high-income countries?
:
a.
?Necessity entrepreneurship is nonexistent.

b.
?The risks of necessity entrepreneurship are low.

c.
?Necessity entrepreneurship is a major source of income.

d.
?The rate of necessity entrepreneurship is low.

d. the rate of necessity entrepreneurship is low
Who among the following individuals is most likely to become a necessity entrepreneur?

a.
?Kathy, a well-paid executive assistant who has always been passionate about starting her own bakery

b.
?Timo, an immigrant engineer who is driven to think about his own venture because his heavy English accent invites discrimination at his office

c.
?Andrey, an employee who wants to quit his job immediately because of his dictatorial supervisor and begin his own enterprise where he is the boss

d.
?Latoya, a working mother whose busy schedule keeps her from spending quality time with her son and makes her think about starting her own business

b. Timo, an immigrant engineer who is driven to think about his own venture because his heavy English accent invites discrimination at his office

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