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ENTREPENEURSHIP

There are two categories of variable costs ________.

a. interest and taxes paid
b. cost of goods sold and other variable costs
c. gross costs and net variable costs
d. net variable costs and cost of goods sold

b. cost of goods sold and other variable costs
Total Revenue divided by________ = units sold.

a. cost
b. profit
c. selling price
d. total operating costs

c. selling price
Fixed Operating Costs ________.

a. include expenses like the DSL bill and rent
b. All of the above.
c. are not included in COGS
d. are not direct costs of creating each product

b. All of the above.
Carla sells hot coffee, cider and tea from a sidewalk cart near Wall Street in New York City. Last month she sold $4,500 worth of product to 1,000 customers. She spent $800 on buying her beverages in bulk. Her monthly costs are: Utilities = $100, Salary = $2,000, Advertising = $0, Insurance = $0, Interest = $0, Rent (cart) = $600, Depreciation = $0. Calculate Carla’s average sale per customer

a. $4.00
b. $5.00
c. $0.80
d. $4.50

d. $4.50
Overhead is another term for ________.

a. seed capital
b. administrative costs
c. fixed operating costs
d. net costs

c. fixed operating costs
Which of the following is not a category of fixed costs?

a. capital
b. depreciation
c. rent
d. advertising

a. capital
Record keeping for a very small business can be accomplished by a journal and two boxes for storing ________.

a. costs and expenses
b. debits and credits
c. receipts and costs
d. receipts and invoices

d. receipts and invoices
In the acronym USAIIRD, IRD stand for __________.

a. inventory cost, repositioning costs, depletion
b. interest, rent, depreciation
c. interest, rent, delivery expense
d. investment cost, ratios, depreciation

b. interest, rent, depreciation
If a business sells 5,000 units for a total profit of $200,000, what is its profit per unit?

a. $50
b. $400
c. $40

c. $40
If a business has total gross profit of $14,720 and total operating costs of $11,500, what is its total profit?

a. $0
b. $3,220
c. $1,150
d. $3,000

b. $3,220
To create a same size analysis, calculate each line item as a percentage of ________.

a. sales
b. income
c. costs
d. profit

a. sales
Return on Sales (ROS) is also called a(n) ________.

a. profit margin
b. operating margin
c. gross margin
d. contribution margin

a. profit margin
Successful entrepreneurs use their financial records to prepare ________ income statements that show sales and costs for the previous period.

a. All of the above.
b. monthly
c. quarterly
d. yearly

a. All of the above.
To see how costs are affecting net profit, try analyzing the income statement by expressing each

a. as a percentage of costs.
b. as a percentage of profit.
c. as a percentage of sales.
d. as a percentage of administrative expense.

c. as a percentage of sales.
If you extend credit, it is critical to minimize this number to keep cash flowing.

a. inventory turnover ratio
b. debt-to equity ratio
c. collection-period ratio
d. receivable turnover ratio

c. collection-period ratio
How would you express a ratio as a percentage?

a. multiply it by 100
b. divide it by 100
c. add a percentage sign
d. none of the above.

a. multiply it by 100
The last line of an income statement shows a business’s ________.

a. gross margin
b. profit or loss
c. net profit or net loss
d. gross profit or gross loss

c. net profit or net loss
Liabilities that will be paid over a period of more than one year are ________.

a. equity
b. None of the above.
c. long-term assets
d. long-term liabilities

d. long-term liabilities
If you invest $1,525,000 in a business and earn a return of $775,000 what is your ROI?

a. 42%
b. 51%
c. 45%

b. 51%
Entrepreneurs use a ________ to track assets and liabilities.

a. cash flow statement
b. income statement
c. profit and loss
d. balance sheet

d. balance sheet
Corporate, partnership, individual income tax, and __________ tax returns must be filed on time with the U.S. Internal Revenue Service.

a. state
b. local – city or county
c. self-employment
d. township

c. self-employment
A burn rate is ________.

a. the number of months a business can survive without making sales
b. the amount of cash per month a business can spend before it runs out of cash
c. the amount of cash a business burns on rent per month
d. the number of days a business can survive without making sales

b. the amount of cash per month a business can spend before it runs out of cash
Which of the three financial statements an entrepreneur prepares is used to guide the day-to-day operations of the business?

a. the cash flow statement
b. the income statement
c. the balance sheet
d. tax returns

a. the cash flow statement
Because entrepreneurs do not have Social Security tax taken out of their income by their employer, they must pay a ________.

a. self-employment tax
b. sales tax
c. operating tax
d. capital assets tax

a. self-employment tax
Orders are not entered onto the cash flow statement as cash receipts because you ________.

a. don’t get the cash until the customer actually pays for the order
b. might get them confused with revenue on the income statement
c. will have a more accurate cash flow statement if you enter them once a month
d. might get a cancellation

a. don’t get the cash until the customer actually pays for the order
Why is it not a good idea to rely on your income statement to run your business?

a. The income statement records cash when it comes into the business.
b. The income statement adds non-cash expenses back to the business’s earnings.
c. The income statement deducts non-cash expenses, such as depreciation, even when no cash is actually flowing out of the business.
d. The income statement usually contains errors that other statements don’t have.

c. The income statement deducts non-cash expenses, such as depreciation, even when no cash is actually flowing out of the business.
What are the two steps in making a cash flow projection?

a. projecting receipts and paying bills before they are due
b. projecting expected cash expenses and subtracting inventory cost
c. projecting cash receipts and subtracting expected cash expenses
d. projecting receipts and capital expenditures for a quarter

c. projecting cash receipts and subtracting expected cash expenses
One of the penalties for failure to file proper wage taxes is sweeping your company bank account. What action will the federal government take?

a. cleaning out your inventory of saleable items
b. charge interest and penalties
c. taking out any available funds
d. confiscate your state business license

c. taking out any available funds
Entrepreneurs should always ________.

a. ask to be audited by the IRS
b. pay self-employment tax
c. keep records, file returns, and pay taxes on time
d. attempt to make the highest profit possible

c. keep records, file returns, and pay taxes on time
On your cash flow statement, you will need to ________ the amount you deducted from the income statement as a depreciation expense.

a. subtract
b. amortize
c. double
d. add back

d. add back
Financing with earnings is an option under what circumstances?

a. A company has no debt and is growing.
b. A company is profitable and has positive cash flow from operations.
c. A company is profitable and has negative cash flow from operations.
d. A company has substantial cash savings and marketable securities.

b. A company is profitable and has positive cash flow from operations.
A share of stock represents _________ in a company.

a. interest
b. a right to discounts on purchases
c. a concept like insurance
d. ownership

d. ownership
High risk = high reward and conversely, low risk = low reward.

True
False

True
Business failure is defined by Dun and Bradstreet as “business termination ________.”

a. with no notice
b. because of owner illness
c. with losses to creditors
d. with loss of sales in three continuous quarters

c. with losses to creditors
If you are a small business owner looking for a loan, a bank will expect you to ________.

a. find equity investors to spread the banks risk
b. incorporate in order to maximize cash flow
c. personally guarantee that you will be responsible for the business loan
d. incorporate in order to avoid taxation

c. personally guarantee that you will be responsible
The equity investors risk is ________ than that of the debt lender.

a. much lower
b. lower than
c. the same as
d. higher than

d. higher than
The USDA has a long tradition of providing financial and technical assistance to __________ businesses.

a. service
b. rural and agricultural
c. manufacturing
d. sole proprietorships

b. rural and agricultural
A rule of investment is that you always want to have your money now. If you cannot have it now, you want to be compensated with a ________.

a. return
b. profit
c. salary
d. minimum sum

a. return
________ are forms of gifts or grants to businesses.

a. Tax abatements
b. Tax credits
c. Unpaid labor by friends and family
d. All of the above

d. All of the above
Some federal agencies provide grants, loans, and/or loan guarantees for businesses that meet
specific criteria. One of these is the United States ________.

a. Interstate Commerce Commission (ICC)
b. Small Business Administration (SBA)
c. Federal Land Bank (FLB)
d. Agricultural Extension Agency (AEA)

b. Small Business Administration (SBA)
If you invent something and don’t patent it, it falls into the public domain, meaning that ________.

a. You can sell your invention publicly without paying the U.S. Patent Office
b. anyone can manufacture your invention and profit from selling it without paying the you
c. You can sell the right to manufacture the invention
d. you can save a lot of money

b. anyone can manufacture your invention and profit from selling it without paying the you
Some contracts specify that conflicts may be settled through ________ instead of court.

a. negotiation
b. coercion
c. arbitration
d. small claims

c. arbitration
The time period in which legal action may be taken is the ________.

a. limit of liability
b. statute of legal obligations
c. statute of limitations
d. None of the above

c. statute of limitations
________ protects people from having property or wealth stolen, lost or destroyed. There are many kinds and in order to purchase it you pay a monthly, quarterly or annual ________.

a. Insurance/carrying cost
b. Insurance/premium
c. Insurance/dividend
d. Insurance/maintenance fee

b. Insurance/premium
A(n) ________ is the amount of loss or damage that you agree to cover before any insurance
coverage takes over.

a. deductible
b. carrying cost
c. premium
d. co-insurance

a. deductible
What is used to identify and distinguish the source of a service rather than a product?

a. sales mark
b. trademark
c. service mark
d. intellectual property

c. service mark
________ insurance is designed to cover in the event that a business (its employees) fails to do something that causes harm to a customer.

a. Negligence
b. Errors and omissions
c. Product liability
d. Casualty

b. Errors and omissions
An injured party whose rights in a contract have been breached can bring a ________ against the other party.

a. arbitration
b. motion
c. mediation
d. lawsuit

d. lawsuit
________ insurance compensates employees for loss of income and for medical expenses due to job-related injuries.

a. Short-term disability
b. Disability
c. Injury
d. Worker’s compensation

d. Worker’s compensation
Which is not a potential penalty for breaking a contract?

a. You may lose a share of the ownership of your business to the other party who signed the contract.
b. You may be sued in a court of law by the other party who signed the contract
c. A court may order you to pay damages to the other party who signed the contract.
d. It can be costly.

a. You may lose a share of the ownership of your business to the other party who signed the contract.
Retail point-of-sales systems, restaurant menu order systems, and concert venue ticketing systems are all examples of ________.

a. custom software applications
b. industry-specific technology
c. systems for large businesses
d. indirect marketing

b. industry-specific technology
Home-based entrepreneurs have special considerations other businesses don’t have.

True
False

True
If you are considering starting a business venture in your home, thoroughly investigate zoning ordinances, civic association rules, and _________.

a. the neighborhood
b. deed restrictions
c. distance from the Interstate
d. proximity to city hall

b. deed restrictions
Which of the following is not a step in the production – distribution chain?

a. A retailer buys 6 rings
b. A consumer enters a jewelry shop and buys a ring
c. A consumer wears jewelry to work
d. A goldsmith crafts 10 rings

c. A consumer wears jewelry to work
Organizations applying for the Baldrige Award are judged on ________.

a. customer and market focus
b. leadership and strategic planning
c. process management and human resources
d. all of the above

d. all of the above
The three factors included in the calculation of the Reorder Point are ________.

a. demand, lead time, and safety stock
b. supply, price, and safety stock
c. demand, inventory, and price
d. supply, demand, and holding costs

a. demand, lead time, and safety stock
The inventory method where you look at the inventory on hand, and when the stock level of an item appears to be low, you reorder is called ________.
a. basic control
b. proximal management
c. estimation
d. visual control
d. visual control
The central focus of total quality management (TQM) is continuous improvement.

True
False

True
A measure of quality that may be used in Total Quality Management (TQM) is ________.

a. on-time delivery
b. compliance with product specifications
c. repeat rates
d. All of the above

d. All of the above
If the lead time for garage doors is 2 weeks, and you sell 100 doors per week, and you always want at least 20 doors in stock, what is the Reorder Point?

a. 320
b. 220
c. 420
d. 440

b. 220
A tool that can assist an entrepreneur in time management is a PERT chart. The acronym stands for ________.

a. Process Emulation and Review Test
b. Project Estimation and Review Technique
c. Program Evaluation and Review Technique
d. Project Estimation and Results Technique

c. Program Evaluation and Review Technique
A share of a company’s profits paid to an investor is called a ________.

a. commission
b. stock
c. dividend
d. return

c. dividend
Which is not an effective way to protect yourself from a wrongful termination suit brought by an employee whom you have fired?

a. I can keep documentation of all my reasons for firing the employee to prove that he/she violated company ethics or was not performing his/her duties.
b. I can conduct regular reviews of employee performance.
c. I can call upon 2 or 3 witnesses
d. I can hire a lawyer to protect me from lawsuits.

d. I can hire a lawyer to protect me from lawsuits.
A business behavior might be legal but still not be ________.

a. invalid
b. ethical
c. wrong
d. profitable

b. ethical
If a business owner wants his/her pay to be a variable operating cost, a ________ is most appropriate.

a. bonus
b. wage
c. salary
d. commission

d. commission
Research indicates that ________ is the most important characteristic required for successful leadership.

a. self esteem
b. business knowledge
c. drive
d. intelligence

a. self esteem
Which is not a good method for preventing legal complications when you must lay off or fire employees?

a. Document your reasons for firing employees to prove that they did not perform their duties correctly.
b. Have employees sign an agreement when they’re hired saying they will not sue if they are ever laid off.
c. Provide severance, which is continued salary for a limited time, and make serious efforts to help laid-off employees find a new job.
d. have appropriate employees sign a no-compete agreement.

b. Have employees sign an agreement when they’re hired saying they will not sue if they are ever laid off.
It is imperative for entrepreneurs to lead with integrity and by example and encourage employees to choose for themselves to be socially responsible at work.

True
False

False
Which of the following is an example of an employee incentive program?

a. profit sharing
b. health insurance
c. fair salary
d. 401-K

a. profit sharing
The act of Congress that requires employers to pay men and women the same amount for the same work is called ________.

a. The Equal Opportunity Act
b. The Equal Pay Act
c. The Work Compensation Act
d. Anti-discrimination Act

b. The Equal Pay Act
If you buy a franchise, you must pay a percentage of every unit you sell to the franchisor. That percentage is called ________.

a. commission
b. royalty
c. franchise fee
d. collection fee

b. royalty
When one is merging or being acquired ________.

a. it is typically a quick and emotionless process
b. it is typically concluded within a few weeks
c. it can be an emotionally draining experience and take over a year
d. None of the above

c. it can be an emotionally draining experience and take over a year
________, or spreading out the brand among many products and product lines can increase market share, but it can also ________ the company.

a. Product line extension / unfocus
b. Alliances / focus
c. Diversification / focus
d. Diversification / unfocus

d. Diversification / unfocus
One of the advantages of an Employee Stock Ownership Plan is that ________.

a. the owner will have to look for buyers in the general public
b. it will prevent employees from having control of the company
c. employees will likely quit and leave
d. ESOP’s offer tax breaks to the company

d. ESOP’s offer tax breaks to the company
Which of the following is a harvest strategy, not an exit strategy?

a. merger
b. IPO (initial public offering)
c. acquisition
d. franchising

b. IPO (initial public offering)
One way to value a business is to look at __________. In general, the business should sell for 3 to 5 times its annual net earnings.

a. a multiple of its net earnings
b. a comparison with similar businesses
c. use an appropriate benchmark
d. a professional appraisal

a. a multiple of its net earnings
This harvest option has the advantage of financing growth that the company could not achieve on its own. The entrepreneur can exit the company at this time or grow with it.

a. increase the free cash flow
b. management buy out
c. employer stock ownership plan
d. merger or acquisition

d. merger or acquisition
It typically requires at least ________ years to develop a company worth harvesting.

a. twenty
b. fifteen
c. twelve
d. ten

d. ten
A brand is a combination of name, logo, and design that ________.

a. identifies the owner of a company
b. expresses the philanthropic intentions of a company to consumers
c. puts people in the mood to buy the product or service
d. becomes associated in the minds of consumers with the products or services of a company

d. becomes associated in the minds of consumers with the products or services of a company
Licensors must be careful that a licensee________.

a. franchises the brand to as many others as possible
b. doesn’t damage the licensing company’s name
c. controls every aspect of the licensor’s business
d. doesn’t fail to pay royalties

b. doesn’t damage the licensing company’s name

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