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Entrepreneurship Midterm

The ability to develop new ideas and to discover new ways of looking at problems and opportunities is called
creativity.
An entrepreneurial “secret” for creating value in the marketplace is
applying creativity and innovation to solve problems
The ability to apply creative solutions to problems and opportunities to enhance or to enrich people’s lives is called
innovation
Harvard’s Ted Levitt says that creativity is ________ new things, and innovation is ________ new things.
thinking; doing
Entrepreneurship is a constant process that relies on
creativity, innovation, and application in the marketplace
________ is necessary for building a competitive advantage and for business survival
Creativity
Creativity often involves creating something from nothing. However, it is more likely to result in
All of the above
When developing creative solutions to modern problems, entrepreneurs must:
go beyond merely using whatever has worked in the past
Research shows that anyone can learn to be creative. The problem is
All of the above
Research into the operation of the human brain shows that each hemisphere of the brain
processes information differently
The left brain is guided by
linear, vertical thinking
The right brain is guided by
kaleidoscopic, lateral thinking
Which hemisphere of the brain is responsible for language, logic, and symbols?
Left hemisphere
) Which hemisphere of the brain is responsible for the body’s emotional, intuitive, and spatial functions?
Right hemisphere
Which hemisphere of the brain processes information in a step-by-step fashion?
Left hemisphere
Which hemisphere of the brain processes information all at once and by relying heavily on images?
Right hemisphere
________ vertical thinking is narrowly focused and systematic, proceeding in a highly logical fashion from one point to the next
Left-brained
________ lateral thinking is somewhat unconventional and unstructured
Right-brained
All of the following represent barriers to creativity that entrepreneurs impose upon themselves except
searching for more than one answer
Entrepreneurs can stimulate their own creativity and encourage it among workers by
expecting and tolerating failure.
Which of the following is not one of the ways entrepreneurs can stimulate their own creativity and encourage it among their workers?
View challenges as problems
Employees must be given the tools and resources they need to be creative. One of the most valuable set of resources is
time, support and encouragement
Hiring a diverse workforce
All of the above
The ________ environment has an impact on the level of people’s creativity
physical
All of the following are enhancements to individual creativity except
limiting your reading sources
Which of the following is not an enhancement to individual creativity?
Working without breaks until the project is complete or the problem is solved
Which stage of the creative process includes on-the-job training?
Preparation
This set of experiences may enhance individual creativity
All the above
Which stage of the creative process requires one to develop a solid understanding of the problem or decision?
Investigation
Which stage of the creative process involves viewing the similarities and differences in the information collected?
Transformation
The ability to see the similarities and the connections among various data and events is called:
convergent thinking
The ability to see the differences among various data and events is called
divergent thinking
________ thinking is the ability to see similarities and ________ thinking is the ability to see differences among various data and events
Convergent; divergent
During the incubation phase of the creative process, the entrepreneur might do all of the following EXCEPT which one to let ideas “marinate” in his mind?
Don’t allow one’s self to daydream
At which stage of the creative process does a spontaneous breakthrough occur, allowing all of the previous stages to come together to produce the “Eureka factor” or the “light bulb goes on”?
Illumination
“Verification” refers to:
All of the above
The focus of this step in the creative process is to transform the idea into reality
Implementation
________ is a process in which a small group of people interacts to produce a large quantity of imaginative ideas
Brainstorming
Effective brainstorming involves all of the following except
an effective method to evaluate ideas
________ is a graphical technique that encourages thinking on both sides of the brain, visually displays the various relationships among the ideas, and improves the ability to view a problem from many sides
Mind-mapping
Mind-mapping is a useful tool for jump-starting creativity. It includes all of the following except
forcing creativity when ideas start to trickle
The technique of ________ uses three columns that allows the entrepreneur to weigh both the advantages and the disadvantages of a particular decision and work to maximize the variables that support it while minimizing those that work against it.
force-field analysis
The “theory of inventive problem solving” is a left-brained, scientific, systematic process based on innovative patents and is referred to as
TRIZ
The premise behind ________ is that transforming an idea into an actual model will lead to improvements in its design
rapid prototyping
The three principles (three Rs) of rapid prototyping are
develop a rough model, rapidly, and for the right problem
Steps in the patent process include
All of the above
To which governmental office must applications for patents be submitted?
The U.S. Patent and Trademark Office
To protect patent claims, an inventor should be able to verify and document the
date on which the idea was first conceived
More than ________ percent of those holding patents win their infringement suits
60
Any distinctive word, phrase, symbol, name, or logo a firm uses to distinguish itself or its products is called a
trademark
Which of the following questions should you consider before entering a lawsuit to protect intellectual property?
All of the above
A ________ is an exclusive right that protects the creators of original works such as literary, dramatic, musical, and artistic works
copyright
Copyrights protect the creator of original works such as
software, choreography, and motion pictures
Which of the following is not one of the three components of intellectual capital?
Competitor
________ involves developing a game plan to guide a company as it strives to accomplish its mission, goals, and objectives to keep it on its desired course.
Strategic management
The aggregation of factors that sets a company apart from its competitors and gives it a unique position in the market, superior to its competition, is its
competitive advantage
Which of the following was not identified as a way for the typical small business to establish a competitive advantage?
Lowering prices
________ are a unique set of capabilities that a company develops in key operational areas-such as service, innovation, and others-that allow it to potentially vault past its competitors
Core competencies
The relationship between core competencies and competitive advantage is best described by which statement?
A company’s core competencies become the nucleus of its competitive advantage
The key to entrepreneurial success over time is to build a ________ competitive advantage
sustainable
A strategic plan serves as a blueprint to help a company to
All of the above
Which of the following is NOT a characteristic of the strategic management procedure for a small company?
It should begin with an extensive objective-setting session
A clearly defined vision helps a company in which of the following ways?
All of the above
A small company’s mission statement
All of the above
When developing a company’s mission statement, an entrepreneur should remember to
keep it short and simple
Strengths and weaknesses are ________ to the organization
internal factors
________ are positive internal factors that contribute toward accomplishing the company’s mission, goals, and objectives, while ________ are negative internal factors that inhibit the accomplishment of a firm’s mission, goals, and objectives
Strengths; weaknesses
Kevin Abt noticed that people were cooking meals in their homes less often but wanted to avoid the hassle of going out to eat. They wanted to “eat in” without cooking. Abt launched a company, Takeout Taxi, that delivers restaurant-prepared food to his customers’ homes and businesses. Takeout Taxi is the result of a(n):
opportunity
Maria Sanchez is the owner of the Main Street Café and a new restaurant opens a few blocks away. From Maria’s perspective, this new restaurant constitutes a(n
threat
Every business is characterized by a set of controllable variables that determines the relative success (or lack of it) of market participants called
key success factors
Gathering competitive intelligence, such as “dumpster diving” in a competitors trash, may raise questions regarding
ethical standards
Your ________ competitors offer the same products and services, and customers often compare prices, features, and deals from these competitors as they shop
direct
An ________ competitor offers the same or similar products of services only in a small number of areas, and their target customers seldom overlap yours
indirect competitor
Which of the following is true about the information-gathering process in competitive analysis?
It can be relatively inexpensive and easy for the small business owner to conduct
Which of the following is an effective method of collecting information about competitors?
All of the above
Which of the following is not a recommended method of collecting competitive intelligence?
Pay competitors’ employees to become informants about their companies’ strategies, markets, and trade secrets
A competitive profile matrix
allows the small business owner to evaluate her firm against competitors on the key success factors for the industry
________ are the broad, long-range attributes the small business seeks to accomplish; ________ are the more specific targets for performance.
Goals; objectives
Which of the following is not a characteristic of a well-written objective?
General
The focal point of any company’s strategy, whatever it may be, should be:
its customers
A ________ is a road map of the tactics and actions an entrepreneur draws up to fulfill the company’s mission, goals, and objectives
strategy
________ spell(s) out the “ends” an organization is to achieve; ________ define(s) the “means” for achieving the ends
Mission, goals, and objectives; strategy
The relationship between a company’s mission, goals, and objectives and its strategy is best described by which of the following statements?
The mission, goals, and objectives spell out the ends the company wants to achieve, and the strategy defines the means for reaching them
A strategy should
All of the above
A cost-leadership strategy
works best when buyers’ primary purchase criterion is price
A cost-leadership strategy works well when
All of the above
Small firms pursuing a cost-leadership strategy have an advantage in reaching customers whose primary purchase criterion is
price.
Skatell’s, a small jewelry store with three locations, designs and manufactures much of its own jewelry while its competitors (many of them large department stores) sell standard, “off-the-shelf” jewelry. As a result, Skatell’s has developed a loyal customer base of people who seek unique pieces of jewelry. Skatell’s reputation for selling unique and custom-designed jewelry allows them to benefit from a:
cost-leadership strategy
Cost-leadership may have which of the following inherent dangers?
An overemphasis on costs to the elimination of other strategies
A differentiation strategy
All of the above
A small company following a ________ strategy seeks to build customer loyalty by positioning its goods and services in a unique fashion
differentiation
A company that offers superior product quality, extra customer service, and fast delivery times is pursuing a
differentiation strategy
Which of the following is a danger in choosing a differentiation strategy?
Focusing only on physical characteristics of a product or service and ignoring important
The principle behind a ________ strategy is to select one or more market segments, identify customers’ special needs, and approach them with a good or service designed to excel in meeting these needs
focus
Rather than attempting to serve the total market, the small firm pursuing a ________ strategy specializes in serving a specific target segment
focus
Shere Vincente operates a travel service that specializes in arranging trips for women, giving special attention to their needs and preferences, from security and comfort to activities and events designed to appeal to her target customers. Vincente is pursuing a ________ strategy.
focus
Small companies must develop strategies that exploit all of the competitive advantages of their size by
All of the above
In order for the control process to work, the business owner must
identify and track key performance indicators
Which of the following is NOT one of the four important perspectives a balanced scorecard should look at a business from?
Competitor perspective
The balanced scorecard ideally looks at a business from four important perspectives relating to:
customers, internal factors, innovation, and finances
The process of determining whether an entrepreneur’s idea is a viable foundation for creating a successful business is known as a:
feasibility analysis
Porter’s five forces model assesses industry attractiveness by surveying these five factors
potential entrants, suppliers, buyers, substitutes, and rivalry among existing firms
The strongest of the five forces in most industries is
rivalry among companies competing in the industry
Switching costs, the number of buyers, and if the items represent a relatively small portion of the cost of finished products are key considerations regarding the
bargaining power of buyers
Low capital requirements, cost advantages that are not related to company size, and the lack of brand loyalty are considerations regarding the
threat of new entrants to the industry
Products or services that may be sought as alternative solutions-such as purchasing tax planning software rather than paying a CPA to assist with preparing your taxes-are referred to as
substitute products
The force from the five forces model that considers economies of scale, initial capital requirements, cost advantages relevant to company size, and lack of brand loyalty is the
threat of new entrants
The primary purpose of the five forces matrix is to
assign values to each of the five elements
The process in which entrepreneurs test their business models on a small scale before committing serious resources to launch a business that might not work is known as:
business prototyping
An analysis that determines the degree to which a product or service idea appeals to potential customers and identifies the resources necessary to produce the product or provide the service is referred to as:
product or service feasibility analysis
Conducting ________ research involves collecting data firsthand and analyzing it while ________ research involves gathering data that has already been complied and is available.
primary; secondary
One form of primary research is
a focus group
The financial feasibility analysis takes these aspects into consideration
capital requirements, estimated earnings, and return on investment
The final aspect of the financial feasibility analysis combines the estimated earnings and the capital requirements to determine the
rate of return on the capital invested
The primary purpose of a business plan is to
guide a company by charting its future course and devising a strategy for success.
A business plan is a written summary of:
All of the above
A business plan:
All of the above
A solid business plan:
All of the above
The second essential purpose for creating a business plan is:
to attract lenders and investors.
The three “tests” associated with a business plan are:
reality, competitive, and value.
The ________ test that a business plan must pass in order to attract financing from lenders and investors involves proving that a market for the company’s product or service actually does exist and that the company actually can build it for the cost estimates included in the plan.
reality
The reality test that a business plan must pass in order to attract financing from lenders and investors involves proving:
that a market for the company’s product or service actually does exist and that the company can actually build it for the cost estimates included in the plan.
The competitive test that a business plan must pass in order to attract financing from lenders and investors involves proving:
that the company can gain a competitive advantage over its key competitors.
24) The value test that a business plan must pass in order to attract financing from lenders and investors involves proving:
B) that the business venture will provide lenders and investors a high probability of repayment or an attractive rate of return.
25) Potential investors tend to believe that if an entrepreneur cannot develop a good plan, the entrepreneur:
C) probably lacks the discipline to run a business.
26) Which of the following statements is not true according to the “two-thirds rule”?
D) Only two-thirds of entrepreneurs will take the time to prepare a business plan.
27) Before putting their money into a business idea, potential lenders and investors:
D) All of the above
28) ________ is an entrepreneur’s best insurance against launching a business destined to fail or mismanaging a potentially successful company.
B) Creating a solid business plan
29) Which of the following is true regarding the process of building a business plan?
D) All of the above
30) Which of the following is true about the preparation of a business plan?
B) The elements of the plan may be standard, but the content should reflect the unique aspects of the business and the excitement of the entrepreneur.
31) Ideally, a business plan should range from ________ pages in length.
B) 20 to 40
32) The ________ is also known as the “elevator pitch” and is written last, but is included as the first part of the business plan; it should summarize all the relevant points in about two pages.
D) executive summary
33) The executive summary section of the business plan:
D) All of the above
34) The executive summary section of the business plan:
C) should summarize the essence of the plan in a capsulated form and should capture the reader’s attention.
35) The ________ serves as the “thesis statement” for the entire business plan and is the broadest expression of a company’s purpose and defines the direction in which it will move.
B) mission statement
36) The company history section of the business plan typically includes:
D) All of the above
37) The ________ highlights significant financial and operational events in the company’s life and should concentrate on the company’s accomplishments.
B) company history
38) Issues such as market size, growth trends, ease of market entry and exit, the presence of cyclical or seasonal sales trends, and the competitive dynamics of an industry appear in the ________ section of the business plan.
C) business and industry profile
39) The ________ acquaints lenders and investors with the nature of the business and the general goals and objectives of the company.
C) business and industry profile
40) ________ are broad, long-range statements of what a company plans to achieve in the future that guide its overall direction and addresses the question, “Why am I in business?”
A) Goals
41) ________ are short-term, specific targets which are attainable, measurable, and controllable.
A) Objectives
42) The section that describes “how to get there” and describes a competitive edge that sets the business apart is referred to as the:
A) business strategy.
43) In the business strategy section of the business plan, the entrepreneur should explain to investors:
B) how she intends to accomplish the company’s goals and objectives.
44) Which of the following would be included in the description of the product or service section of the business plan?
D) All of the above
45) A ________ is a descriptive fact about a product or service; a ________ is what the customer gains from that characteristic.
A) feature; benefit
46) What is the lesson to be learned about writing a business plan from Leo Burnett’s statement, “Don’t tell people how good you make the goods; tell them how good your goods make them?”
B) The plan should describe how the business will transform tangible product or service features into important, but often intangible, customer benefits.
50) Which of the following questions will probably not be addressed in the marketing strategy section of the business plan?
C) What exit policy do I have in place for my investors?
51) When formulating a marketing strategy, small companies usually are most successful when they:
B) focus on a particular market niche where they can excel at meeting customers’ needs and wants.
52) Defining the company’s target market, its characteristics, and its potential is part of which element of the business plan?
B) Marketing strategy
53) Proving that a profitable market exists involves:
D) A and B only
54) An explanation of how the product will be distributed is contained within the ________ section of the business plan.
B) marketing strategy
55) When creating financial forecasts in a business plan for a proposed venture, an entrepreneur should:
A) be sure that all forecasts are realistic.
56) The focus of the competitor analysis section of the business plan is on:
C) demonstrating your company’s advantage over competitors.
57) The plan of operation of the company within the business plan should detail:
C) plans for keeping the important officers in place with the company.
58) The organization chart is described in which section of the business plan?
A) The plan of operation
59) The form of ownership under which a company is organized appears in which section of the business plan?
C) Plan of operation
60) The loan proposal section of a business plan should include all but which of the following?
A) A general request for funds without stating a specific dollar amount
61) Which of the following statements about the preparation of a business plan is/are not true?
A) Grammatical and spelling errors in a business plan don’t really count since potential lenders and investors judge the quality of a plan by its content.
62) The criteria lenders and investors use to evaluate the credit worthiness of entrepreneurs that are seeking financing-including capital, capacity, collateral, character, and conditions-are referred to as:
C) the five C’s of credit.
63) A synonym for capacity is:
A) cash flow.
64) The most common reason cited by banks for rejecting small business loans is:
B) undercapitalization and too much debt.
65) Carly will be presenting her business plan to potential lenders and investors soon. Which of the following is not one of the suggested helpful tips for presenting the business plan?
D) She should use a great deal of technological jargon to impress the audience with her knowledge.
66) After presenting her business plan to a group of potential lenders and investors, an entrepreneur should:
C) take a proactive approach by following up with every potential lender and investor to whom she makes a presentation.
1) The key to choosing the right form of ownership is:
B) understanding the characteristics of each form and knowing how they affect your business and personal circumstances.
2) Which of the following issues would influence an entrepreneur’s choice of a form of business ownership?
D) All of the above
3) The most common form of business ownership that is also the simplest to create is the:
A) sole proprietorship.
4) Marco is opening a new computer repair shop. He is owner and sole employee. He has paid the appropriate fees and licensing costs and begun his business. This is an example of a(n):
D) sole proprietorship.
5) The most critical disadvantage of the sole proprietorship is:
A) the owner’s unlimited personal liability.
6) Which form of ownership generally has the least ability to accumulate capital?
B) Sole proprietorship
7) A partnership agreement defines how the partners will be compensated. Normally,
A) partners are not entitled to salaries or wages, but are compensated by a share of the profits of the business.
8) Probably the most important reason to have a partnership agreement is that:
D) it resolves potential sources of conflict that, if not addressed in advance, could later result in partnership battles and dissolution of an otherwise successful business.
9) Which of the following issues would a typical partnership agreement address?
D) All of the above
10) All of the following are advantages of a partnership except:
C) partnerships have the greatest ability to accumulate capital of all of the forms of ownership.
11) In a partnership, the ________ partner(s) has (have) unlimited liability for the partnership’s debts.
D) general
12) In a general partnership:
A) each partner is held responsible for an agreement/decision made by any one of the partners.
13) Which of the following is required to form a partnership?
A) A general partner
14) A special type of limited partnership in which all partners who, in many states must be considered to be professionals, are limited partners.
A) Limited liability partnership (LLP)
15) Which of the following is not true of a limited liability partnership?
C) Although LLPs have many of the characteristics of partnerships, they are taxed as a corporation.
16) A ________ partner is a person who makes financial investments in a partnership, does not take an active role in managing the business, and whose liability for the partnerships’ debts is limited to the amount they have invested.
A) limited
17) A ________ partnership is composed of at least one general partner and at lease one limited partner.
B) limited
18) Acme Corporation is chartered in Delaware, but its primary area of operation is in South Carolina. In South Carolina, Acme would be considered a(n) ________ corporation.
C) foreign
19) A special type of partnership in which all partners, who in many states must be professionals, are limited partners is called:
D) limited liability partnership.
20) The “Das Spelunker” corporation, formed in Germany and conducting business in the U.S., is considered to be a(n) ________ corporation.
A) alien
21) Which of the following is true regarding the corporate form of ownership?
D) All of the above
22) A corporation receives its charter from:
B) the state.
23) Which of the following generally is not required by a Certificate of Incorporation?
C) A statement of how stock proceeds will be used
24) Which of the following statement(s) is/are true?
D) All of the above
25) Which of the following is not an advantage of the corporate form of ownership?
B) It is the easiest and least expensive form of ownership to create.
26) Which of the following is a disadvantage of the corporation form of ownership?
C) Double taxation on profits
27) In the ________ form of ownership, the business itself pays income taxes.
C) corporation
28) Carlos founded the “Taco Factory” 20 years ago as a family-oriented restaurant. Over the years as they grew the business, he incorporated and sold stock to outside investors. Recently the stockholders voted to seek liquor licenses and to sell beer and hard liquor in the restaurants. Carlos opposed this, citing the history of the restaurant’s “family” environment, but was voted down. Carlos has experienced which drawback of the corporate form of ownership?
D) The potential loss of control
29) A disadvantage of the corporate form of ownership is when profits are taxed at the corporate rate and at the individual rate and this is referred to as:
A) double taxation.
30) An S corporation form of ownership overcomes which disadvantage of the regular or C corporation form of ownership?
A) The double taxation issue
31) Which of the following would be most likely to benefit from choosing S corporation status?
D) A and C only
32) Which of the following statements is not true regarding the liquidation of an S corporation?
C) The owners file a statement of intent to dissolve with the secretary of state’s office in each state where they conduct business.
33) A limited liability company:
A) is similar to an S corporation in that it is a cross between a partnership and a corporation.
34) A limited liability company is most like a(n):
D) S corporation.
35) Which of the following documents must an entrepreneur file to create a limited liability company?
D) A and C only
36) Which of the following is not true regarding the limitations of professional corporations?
A) Seventy-five percent of the shares of stock must be owned and held by individuals licensed in the profession of the corporation.
37) A joint venture is different from a partnership in that the joint venture:
A) can be formed only by two individuals.
38) Income from a joint venture is taxed as the income from a(n):
B) partnership.
1) A franchise is a system of distribution in which semi-independent business owners pay ________ and ________ to a parent company in return for the right to become identified with its trademark, to sell its product or services, and often to use its business format and system.
D) fees; royalties2) Franchises total annual sales represent nearly ________ percent of total annual sales and employ nearly one in ________ workers in the Unities Sates in more than 300 industries.
2) Franchises total annual sales represent nearly ________ percent of total annual sales and employ nearly one in ________ workers in the Unities Sates in more than 300 industries.
C) 17; 8
3) ________ franchising involves providing the franchisee with a complete business system, with an established name, the building layout and design, accounting systems, and other elements while ________ franchising allows the franchisee to use the franchiser’s trade name without distributing the products exclusively under the franchiser’s name.
C) Pure; trade name
4) McDonald’s is an example of a ________ franchise.
D) pure
5) Benefits of involvement in a franchise experience include:
D) All of the above
6) Which of the following is not a potential advantage of franchising for the franchisee?
D) Limited product line
7) Franchisers generally do which of the following regarding financial assistance to franchisees?
B) Assist in finding financing and occasionally provide direct assistance in a specific area.
8) A significant advantage a franchisee has over an independent business is the participation in the franchisor’s ________ largely due to the ________ the franchise offers.
C) centralized buying power: economies of scale
9) Some franchisors offer ________ to give existing franchisees the right to exclusive distribution of brand name goods or services within a particular geographic area.
A) territorial protection
10) The failure rate for franchises is:
C) lower than the average rate for new businesses.
11) A recent study reports that the success rate of franchisees increases when a franchise system:
D) All of the above increase the rate of success.
12) Franchise royalty fees typically range from ________ to ________ percent with an average of 6.7 percent.
C) 1; 11
13) When it comes to purchasing products, equipment, and incurring other expenses, the franchiser:
B) can set prices franchisees pay for the products but cannot set the retail price the franchisees charge.
14) Which of the following is not a potential disadvantage of a franchise?
D) All of the above are potential disadvantages of a franchise.
15) A franchise myth is that:
A) once the franchise is open, the franchisee has autonomy to run the business in what ever way he or she sees fit.
16) Which of the following is an indication of a dishonest franchiser?
D) All of the above
17) The FTC’s philosophy regarding the Uniform Franchise Disclosure Document (UFDD) focuses on:
C) providing information to prospective franchisees and helping them make wise decisions.
18) Which of the following should make a potential franchisee suspicious about a franchiser’s honesty?
A) Claims that the franchise contract is a standard agreement and that there is no need to read it or have an attorney look it over
19) In addition to reading the franchiser’s UFDD, it would be wise for the potential franchisee to seek a franchise that offers which of the following?
D) All of the above
20) Franchises have experienced three major growth waves since its beginning that include a focus on:
C) rapid growth, the service sector, and specific market niches.
21) A study by the International Franchises Association reports that minorities own more than ________ percent of all franchises and women own ________ percent of franchises.
D) 20;25
22) ________ is an emerging international market for U.S. franchisers that is expected to realize the highest future growth rate.
D) China
23) One of the major trends in franchising is the ________ of American franchise systems.
C) internationalization
24) The principle of putting a franchise’s products or services directly in the paths of potential customers with smaller, less expensive outlets is called:
B) intercept marketing
25) A franchise trend in which owners of independent businesses become franchisees to gain the advantage of name recognition is called:
C) conversion franchising
26) In a ________ , a franchisee has the right to create a semi-independent organization in a particular territory to recruit, sell, and support other franchisees.
B) master franchise
27) A method of franchising that gives the right to create a semi-independent organization in a particular territory is a:
B) master franchise.
28) When the franchiser has the right to establish a semi-independent organization in a particular territory to recruit, sell, and support other franchises, it is known as a ________ franchise.
D) master
29) McDonald’s recently set up several small franchises in nontraditional locations such as a hospital, a college campus, an airport, a subway station, and a sports arena. These locations are based on the principle of:
B) intercept marketing.
30) Chris Jaffe, the owner of a small independent doughnut shop, is worried that a large doughnut franchise will open an outlet near her location and take away business. Taking a proactive approach, Jaffe contacts the franchise, and after a few months of negotiations, becomes a franchisee. Jaffe is an example of which trend in franchising?
B) Conversion
31) Establishing a Baskin-Robbins franchise inside a Blimpee’s franchise is an example of ________ franchising.
C) cobranding
1) The due diligence process of analyzing and evaluating an existing business:
D) All of the above
2) When done correctly, the due diligence process will:
A) reveal both the positive and negative aspects of an existing business.
3) Advantages to buying an existing business that you do not have with a startup include:
C) inventory is in place and trade credit is established.
4) Which of the following is a potential disadvantage of purchasing an existing business?
D) All of the above
5) When evaluating the assets of an existing business, the inventory:
C) should be judged on the basis of its market value, not its book value.
7) The first step an entrepreneur should take when buying an existing business is to:
C) analyze his or her skills, abilities, and interests in an honest self-audit.
8) When acquiring a business, the buyer should:
D) All of the above
9) Which of the following statements concerning financing the purchase of an existing business is true?
C) The buyer should be able to make the payments on the loans out of the company’s cash flow.
10) Which of the following statements concerning financing the purchase of an existing business is not true?
C) The buyer should wait until late in the purchase process to arrange financing to avoid processing fees in case the deal falls through.
11) Perhaps the ideal source of financing the purchase of an existing business is:
C) the seller of the business.
12) To ensure a smooth transition when buying an existing business, a buyer should:
D) All of the above
13) The most common reasons owners of small- and medium-sized businesses give for selling their businesses are:
B) boredom and burnout.
15) Laurette has entered into a contract with Jackson to purchase his retail music shop. Jackson’s lease on the existing building (which is in an excellent location) has five years remaining. If Laurette wants the lease to be part of the business sale:
C) A and B are correct.
16) Generally, a seller of an existing business can assign any contractual right to the buyer
C) A and B are correct.
17) During the acquisition process, the potential buyer usually must sign a ________, which is an agreement to keep all conversations and information secret and legally binds the buyer from telling anyone any information the seller shares with her.
A) covenant not to compete
18) Which of the following is required for the covenant not to compete to be enforceable?
A) Part of a business sale and reasonable in scope
19) Sources of potential legal liabilities for the buyer of an existing business include all but which of the following?
D) Errors and omissions
20) A toy manufacturer is sued based on the claim of injuries caused by a product it makes. This is an example of a:
A) product liability lawsuit.
21) When evaluating the financial position of a business he or she is considering buying, an entrepreneur should examine:
D) All of the above
22) In a business sale, a letter of intent:
D) All of the above
23) During the acquisition process, the buyer and the seller sign a ________, which spells out the parties’ final deal and represents the details of the agreement that are the result of the negotiation process.
D) purchase agreement
24) Which of the following statements about valuing a business is true?
B) Business valuation is partly art and partly science.
25) The main reason a buyer purchases an existing business is for:
A) its future income and profits for earning potential.
26) A method of valuing a business based on the value of the company’s net worth is the:
A) balance sheet technique.
27) A valuation method that is more realistic than the balance sheet technique, because it adjusts book value to reflect actual market value, is the:
D) adjusted balance sheet method.
28) Which of the following valuation methods does not consider the future income-earning potential of a business?
A) Balance sheet technique
29) When valuing inventory for a business sale, the most common methods used are:
C) cost of last purchase and replacement value of inventory.
30) Business valuations based on balance sheet methods suffer certain disadvantages, including:
B) they do not consider the future earning potential of the business.
32) The valuation approach that considers the value of goodwill is the:
B) excess earnings method.
35) Which of the following is considered an opportunity cost of buying an existing business?
A) The salary that could be earned working for someone else and the owner’s investment in the
36) The amount the seller of a business receives for “goodwill” is taxed as:
B) regular income.
37) The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:
A) the interest rate that could be earned on a similar risk investment.
38) If a business buyer estimates that 20 percent is a reasonable rate of return for an existing business expected to produce a profit of $27,000, its capitalized value would be:
C) $135,000.
39) In the earnings methods of business valuation, the rate of return associated with a “normal risk” business is:
B) 25 percent.
40) Which method of business valuation relies on three forecasts of future earnings: optimistic, pessimistic, and most likely?
C) Discounted future earnings
41) The ________ approach to valuing a business assumes that a dollar earned in the future is worth less than that same dollar is today.
D) discounted future earnings
42) Which of the following valuation techniques is best suited for determining the value of service businesses?
A) Discounted future earnings approach
43) The ________ approach to valuing a business uses the price-earnings ratios of similar businesses to establish the value of a company.
D) market
44) Which of the following is a disadvantage of the market approach to valuing a business?
D) All of the above
45) Which of the following is a drawback of the market approach of evaluation?
B) It may underrepresent earnings.
46) You are considering purchasing Babcock Office Supply. You estimate that the company’s earnings next year will be $67,400. You have found three similar companies whose stock is publicly traded. Their P/E ratios are 6.8, 7.4, and 7.1. Using the market approach, you estimate Babcock Office Supply to be worth:
A) $478,540.
47) A company’s P/E ratio is:
A) the price of one share of its common stock divided by its earnings per share.
48) Some business brokers differentiate between the types of buyers: ________ buyers see buying a business as a way to generate income and ________ buyers view the purchase as part of a larger picture to offer a long-term advantage.
B) financial; strategic
49) This type of business sale is best for those entrepreneurs who want to step down and turn over the control of the company to the new buyer as soon as possible.
A) Straight business sale
50) Which of the following strategies would not be suitable for an entrepreneur who wants to surrender control of the company gradually?
C) Straight business sale
51) Mitchell Schlimer, founder of the Let’s Talk Business Network, a support community for entrepreneurs, says that, initially, about ________ percent of small business owners who sell their companies to larger businesses remain with the acquiring company.
D) 90
52) ________ gives owners the security of a sales contract but permits them to stay at the “helm” for several years.
A) Earn-out
53) A(n) ________ allows owners to “cash out” by selling their companies to their employees as gradually or as quickly as they choose.
D) ESOP
54) An ESOP:
D) All of the above
55) To avoid a stalled deal, a buyer should:
C) go into the negotiation with a list of objectives ranked in order of priority.
56) The process of investigating the details of a company that is for sale to determine the strengths, weaknesses, opportunities and threats facing it is known as the:
B) due diligence process.
1) ________ is the process of creating and delivering desired goods and services to customers and involves all of the activities associated with winning and retaining loyal customers.
A) Marketing
2) For an entrepreneur, a business plan:
D) contains both a marketing plan and a financial plan.
3) The focus of a small company’s marketing plan should be on:
B) the customer.
4) Small businesses can compete with larger rivals with bigger budgets by employing unconventional, low-cost creative techniques known as:
C) guerrilla marketing strategies.
5) Warren Cassell, owner of Just Books, a very small book store, makes special orders for customers at no extra charge, provides free gift-wrapping, conducts out-of-print book searches, offers autographed copies of books, hosts “Meet the Author” breakfasts, and publishes a newsletter for book lovers. By offering his customers lots of “extras” they do not get at larger bookstores, Cassell has won a growing base of loyal customers. Cassell is relying on which marketing strategy?
D) Guerrilla marketing
6) Guerilla marketing is a marketing approach that takes an unconventional, low-cost and creative approach to marketing that can give ________ a competitive edge over ________ competitors.
A) small companies; larger
7) Which of the following is not one of the objectives a guerrilla marketing plan should accomplish?
B) Determine how the company will be able to serve all customers.
8) The specific group of customers at whom a company aims its good or services is referred to as a:
D) target market.
9) Successful marketing requires a business owner to:
D) All of the above
10) The foundation of every business is:
B) satisfying the customer through a customer-driven marketing strategy.
11) Which of the following statements concerning a company’s target market is false?
B) A “shotgun approach” to marketing-trying to appeal to everyone rather than to only a small market segment-is the most effective way to compete with large companies and their bigger marketing budgets.
12) One of the greatest marketing mistakes small businesses make is:
A) failing to identify the target market.
13) Studies of shifting patterns in age, income, education, race, and other population characteristics are the subject of:
B) demographics.
14) Tracking ________ patterns can enable entrepreneurs to adjust their strategies accordingly to better position them to take advantage of the opportunities these trends may create.
B) demographic
15) A common mistake entrepreneurs make is:
A) assuming that a market exists for their product or service.
16) Which of the following statements concerning marketing research is false?
C) Small companies are at a distinct disadvantage compared to larger ones when conducting market research since it is so expensive.
17) Which of the following techniques does marketing consultant Faith Popcorn recommend to small business owners interested in tracking market trends?
C) Read as many current publications as possible.
18) Entrepreneurs can find the right match based on trends, their products or services, and the appropriate target markets through:
D) market research.
19) Your friend has decided to conduct market research to assist in making informed decisions for his small business. What should you recommend as the first step in the market research process?
B) Define the objective
20) An individualized (one-to-one) marketing campaign requires business owners to:
D) All of the above
21) Which of the following is not a primary market research source?
D) All of the above are sources of primary market research.
22) Which of the following is not a secondary source of market research data?
C) Focus groups
23) A process in which computer software that uses statistical analysis, database technology, and artificial intelligence finds hidden patterns, trends, and connections in data so that business owners can make better marketing decisions and predictions about customers’ behavior is know as:
B) data mining.
24) One “natural” advantage small businesses have over large businesses, which can be a significant competitive advantage, is:
A) by building a community with customers and connecting with them on an emotional level.
25) Which of the following guerrilla marketing tactic(s) allow a small company to utilize relationship marketing successfully?
D) All of the above
26) The marketing approach that is most effective today for a small business is:
C) niche marketing.
27) Which of the following was not identified as one of the guerrilla marketing principles in your text?
A) Strive to be like everyone else so that your company “fits in.”
28) A combination of news covered by the media that boosts sales without having to pay is best described by the term:
C) public relations.
29) A marketing concept designed to draw customers into a store by creating a kaleidoscope of sights, sounds, smells, and activities, all designed to entertain-and of course, sell, is:
A) entertailing.
30) Some of the most successful companies interact with their customers regularly, intentionally, and purposefully to create meaningful and lasting:
A) relationships.
31) A key customer benefit of a product or service that sets it apart from the competition answers the critical questions every customer asks: “What’s in it for me?” and is known as:
B) the unique selling proposition (USP).
32) The unique selling proposition (USP) focuses on:
B) a unique customer benefit that answers the question: What’s it in for me?
33) A ________ is a company’s “face” in the marketplace and communicates a key message to the target market.
D) brand
34) ________ is the process of communicating a company’s unique selling proposition to its target customers in a consistent and integrated manner.
A) Branding
35) Examples of ________ include a presence on Facebook, LinkedIn and Twitter.
C) social media marketing
36) ________ can be an effective part of a guerrilla marketing strategy, enabling an entrepreneur to economically communicate with large numbers of customers.
D) Blogging
37) An effective approach to creating effective online videos is to take an ________ approach to present information in an entertaining way.
B) “edutainment”
38) Most customers never complain to the business; in fact, for every complaint that a company receives, there are ________ other complaints that go unspoken.
D) 17
39) How can a company achieve stellar customer service and satisfaction?
D) All the above
40) The majority of customers who stop patronizing a particular store do so because:
C) an indifferent employee treated them poorly.
41) A recent survey reports that ________ percent of customers say that they will return to a business after a negative customer service experience if the company offers an apology, a discount, or proof that its customer service will improve.
D) 92
42) A study by the National Science Foundation concluded that when pay is linked to performance, employees’ motivation and productivity climb by as much as ________ percent.
C) 63
43) Research shows that repeat customers spend ________ percent more than new customers.
C) 67
44) In your training program, you stress to all new employees the importance of customer satisfaction, citing the fact that ________ of the average company’s sales come from present customers.
C) a majority
45) A global customer loyalty consulting firm reports that a company must land ________ to ________ new customers to offset the impact of one lost loyal customer.
C) 12: 20
46) Companies with a customer focus typically ask their customers all but which of the following questions?
D) What have our competitors done wrong?
47) The philosophy of producing a high-quality product or service and achieving quality in every aspect of the business and its relationship with the customer, with a focus on continuous improvement in the quality delivered to customers is.
A) total quality management, or TQM.
48) The process of systematically creating the optimum experience for customers every time they interact with the company is:
C) customer experience management (CEM).
49) Which of the following is not a suggestion of a means of focusing on the customer?
A) Seeing the customer’s point of view.
50) Which of the following is a way to improve customer service?
D) All of the above
51) The total quality management (TQM) concept:
A) strives to achieve quality not just in the product or service itself, but in every aspect of the
52) Companies with strong reputations for quality follow certain guidelines, such as:
A) establishing long-term relationships with suppliers.
53) ________ pay the bills: without them, you have no business.
D) Customers
54) Location, delivery services, effective use of easy-to-use technology and multiple communication options are examples of:
A) convenience.
55) A marketing strategy that relies on three principles to speed products to market, shorten customer response times in manufacturing, and deliver and reduce the administrative time required to fill an order is:
B) time compression management (TCM).
56) ________ is the key to future success and small companies can detect and act on new opportunities faster than large companies.
A) Innovation
57) What can a company do to achieve stellar customer service and satisfaction?
D) All of the above
58) The key ingredient in the superior customer service equation is:
D) friendly, courteous, well-trained people delivering customer service.
59) Time compression management (TCM) involves:
D) All of the above
60) Which of the following is not a suggestion for using time compression management (TCM)
C) Pay workers more if they do their jobs the same way- only faster.
61) To attract potential customers, a ________ can serve multiple business purposes, including keeping customers updated on new products, enhancing customer service, and promoting the company.
C) blog
62) The Internet offers entrepreneurs tools to provide existing and potential customers with meaningful information:
D) in an interactive rather than passive setting.
63) In addition to treating employees with respect, smart entrepreneurs see customer service as an investment that builds long-term value for their companies through:
D) All the above build long-term customer service value.

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