Business 12th Edition by William M. Pride - Test Bank

Business 12th Edition by William M. Pride – Test Bank

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Sample Questions Are Posted Below

Chapter 5—Small Business, Entrepreneurship, and Franchises

ESSAY

How does the SBA define a small business?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 135

OBJ: LO: 5-1 NAT: BUSPROG: Communication TOP: Small Business: A Profile

KEY: Bloom’s: Knowledge

Why do certain industries tend to be more attractive for the start-up of a small business?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 136

OBJ: LO: 5-1 NAT: BUSPROG: Communication TOP: Small Business: A Profile

KEY: Bloom’s: Knowledge

What are some industries that attract small businesses?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 136-137

OBJ: LO: 5-1 NAT: BUSPROG: Communication TOP: Small Business: A Profile

KEY: Bloom’s: Comprehension

Why are more small businesses in distribution industries than in production industries?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 136-137

OBJ: LO: 5-1 NAT: BUSPROG: Communication TOP: Small Business: A Profile

KEY: Bloom’s: Comprehension

Give examples to support the statement, “There must be some motivation to start a business.”

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 138

OBJ: LO: 5-2 NAT: BUSPROG: Communication

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Application

What does it mean to have an entrepreneurial spirit?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 137

OBJ: LO: 5-2 NAT: BUSPROG: Communication

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Application

Data from 2012 from the Small Business Administration shows women-owned businesses as a dominate part of the U.S. economy. What were some of the findings of that data? What makes women successful business owners?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 138

OBJ: LO: 5-2 NAT: BUSPROG: Communication

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Evaluation

Why are small businesses prone to failure?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 140

OBJ: LO: 5-2 NAT: BUSPROG: Communication

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Synthesis

What skills might someone who is starting a new small business need?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 140

OBJ: LO: 5-2 NAT: BUSPROG: Communication

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Synthesis

The textbook gives several key reasons for business failure. Poorly planned expansion and the wrong location are two of them. How do these two factors contribute to business failure?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: pp. 141-142

OBJ: LO: 5-2 NAT: BUSPROG: Communication

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Comprehension

What do small businesses as a group contribute to the U.S. economy?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 142

OBJ: LO: 5-3 NAT: BUSPROG: Communication

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Comprehension

How can small businesses challenge larger, established firms?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 142

OBJ: LO: 5-3 NAT: BUSPROG: Communication

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Analysis

Give examples of how small businesses fill needs of society and other businesses.

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 142

OBJ: LO: 5-3 NAT: BUSPROG: Communication

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Analysis

Is opening your own business usually a way to make big profits quickly? Support your view.

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 144

OBJ: LO: 5-4 NAT: BUSPROG: Communication

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Comprehension

What are the advantages of owning a small business? Give examples.

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 143

OBJ: LO: 5-4 NAT: BUSPROG: Communication

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Comprehension

Why should small-business owners have good skills in working with people?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 143-144

OBJ: LO: 5-4 NAT: BUSPROG: Communication

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

What are the disadvantages of owning a small business?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 143-144

OBJ: LO: 5-4 NAT: BUSPROG: Communication

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

How quickly can a small business respond to a new competitor moving into the same block? Why?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 143

OBJ: LO: 5-4 NAT: BUSPROG: Communication

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Application

What is a business plan? What are its components? Why is it so important?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 144-146

OBJ: LO: 5-4 NAT: BUSPROG: Communication

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

What is a small-business development center (SBDC)?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 149

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Comprehension

What is the Small Business Administration? Who created it?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 147

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Comprehension

What can the Small Business Administration do for a small business?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 147-150

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Application

What is the Service Corps of Retired Executives (SCORE)? How does it assist small-business owners?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 148

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Application

How has the SBA targeted providing assistance to women? What resources are available to women-owned businesses and why?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 149

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Comprehension

What is a small-business institute? How does it help small-business owners?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 149

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Comprehension

What is the primary function of SBA financial assistance?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 150

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Application

What are small-business investment companies?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 150

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Comprehension

Why is helping women become entrepreneurs a special goal of the SBA?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 149

OBJ: LO: 5-5 NAT: BUSPROG: Communication

TOP: The Small Business Administration KEY: Bloom’s: Evaluation

What is a franchise? What are the major types of franchising arrangements?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 151

OBJ: LO: 5-6 NAT: BUSPROG: Communication TOP: Franchising

KEY: Bloom’s: Knowledge

What are the advantages and disadvantages to the franchisee of having a franchise?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: pp. 154-155

OBJ: LO: 5-7 NAT: BUSPROG: Communication TOP: The Growth of Franchising

KEY: Bloom’s: Comprehension

Is franchising a guarantee of success? Explain.

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Moderate REF: p. 154

OBJ: LO: 5-7 NAT: BUSPROG: Communication TOP: The Growth of Franchising

KEY: Bloom’s: Evaluation

Why is the failure rate lower for franchises than for independent businesses?

ANS:

Answer not provided.

PTS: 1 DIF: Difficulty: Challenging REF: p. 154

OBJ: LO: 5-7 NAT: BUSPROG: Communication TOP: The Growth of Franchising

KEY: Bloom’s: Evaluation

MULTIPLE CHOICE

Personal Wellness

Angela has been working for a local small business called Personal Wellness for the last three years. It is a retail business that sells sporting goods equipment. When she started her job, she noticed several things as causes of the business not doing as well as the owners were expecting. Angela has been thinking of starting her own small business because she feels she has learned a great deal through working for Personal Wellness.

Due to her education, attention to detail, and organization skills, Angela’s manager asked her to create a business plan for Personal Wellness. The manager hoped that this plan would help organize, structure, and focus the business. As part of the plan, Angela suggested that Personal Wellness contact a group of senior and graduate students to provide management counseling for the company as she is concerned that her leaving the company may be detrimental to the slow, but forward, progress that the company is making and her connection with the owners is strong. Angela’s most immediate concern is keeping the business from failing.

Refer to Personal Wellness. Personal Wellness can be classified as operating in what type of industry?

a.	Service
b.	Production
c.	Manufacturing
d.	Distribution
e.	Wholesaling

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: pp. 136-137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Knowledge

Refer to Personal Wellness. What is the least likely reason that Personal Wellness would possibly fail?

a.	Capital
b.	Employees
c.	Management
d.	Money
e.	Planning

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Knowledge

Refer to Personal Wellness. In preparing the business plan, Angela would have incorporated all of these components except

a.	company and industry descriptions.
b.	an exit strategy.
c.	government regulations.
d.	benefits to the community.
e.	a marketing plan.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 145-146 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Knowledge

Refer to Personal Wellness. A business plan should answer all of the following questions except

a.	“Which accounting firm will audit the company?”
b.	“What exactly is the nature and mission of the new venture?”
c.	“Why is this new enterprise a good idea?”
d.	“How much will the new venture cost?”
e.	“What are the entrepreneur’s goals?”

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: pp. 145-146 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Knowledge

Refer to Personal Wellness. When Angela suggested that the company contact a group, what type of group was she referring to?

a.	Strategic institute
b.	Small-business institute
c.	HR institute
d.	Management institute
e.	Business institute

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: p. 149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Knowledge

Mc-King Chicken

Brian decided to open a local franchise of the well-known Mc-King Chicken, a fast-food restaurant. Before he took the initiative to open the franchise, he tried to weigh all the advantages and disadvantages. He decided, based on his research and understanding, that it would be beneficial to open a local fast-food restaurant.

Mc-King has become quite successful domestically, and now it is exploring the possibility of opening franchises internationally. The company hired an international agency to help it learn what and what not to do. After the agency met with the managers of Mc-King a few times, the Mc-King management decided it would go ahead with its decision to expand internationally.

Refer to Mc-King Chicken. When Brian opens the Mc-King Chicken restaurant in his town, he would be known as the

a.	franchisor.
b.	franchising.
c.	franchise.
d.	franchisee.
e.	franchises.

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Knowledge

Refer to Mc-King Chicken. Which of the following would not be an advantage of a franchise?

a.	He gains fast and well-controlled distribution.
b.	He has more capital available to expand.
c.	Outlets are maintained and operated according to a set plan.
d.	He has the opportunity to start a business with limited capital.
e.	Success will cause another outlet to be opened nearby.

ANS: E PTS: 1 DIF: Difficulty: Challenging

REF: p. 154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Analysis

Refer to Mc-King Chicken. Which of the following would be an advantage for Brian?

a.	Guidance from the franchisor
b.	Franchise holders paying for their security
c.	Disagreements increasing
d.	Contract disputes
e.	The franchisor maintaining a great deal of control

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: p. 154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Evaluation

Refer to Mc-King Chicken. The international agency advising Mc-King would have recommended that it do all of the following except

a.	understand the laws and regulations governing franchising in each country.
b.	understand that management must be from the home country to teach the new employees the way things are done.
c.	thoroughly research the competitive situation.
d.	check trade laws before buying a franchise in another country.
e.	find out what support the franchisor offers in each country.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: pp. 155-156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Evaluation

Refer to Mc-King Chicken. The international agency advising Mc-King would have made which of the following recommendations?

a.	Be aware that less money is needed to fund international operations.
b.	Remember that strong local management is needed to keep an international franchise going.
c.	Plan for the local competition to be weak.
d.	Assume that customers everywhere need or want what the franchise offers.
e.	Expect hiring, training, and marketing practices to be identical in all countries.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: pp. 155-156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: Scenario Questions KEY: Bloom’s: Evaluation

Michael Tucker operates Tucker Farms in northern Illinois. Last year, his annual receipts were just under $750,000. According to the Small Business Administration, Tucker Farms is a

a.	small business.
b.	medium-sized business.
c.	large business.
d.	franchise.
e.	joint venture.

ANS: A PTS: 1 DIF: Difficulty: Easy

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

A small business is all of the following except

a.	independently owned.
b.	operated for profit.
c.	dominant in its field.
d.	difficult to manage.
e.	demanding of the owner’s time and attention.

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Which of the following organizations would be considered a small business?

a.	Producer of semiconductors with 2,000 employees
b.	Wholesaler with 50 employees
c.	Retail clothing store chain with annual sales of $26 million
d.	Construction company with average annual receipts of $32 million
e.	Farmer with annual receipts of $10 million

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Analysis

To qualify as a small business, a manufacturing plant can employ no more than ____ people.

a.	500
b.	1,000
c.	2,000
d.	3,000
e.	3,500

ANS: A PTS: 1 DIF: Difficulty: Easy

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

To qualify as a small business, a retailing establishment may not exceed annual sales of

a.	$1.2 million to $4 million.
b.	$2.6 million to $5 million.
c.	$3 million to $6 million.
d.	$7 million.
e.	$12.5 million.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

To qualify as a small business, an agricultural company’s maximum annual receipts must be no more than

a.	$500,000.
b.	$9 million.
c.	$800,000.
d.	$1 million.
e.	$750,000.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Approximately how many businesses are there in the United States?

a.	960,000
b.	11.8 million
c.	27.5 million
d.	1.05 billion
e.	4 billion

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Mary’s cleaning business has several customers but is not dominant in its field. This is an example of a(n) ____ business.

a.	entrepreneurship
b.	unsuccessful
c.	small
d.	manufacturing
e.	large corporate

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

A company generally needs more than ____ employees in order to be considered large.

a.	50
b.	100
c.	300
d.	500
e.	1,000

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

What is the primary reason that so many new businesses fail?

a.	Owner does not work hard enough
b.	Mismanagement resulting from lack of business know-how
c.	Low employee quality for new businesses
d.	Lack of brand-name recognition
e.	Inability to compete with well-established brand names

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Approximately what percentage of the jobs in the United States do small businesses provide?

a.	5 percent
b.	10 percent
c.	30 percent
d.	Over 50 percent
e.	Nearly 90 percent

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Which of the following is not considered a category in the distribution industries?

a.	Manufacturing
b.	Wholesaling
c.	Retailing
d.	Transportation
e.	Communications

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: pp. 136-137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Which of the following would least likely be started as a small business?

a.	Flower shop
b.	Restaurant
c.	Electricity company
d.	Landscaping business
e.	Furniture repair store

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Businesses such as flower shops, restaurants, bed and breakfasts, and automobile repair are good candidates for entrepreneurs because they

a.	do not require any skills.
b.	are the most likely to succeed.
c.	can obtain financing easily.
d.	require no special equipment.
e.	have a relatively low initial investment.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

According to a recent survey, approximately what percentage of all new businesses can be expected to survive their first ten years?

a.	16
b.	23
c.	31
d.	46
e.	52

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Ben has been thinking about going into business. However, he has discounted entering automobile manufacturing because it

a.	requires little skill and knowledge.
b.	is not a part of the production industry.
c.	requires huge investments in machinery and equipment.
d.	is unprofitable.
e.	requires by law a corporate form of business.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Businesses are generally placed into three broad categories: service industries, production industries, and ____ industries.

a.	financial
b.	manufacturing
c.	distribution
d.	transportation
e.	retailing

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Price Waterhouse, a large accounting firm, would be most properly classified in the ____ industry, whereas a grocery store such as Kroger would be included in the ____ industry.

a.	distribution; production
b.	service; distribution
c.	production; service
d.	service; production
e.	distribution; service

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: pp. 136-137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Service industries account for ___ percent of all small businesses.

a.	29
b.	29
c.	48
d.	58
e.	66

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Distribution industries account for approximately what percentage of all small businesses?

a.	20
b.	25
c.	33
d.	55
e.	70

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

The industry concerned with the movement of goods from producer to consumer is

a.	service.
b.	distribution.
c.	production.
d.	agriculture.
e.	wholesaling.

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Which of the following would most likely be classified as a distribution industry?

a.	Subassembly plant
b.	TV repair shop
c.	Insurance agency
d.	Grocery store
e.	Medical office

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: pp. 136-137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Production industries make up approximately what percentage of all small businesses?

a.	5
b.	10
c.	19
d.	31
e.	41

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Of the small businesses in the distribution industry, nearly three-quarters of them are involved in

a.	wholesaling.
b.	purchasing.
c.	service.
d.	retailing.
e.	communications.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Joe decides to start his own business designing websites for other businesses. Joe’s business would be classified as a

a.	distribution business.
b.	retailer.
c.	production business.
d.	wholesaling business.
e.	service business.

ANS: E PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Megan’s business sells souvenirs and craft items to tourists in Myrtle Beach, South Carolina. This is an example of a ____ business.

a.	service
b.	communication
c.	production
d.	distribution
e.	wholesaling

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: pp. 136-137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Nathan’s business constructs storage sheds for new housing developments as requested by the builders. Nathan’s business would best be classified as a

a.	service business.
b.	retailer.
c.	distribution business.
d.	production business.
e.	wholesaler.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Which of the following is the most likely example of a production industry?

a.	Wholesale outlet
b.	Retail outlet
c.	Financial enterprise
d.	Subassembly plant
e.	Transportation company

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Dana owns and operates a catering business. This is an example of a

a.	distribution business.
b.	production business.
c.	service business.
d.	retailer.
e.	manufacturer.

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

The main reason there are fewer production industries than distribution or service industries is that

a.	there are few things production industries manufacture.
b.	production industries have no market.
c.	production industries need a large initial investment.
d.	there is little chance for profit in production industries.
e.	few people want to work in production industries.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Which of the following is the most likely example of a production industry?

a.	Telephone company
b.	Movie theaters
c.	Financial enterprise
d.	Subassembly plant
e.	Transportation company

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Comprehension

Small businesses are typically managed by

a.	relatives.
b.	professional managers.
c.	friends.
d.	the people who start and own them.
e.	a board of directors.

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Comprehension

Kim Nguyen is planning to open a boutique stocked with exotic imports from around the world. Most probably, this new business will be managed by

a.	Kim Nguyen.
b.	her friends.
c.	her relatives.
d.	a professional manager.
e.	her family.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Comprehension

An individual’s desire to create a new business is referred to as

a.	the entrepreneurial spirit.
b.	the desire for ownership.
c.	self-determination.
d.	self-evaluation.
e.	the laissez-faire spirit.

ANS: A PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Comprehension

Mustaffah always knew he wanted to start his own business. He was very passionate and wanted to create something new. Mustaffah’s primary motivation for starting his own business is

a.	his need for independence.
b.	his entrepreneurial spirit.
c.	his desire to determine his own destiny.
d.	the lack of good jobs in other companies.
e.	his background with his family.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Comprehension

By age 26, Tom was a plant manager in the snack-foods division. By 33, he headed the division, one of the most profitable in the corporation. Eventually, however, the company decided to move its corporate offices. Although he loved the job and thought the work was great, Tom’s lifestyle was awful. He was on the road so often that he was giving up much of his family life. Tom had also become disenchanted with corporate life. He saw that the closer one got to the top, the more vulnerable one’s position became. Thus, Tom left the corporation to start his own snack-foods company. His thoughts and actions most clearly reveal his

a.	entrepreneurial spirit.
b.	need for independence.
c.	desire to determine his own destiny.
d.	willingness to find and accept a challenge.
e.	lack of self-confidence.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

Which of the following is not a reason for starting a small business?

a.	Desire to determine one’s own destiny
b.	Willingness to find and accept a challenge
c.	Desire for a guaranteed financial return
d.	Desire for independence
e.	Desire to create a new business

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

All of the following are reasons people go into business except the

a.	desire to create a new business.
b.	willingness to accept a challenge.
c.	guaranteed return on investment.
d.	desire for independence.
e.	desire to determine one’s own destiny.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

Which of the following statements is true?

a.	The risk of failure for women-owned businesses is lower than average.
b.	Women are starting businesses at about the same rate as men.
c.	Women are almost always sure to succeed.
d.	Women own 7.7 million businesses in the United States.
e.	Minority business owners pay lower federal tax on profits than men do.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 138 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

In the 1970s, Steve Jobs and Steve Wozniak, the founders of Apple Computer, Inc., were creative, free-spirited individuals who decided that being corporate underlings was not what they wanted from a career. They had an innovative idea for a product and desired to create their own business based on this idea. All of the following are factors that could have led them to go into business except

a.	the independence.
b.	the willingness to find and accept a challenge.
c.	the desire to determine their own destiny.
d.	the low risk and high rewards inherent in entrepreneurship.
e.	entrepreneurial spirit.

ANS: D PTS: 1 DIF: Difficulty: Challenging

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Application

Which of the following statements is true regarding the profitability of new businesses?

a.	It may take several years for a new business to begin showing a profit.
b.	Profitability is not an important issue for new businesses.
c.	Most new businesses will turn a profit within the first year.
d.	If a company does not show a profit within the first year, it will fail.
e.	Most new businesses are highly profitable when they first start.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Application

What is a common mistake that small-business owners make when their businesses begin growing?

a.	They sell more goods and services.
b.	They put too much money in advertising.
c.	They move beyond their local area.
d.	They overexpand without proper planning.
e.	They invest too much of their own money.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Application

Janis starts a small quilting and embroidery business. She purchases a technologically advanced quilting machine and an embroidery machine for a combined $25,000. Her monthly payments on the equipment are $500, but she has only one client at this time. Janis is facing a potential

a.	inventory flow problem.
b.	cash-flow problem.
c.	competitive advantage.
d.	overexpansion problem.
e.	advertising issue.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Application

Lauren starts a business that sells personal computers. Within the first year she discovers that computer technology becomes outdated very quickly, and she has not been able to sell her products for as much as she thought due to the passage of time. Lauren has mismanaged

a.	inventory.
b.	cash flow.
c.	financing arrangements.
d.	personnel.
e.	money.

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Evaluation

Imagine that you want to open your own small business. You will probably be most concerned with having

a.	a lot of inventory in the warehouse on opening day.
b.	a really good lawyer and an even better accountant.
c.	the best Madison Avenue ad agency money can buy.
d.	a good source of capital and good management skills.
e.	a top-notch marketing consultant and a lot of inventory in the warehouse.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

A new small business, Underwater Wildlife, has opened to sell tours of underwater sites around the country and in South America. However, money has to be paid up front by the Underwater staff to book hotels and other travel arrangements before its clients have paid for the tours. That means Underwater is facing a potential

a.	insurance difficulty.
b.	cash-flow problem.
c.	inventory-flow problem.
d.	business plan crunch.
e.	employee expansion task.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Evaluation

You have just opened a new small business. You’re really happy to learn that studies show that small-business workers

a.	don’t really like bill collectors much.
b.	are more innovative than workers in large businesses.
c.	are especially good at handling inventories in the warehouse to avoid damage and spoilage.
d.	design ad campaigns that work especially well on network television.
e.	pay little attention to their salary levels compared to similar workers in small businesses.

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Evaluation

The fact that insulin and power steering both originated with individual inventors and small companies is testimony to the power of small businesses as providers of

a.	employment.
b.	competition.
c.	technical innovation.
d.	capital.
e.	quality products.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

New ways to do a job with less effort and at lower cost is the basic principle characterizing the

a.	increases in productivity for the past two hundred years.
b.	great desire to be an entrepreneur.
c.	motivation for owning a business.
d.	American way of life.
e.	way small businesses fill the needs of other businesses.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Small businesses have traditionally added ____ new jobs to the economy.

a.	more than their proportional share of
b.	less than their proportional share of
c.	very few
d.	the highest paying
e.	the vast majority of

ANS: A PTS: 1 DIF: Difficulty: Easy

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Which of the following statements is not true about small businesses?

a.	Small businesses provide technical innovation.
b.	Small businesses create cyclical unemployment.
c.	Small businesses provide employment.
d.	Small businesses provide competition.
e.	Small businesses fill the needs of society and other businesses.

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: pp. 141-142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Penicillin, airplanes, and air conditioning were all

a.	invented in the nineteenth century.
b.	invented by Russians.
c.	created through government-sponsored research.
d.	created by individual inventors and small companies.
e.	created by large corporations.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Mike’s small company produces specialized hardware pieces. His industrial clients prefer to purchase these parts from Mike because

a.	large companies do not manufacture small parts.
b.	they cannot produce such high-quality parts.
c.	it is cheaper to buy from Mike than to make the parts themselves.
d.	large companies prefer to have less control over their operations.
e.	buying from Mike will help increase their expenses for tax purposes.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Many small firms seek to establish a particular niche in the market, realizing that they cannot afford to operate on a larger scale without exposing themselves to considerable risk of retaliation from larger companies. When a number of small businesses are operating in this manner, they are forcing the larger businesses to recognize and account for their influence on the market. In this way, small businesses are primarily

a.	fostering competition.
b.	providing technical innovation.
c.	creating jobs.
d.	satisfying the needs of other businesses.
e.	avoiding competition.

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: p. 142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Evaluation

Large firms generally buy parts and assemblies from smaller firms because

a.	doing so creates goodwill.
b.	they are required to do so by government regulations.
c.	they can control small businesses this way.
d.	it is less expensive than making their own.
e.	large firms want to keep small firms in business.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Analysis

In her small retail shop, Jocelyn knows most of her best customers by name and knows their preferences in clothing and shoes. This demonstrates which advantage of a small business?

a.	Ability to adapt to change
b.	Independence from customer’s desires
c.	Simplified record keeping
d.	Personal relationships with customers
e.	Small customer base

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

A friend of yours has recently received his MBA. He wants to open his own business but feels that it might be too risky at this point in his career. As an SBA counselor, you are able to advise him and explain more clearly to him some of the advantages and disadvantages of starting a small business. Which of the following statements best represents something you might tell him?

a.	Although opening a small business is risky, there is practically unlimited potential.
b.	The cost of opening a small business is relatively low, and financing is easily obtained.
c.	Record keeping will be complicated, and public disclosure of most transactions is required.
d.	Small businesses foster personal relationships and offer flexibility and independence.
e.	Opening a small business is especially difficult because there is little help available for those desiring to do so.

ANS: D PTS: 1 DIF: Difficulty: Challenging

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

What is the main advantage of small business that helps retain effective employees who could earn more at a larger firm?

a.	Better pay and employee benefits
b.	Ability to adapt to change
c.	Simplified record keeping
d.	Limited ability to raise capital
e.	Personal relationships with employees

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

Victor owns his own motorcycle and ATV store. He notices that many of his customers talk about golf while in his store. He quickly adds golf carts and golf clubs to his merchandise selection. Rapidly adjusting to the needs of his customers is possible because small businesses

a.	have personal relationships with their customers.
b.	have the ability to quickly adapt to change.
c.	are independent.
d.	have simplified record keeping.
e.	run the risk of failure.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

The Hamptons enjoy owning and operating their own restaurant. They enjoy being the masters of their own destinies and closing down the restaurant for one week a year so that they can take a vacation. The Hamptons seem to enjoy which advantage of a small business?

a.	Limited potential
b.	Personal relationships with customers
c.	Independence
d.	Personal relationships with employees
e.	Ability to adapt to change

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

John and Ruby Couch just opened a computer store in a small community. Before opening the store, they listened to their SBA counselor’s warnings about the importance of having balanced experience¾that is, marketing, finance, and personnel experience¾in the computer-store business because

a.	their business is unlikely to grow and earn large business profits.
b.	the computer-store business is a fad.
c.	management know-how is insignificant to small-business success.
d.	small businesses survive large businesses by three years.
e.	about two out of three small firms close within five years of their founding.

ANS: E PTS: 1 DIF: Difficulty: Challenging

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

All of the following are advantages that small businesses have except

a.	the ability to adapt to change.
b.	personal relationships with their customers.
c.	simplified record keeping.
d.	independence.
e.	greater potential for making a profit.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Your friend, Shonta, started a graphic design firm about a year ago. The business has done well, but it needs a lot more equipment, computers, and employees to continue expanding. Shonta does not see any problem because she thinks she can easily get all the money she will need from her local bank. What advice might you give her?

a.	She is right¾the bank is likely to lend her as much as she needs because banks primarily focus on supporting small businesses.
b.	She is crazy¾banks do not lend money to small businesses but only to well- known, well-established organizations.
c.	She should sell her business immediately before it fails because most small businesses fail during the first five years.
d.	She should not accept any new clients so that she can end the need to add additional equipment and employees.
e.	She should consider alternative sources of financing because banks provide only about one-fourth of the total capital to small businesses.

ANS: E PTS: 1 DIF: Difficulty: Challenging

REF: pp. 143-144 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Evaluation

The disadvantages of small businesses include all of the following except

a.	limited potential for growth.
b.	a high risk of failure.
c.	no opportunity to support your family.
d.	limited ability to raise capital.
e.	limited advancement opportunities for employees.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 143-144 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

According to the Census Bureau and Federal Reserve surveys, about 50 percent of all new businesses begin with less than ____ in total capital.

a.	$1,000
b.	$25,000
c.	$30,000
d.	$50,000
e.	$100,000

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 143-144 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

Beau works for a small pest-control company that has a total of five employees. From his point of view, the primary disadvantage of a small business is the

a.	risk of failure.
b.	limited ability to raise capital.
c.	limited potential for him to advance.
d.	personal relationship with his employer.
e.	complicated management structure.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: pp. 143-144 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

A carefully constructed guide for the person starting a business is a(n)

a.	business plan.
b.	marketing plan.
c.	organizational plan.
d.	articles of business.
e.	business budget.

ANS: A PTS: 1 DIF: Difficulty: Easy

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Before seeking financial backing for his new business, Tyler puts together a concise document explaining the nature, mission, and goals of his new business and its expected costs and potential. Tyler has constructed a(n)

a.	marketing plan.
b.	organizational mission statement.
c.	business policy.
d.	business plan.
e.	organizational guide.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Suppose that Diane plans to open a new, deluxe hamburger bar near your college. Her business plan most likely would not include

a.	the nature and mission of her new business.
b.	an explanation of why the new business is a good idea.
c.	a detailed discussion of her goals.
d.	an actual sample of the product.
e.	an analysis of costs.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

As a businessperson planning to open a new small business, you know that the business plan should not contain

a.	a discussion of the nature and mission of the new business.
b.	information about how much it will cost to open and operate the new business.
c.	any mention of the businessperson’s goals; financial institutions just aren’t interested in these.
d.	an explanation of why opening a business of this type makes good business sense.
e.	pages and pages of detailed facts and figures.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Cindy compiles a business plan for a business she hopes to start. This plan should answer all of the following questions except

a.	How much will the new business cost?
b.	Why is this new business a good idea?
c.	What are Cindy’s goals for the business?
d.	What is the nature and mission of the business?
e.	How often will the business have a sale?

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

“This business will create a caring, learning environment for elementary school children after regular school hours to meet the needs of working parents.” This statement answers which of the following issues that should be addressed in a business plan?

a.	How much will the new business cost?
b.	Why is this new business a good idea?
c.	What are Cindy’s goals for the business?
d.	What is the nature and mission of the business?
e.	How often will the business advertise?

ANS: D PTS: 1 DIF: Difficulty: Challenging

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

The following statement answers which major question that a business plan should address? “This business will serve over 200 customers by the end of the year and employ seven full-time employees.”

a.	How much will the new business cost?
b.	Why is this new business a good idea?
c.	What are the goals for the business?
d.	What is the nature and mission of the business?
e.	How often will the business advertise?

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

SBA stands for

a.	Special Business Agency.
b.	Small Bond Administration.
c.	Society for Business Alliances.
d.	Special Business Association.
e.	Small Business Administration.

ANS: E PTS: 1 DIF: Difficulty: Easy

REF: p. 147 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

What organization created by Congress in 1953 assists, counsels, and protects the interests of small businesses?

a.	SCORE
b.	FTC
c.	SBIC
d.	SBA
e.	SBDC

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: p. 147 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

What is the most popular course offered by the SBA?

a.	A How to Get Rich Quick course
b.	A course about accounting for a small business
c.	A course that surveys eight to ten areas of business management
d.	A course on motivating and encouraging your employees
e.	A course on how to obtain more financing for your business

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Professors at most universities are highly encouraged to participate in community service. What organization that provides low-cost courses and workshops would welcome management professors with an interest in small companies?

a.	SBDC
b.	SBIC
c.	SBA
d.	SCORE
e.	SBI

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Volunteers for SCORE are

a.	mostly university business professors.
b.	active executives from large corporations.
c.	generally either lawyers or accountants.
d.	graduate business students working on projects.
e.	retired businesspeople from different industries.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Through her university, Gwen and her classmates work together to provide management counseling to small businesses in their community. This is called a

a.	small-business administration.
b.	small-business development center.
c.	small-business investment company.
d.	small-business institute.
e.	community improvement council.

ANS: D PTS: 1 DIF: Difficulty: Challenging

REF: p. 149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Ronald is the director of a university-based group that provides individual counseling, specialized training, and research data to owners of small businesses. Ronald’s group is called a

a.	small-business institute.
b.	university small-business administration.
c.	small-business development center.
d.	small-business improvement coalition.
e.	center for small businesses.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The acronym SCORE stands for

a.	Standard Card Options for Retirees.
b.	Sam’s Cooperatives Operating in Reno.
c.	Service Corps of Retired Employees.
d.	Service Corps of Retired Executives.
e.	Sonoma City Options for Retired Employees.

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

David Fisher, a recently retired corporate executive, is becoming restless in his new role and would like to make this transition smoother by participating in the business community in some limited manner. Since David is financially secure and primarily interested in some sort of volunteer work, he should consider becoming involved with which of the following SBA programs?

a.	ACE
b.	SBIC
c.	SBDC
d.	SBI
e.	SCORE

ANS: E PTS: 1 DIF: Difficulty: Challenging

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The SBA makes a special effort to

a.	assist minorities wanting to start small businesses or expand existing ones.
b.	send SCORE program executives to high schools.
c.	hand-deliver their publications.
d.	raise money for small businesses.
e.	encourage teenage entrepreneurship.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: pp. 148-149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Analysis

University-based groups providing individual counseling and practical training to owners of small businesses are known as

a.	the Small Business Administration.
b.	small-business development centers.
c.	small-business institutes.
d.	special task forces.
e.	none of the above.

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Analysis

A group of senior and graduate students in business administration providing management counseling to small businesses is known as a

a.	small-business administration.
b.	small-business development center.
c.	small-business institute.
d.	special task force.
e.	none of the above.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The SBA places special emphasis on aid to

a.	new businesses.
b.	those in production industries.
c.	minority-owned businesses.
d.	franchise outlets.
e.	those in need of guaranteed loans.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 148-149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Most Small Business Administration loans are actually made by

a.	the Small Business Administration.
b.	the government.
c.	private lenders.
d.	private foundations.
e.	insurance companies.

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

What organization issues management, marketing, and technical publications of interest to present and prospective small-business managers that can be obtained from the U.S. Government Printing Office?

a.	SBI
b.	SBIC
c.	SEC
d.	SBA
e.	SBDC

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 149 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

A guaranteed SBA loan may be as large as

a.	$5 million.
b.	$3.5 million.
c.	$2.0 million.
d.	$1.5 million.
e.	$750,000.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The average size of an SBA-guaranteed business loan is about

a.	$25,000.
b.	$100,000.
c.	$200,000.
d.	$300,000.
e.	$500,000.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Jamie applies for a small-business loan from the SBA. If he is approved for the loan, where will the money actually come from?

a.	The government
b.	Private lenders
c.	Venture capitalists
d.	The Small Business Administration
e.	Other small businesses

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Money that is invested in small and sometimes struggling firms that have the potential to become very successful is called

a.	seed money.
b.	franchise funds.
c.	SBA-guaranteed loans.
d.	growth funds.
e.	venture capital.

ANS: E PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Small-business investment companies

a.	are an extension of the SBA.
b.	are individual, nonprofit organizations.
c.	are profit-making organizations.
d.	do not expect a return on their investments.
e.	make loans to small businesses.

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The average life for an SBA-guaranteed business loan is ____ years.

a.	twenty-five
b.	eighteen
c.	fifteen
d.	twelve
e.	eight

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The primary financial function of the Small Business Administration is to

a.	lend money.
b.	guarantee loans.
c.	find sources of financial aid.
d.	help owners apply for loans.
e.	provide aid only when a natural disaster occurs.

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Privately owned firms providing venture capital would be identified as

a.	the Small Business Administration.
b.	small-business development centers.
c.	small-business investment companies.
d.	small-business institutes.
e.	the Active Corps of Executives.

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

A franchisor supplies all of the following except

a.	land to place the business on.
b.	the name of the shop.
c.	the methods of doing business.
d.	any necessary training.
e.	advertising materials.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

You have decided to open a pet store and have engaged in a contract with Dog & Cat Centers, Inc. You and the company have drawn up an agreement that allows you to use the company’s name and its proven method of doing business, to receive training, and to use its advertising materials. In this agreement, Dog & Cat is the ____ and you are the ____.

a.	entrepreneur; corporation
b.	franchisor; franchisee
c.	employee; employer
d.	entrepreneur; local chain
e.	corporation; manager

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Analysis

An individual or organization granting a license to operate an individually owned business as though it were part of a chain of outlets or stores is a(n)

a.	franchise.
b.	franchisor.
c.	franchisee.
d.	venture capitalist.
e.	entrepreneur.

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Comprehension

Eric decides to purchase and operate a SUBWAY restaurant. Eric is the

a.	franchise.
b.	franchisee.
c.	licensor.
d.	franchisor.
e.	trainer.

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Comprehension

The franchisee supplies

a.	the required training for the franchised business.
b.	a known and advertised business name.
c.	a method of doing business.
d.	the required materials for the franchised business.
e.	labor and capital, and owns and operates the outlet.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Analysis

In a franchise business, the party paying the franchise fee is known as the

a.	franchisee.
b.	franchisor.
c.	entrepreneur.
d.	business owner.
e.	manager.

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

You have been running a successful art and framing shop for three years. You have decided to allow others to use your business name, materials, and methods in operating their own business for a fee. You are going to enter a

a.	joint venture.
b.	small-business development center.
c.	franchise agreement.
d.	venture capitalist agreement.
e.	business contraction.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Analysis

All of the following are franchise establishments except

a.	McDonald’s.
b.	Walmart.
c.	Holiday Inn.
d.	Avis.
e.	Dairy Queen.

ANS: B PTS: 1 DIF: Difficulty: Moderate

REF: pp. 151-152 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

There are three general types of franchising arrangements. In one approach, the franchisor authorizes retailers to sell a particular brand-name item. This type of arrangement is common in all of the following areas except

a.	the soft-drink industry.
b.	truck and car sales.
c.	shoe sales.
d.	the gasoline industry.
e.	paint sales.

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: pp. 151-152 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Analysis

Your friend has just been awarded a franchise in a particular industry. He explains that his franchisor has licensed him to sell and distribute a product to retailers. Knowing that this type of franchise arrangement is most common in one particular industry, you suspect that your friend has obtained a franchise in the ____ industry.

a.	gasoline
b.	automobile sales
c.	soft-drink
d.	fast-food
e.	furniture

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: pp. 151-152 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Analysis

Which of the following is not a franchise establishment?

a.	Hertz Corporation
b.	AAMCO Transmissions
c.	Avis
d.	JCPenney
e.	KFC

ANS: D PTS: 1 DIF: Difficulty: Easy

REF: pp. 151-152 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

Which form of franchising is the most common today?

a.	Franchising has become a very unpopular option and is used infrequently today.
b.	A manufacturer authorizes a number of retail stores to sell a certain brand- name item.
c.	A producer licenses distributors to sell a given product to retailers.
d.	A distributor authorizes a producer to make and sell a given product to the ultimate consumer.
e.	A franchisor supplies brand names, techniques, or other services instead of a complete product.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: pp. 151-152 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

In the early days of franchise agreements, franchising was used primarily for automobile dealerships and

a.	auto-parts stores.
b.	dry cleaners.
c.	fast-food outlets.
d.	larger restaurants.
e.	service stations.

ANS: E PTS: 1 DIF: Difficulty: Easy

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Manju Iyer asks for your advice in opening a new business. She plans to provide tax-related services to individuals and small-business owners in her community. Of course, she wants an attractive means of starting and operating her business with a reasonable hope of succeeding in it. What will be your advice?

a.	Start your own independent business.
b.	Form a partnership with a CPA.
c.	Consider purchasing a franchise.
d.	Forget about opening the business because it is too risky.
e.	First secure a loan from the Small Business Administration.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Evaluation

Doug has always wanted to operate his own fast-food restaurant, but he knows the high failure rate of restaurants. To increase his chances of success, he should consider

a.	getting a loan from the SBA.
b.	buying a franchise of a well-established restaurant.
c.	hiring only highly educated employees.
d.	not having a drive-through at his restaurant.
e.	saving money by selling low-quality food.

ANS: B PTS: 1 DIF: Difficulty: Challenging

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Evaluation

Carmen Catucci is considering going into business. She wants to offer an income tax service. To minimize her chances of failure, she might consider

a.	buying a franchise.
b.	starting from scratch.
c.	dealing only with wealthy people.
d.	trying to enter the manufacturing industry instead.
e.	borrowing money from the SBA.

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Evaluation

You stop at a SUBWAY to get a sandwich for lunch and you notice that they now have TCBY yogurt. This is an example of a

a.	co-branded establishment.
b.	franchise.
c.	small business.
d.	dual-sponsored business.
e.	dual-branded franchise.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Which statement best describes the general success rate for franchises?

a.	Franchises, like other small businesses, have a very high rate of failure.
b.	Franchises are slightly more successful overall than other types of businesses.
c.	Franchises have about a 50 percent chance of being successful.
d.	Franchises have a very high success rate compared to other small businesses.
e.	Obtaining a franchise is a guarantee for a successful business.

ANS: D PTS: 1 DIF: Difficulty: Moderate

REF: pp. 153-154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

All of the following are advantages to the franchisor except

a.	fast and selective distribution of products.
b.	no involvement in national advertising campaigns.
c.	assurance of how the outlets will be maintained and operated.
d.	gains from the franchisee’s high motivation.
e.	a freeing up of capital for expansion of goods and services.

ANS: B PTS: 1 DIF: Difficulty: Easy

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Which of the following is an advantage to the franchisor in a franchise agreement?

a.	Opportunity to start a business with limited capital
b.	Access to local advertising materials
c.	Fast and selective distribution of products
d.	Chance to participate in national advertising
e.	Chance to minimize costs through cooperative buying

ANS: C PTS: 1 DIF: Difficulty: Easy

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Tim owns a McDonald’s franchise that is having some troubles. Where is Tim most likely to go for advice and guidance?

a.	The franchisor
b.	The SBA
c.	SCORE
d.	Restaurant consultants
e.	Chamber of Commerce

ANS: A PTS: 1 DIF: Difficulty: Easy

REF: p. 154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Natalie owns a highly successful bakery and coffee shop, Mocha & Muffins. Others have expressed interest in starting nearly identical shops at various locations. Natalie decides to sell franchises of Mocha & Muffins. Why is this option a less expensive way to increase the distribution of her treats?

a.	She will only have to build as many shops as there are available franchisees.
b.	The franchisees will be highly motivated to succeed.
c.	She will not incur the high costs of constructing and operating more shops.
d.	She will be able to obtain low-interest loans for the new locations.
e.	She will be able to offer the franchisees free advice about their shops.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Kevin has considered selling franchises of his very successful hardware store. However, he is concerned that the franchises will destroy the reputation of the company and end up hurting his business. What advice would you give Kevin?

a.	He should not sell franchises because he will have no control over how the franchisees operate their businesses.
b.	He should instead raise the capital to build and operate the new stores himself because this is a cheaper way to expand.
c.	He should hire the managers of the new franchises so that he has control over their operations.
d.	Through the franchise agreement, he can ensure that the new stores are operated according to his own standards.
e.	Although he will have a little control over how the franchises operate, he will not be able to influence their advertising or level of service.

ANS: D PTS: 1 DIF: Difficulty: Challenging

REF: p. 154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Evaluation

Sarah owns a 7-Eleven franchise. What is the primary disadvantage of owning a franchise for Sarah?

a.	She has to pay royalties to the franchisor.
b.	She cannot use her name as the restaurant name.
c.	The franchisor still retains a great deal of control.
d.	Sarah is not allowed to hire her own employees.
e.	Sarah may not find ways to improve operations.

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Which statement best characterizes the relationship between franchisor and franchisee in recent years?

a.	Disagreements between the two parties have increased, and contract disputes are the cause of many lawsuits.
b.	The relationship between franchisor and franchisee has become so hostile that it is threatening the continued existence of franchised businesses.
c.	Occasional disputes arise between franchisor and franchisee, but legal action is rarely taken.
d.	The relationship between these two parties is good because both parties benefit when the franchisee is successful.
e.	Once the franchise agreement is finalized, these two parties have very little to do with one another.

ANS: A PTS: 1 DIF: Difficulty: Challenging

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Which of the following was established to arbitrate disputes between franchisors and franchisees?

a.	Court system
b.	Federal Trade Commission
c.	National Franchise Mediation Program
d.	Partnership for Franchisees’ Rights
e.	Association for Franchise Arbitration

ANS: C PTS: 1 DIF: Difficulty: Moderate

REF: p. 155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Marielena Lopez owns a Wendy’s franchise. Marielena feels that the franchisor is hurting his business by forcing him to use certain high-priced suppliers. The franchisor says that this power is implied in the franchise agreement. Who is likely to arbitrate this dispute?

a.	Wendy’s CEO
b.	Marielena Lopez
c.	The court system
d.	National Franchise Mediation Program
e.	Wendy’s corporate lawyers

ANS: D PTS: 1 DIF: Difficulty: Challenging

REF: p. 155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

What do franchisees typically have to pay to the franchisor?

a.	One-time franchise fee
b.	Monthly royalties based on sales
c.	Nominal fee for business knowledge
d.	Approximately half of the franchise’s profits each month
e.	One-time franchise fee and monthly royalties based on sales

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: p. 155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Chelsea is about to purchase a Baskin-Robbins franchise because she loves ice cream. How much work should Chelsea expect to have to do to make the franchise successful?

a.	Most franchisees simply hire managers to run the operations, so she will have to work very little.
b.	She will need to work about twenty hours a week to make sure things are running smoothly.
c.	She should expect to work very hard, putting in long hours about six days a week.
d.	She will have to work a standard forty-hour work week, just as she did at her previous corporate job.
e.	Her franchising agreement likely requires her to be at the store whenever it is open.

ANS: C PTS: 1 DIF: Difficulty: Challenging

REF: p. 155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

All of the following are disadvantages to the franchisee except

a.	a loss of control.
b.	continuing royalty fees.
c.	hard work.
d.	a fee for advertising.
e.	starting a business with limited capital.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

The SBA is offering to help the nation’s small-business owners enter world markets. SBA assistance includes all of the following except

a.	counseling on how to enter markets overseas.
b.	counseling on where to enter markets overseas.
c.	matching U.S. small-business executives with potential overseas customers.
d.	bringing small U.S. firms into direct contact with potential overseas buyers and partners.
e.	offering long-term loans to U.S. business owners.

ANS: E PTS: 1 DIF: Difficulty: Moderate

REF: pp. 155-156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Which of the following organizations aids small businesses with selling overseas?

a.	The U.S. Commercial Service
b.	The Federal Trade Commission
c.	Small-Business Investment Company
d.	Service Corps of Retired Executives
e.	The Small Business Institute

ANS: A PTS: 1 DIF: Difficulty: Moderate

REF: p. 156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

TRUE/FALSE

The SBA has defined a small business as one independently owned, operated for profit, and not dominant in its field.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Few Americans take advantage of their freedom to start a business.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 135 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Small businesses operate only in the service industry, not in manufacturing.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 136 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Analysis

Service industries make up about 48 percent of all small businesses.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

About three-quarters of all small businesses are in the service industry.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

The various types of businesses attracting small business are generally grouped into service industries, distribution industries, and financial industries.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: pp. 136-137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

About half of small businesses are in the production industries.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-1 NAT: BUSPROG: Analytic

TOP: Small Business: A Profile KEY: Bloom’s: Knowledge

Small businesses are generally managed by professional managers.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Knowledge

Small businesses are typically managed by people who started and own them.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Knowledge

Entrepreneurial spirit is the desire to create a new business.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Knowledge

A new business is built around the entrepreneur.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 137 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Knowledge

It is rare that managers of small businesses lack the management skills necessary to run their businesses.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Knowledge

The main reasons small businesses fail are poor management skills on the part of owners, inadequate capital, and poor planning.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Knowledge

Small businesses are prone to failure.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

One reason small businesses fail is that their research and development investments are less productive than those of the largest firms.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Analysis

Many entrepreneurs lack the management skills required to run a business.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 140 OBJ: LO: 5-2 NAT: BUSPROG: Analytic

TOP: The People in Small Businesses: The Entrepreneurs KEY: Bloom’s: Comprehension

The incidence of innovation among small-business workers is significantly higher than that among workers in large businesses.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Comprehension

According to a government source, more than half of this century’s technological innovations came from small companies.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Small businesses account for all nongovernment employment.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Small firms have traditionally added more than their proportional share of new jobs to the economy.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 141 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Large companies often find it less expensive to purchase parts from small companies than to manufacture their own.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Because of small-business competition, large companies must become more efficient and responsive to consumers’ needs.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

Society usually does not benefit from entrepreneurs who pursue their individual goals; it is only the entrepreneurs who reap the benefits of their own work and creativity.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 142 OBJ: LO: 5-3 NAT: BUSPROG: Analytic

TOP: The Importance of Small Businesses in Our Economy KEY: Bloom’s: Knowledge

A main disadvantage of a small business is that employees and customers usually develop too close of a relationship.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

For those who like dealing with people, small business is the place to be.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Statistically, one can expect about two out of every three new businesses to fail within six years of their founding.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: pp. 143-144 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Some advantages of the sole proprietorship also apply to the small business.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 143 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

Economically, the U.S. government is not concerned with whether or not small businesses make it.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 144 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Knowledge

An investor who is considering investing in Moriah’s Burger Bar would not likely want to see her business plan.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

The business plan should deceive neither investors nor loan officers and should convey accurate and realistic expectations of business potential.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: pp. 144-145 OBJ: LO: 5-4 NAT: BUSPROG: Analytic

TOP: The Pros and Cons of Smallness KEY: Bloom’s: Analysis

The SBA is a private organization rather than a government agency.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 147 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

SCORE is a group of active business executives offering their services to small businesses for a fee.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 147 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

SCORE is a group of retired businesspeople who volunteer their services to small businesses through the SBA.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 147 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

John Wells, an African-American small business owner, might be eligible for a grant from the Minority Business Development Agency.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The SBA’s website resource targeted at assisting women-owned business is known as the SBA’s Online Women’s Resource and Growth Center.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 148 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

In the past, the SBA could guarantee loans up to $5 million.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

The average length of an SBA loan is about twenty-five years.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

Money invested in small firms with the potential to become very successful is known as venture capital.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 150 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Knowledge

A small-business investment company (SBIC) is a government agency that provides venture capital to small enterprises.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 151 OBJ: LO: 5-5 NAT: BUSPROG: Analytic

TOP: The Small Business Administration KEY: Bloom’s: Comprehension

A license to operate an individually owned business as though it were part of a chain is a franchise.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

The purchaser of a franchise is called the franchisor.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

The purchaser of a franchise is called the franchisee.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: p. 151 OBJ: LO: 5-6 NAT: BUSPROG: Analytic

TOP: Franchising KEY: Bloom’s: Knowledge

Franchising experienced tremendous growth during the early 1430s.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Franchising is limited only to fast foods.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

There is much less likelihood of failure with a franchised outlet than with an independently owned small business.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Knowledge

Unlike nonfranchised business owners, franchise owners have little work to do.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

An agreement between two franchisors in which the two franchisors offer their products together is called double franchising.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: p. 153 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

About one-third of franchised businesses fail during the first two years of operation.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Franchising is a win-win combination; both franchisees and franchisors are guaranteed success.

ANS: F PTS: 1 DIF: Difficulty: Easy

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Comprehension

In a franchise, the franchisee gets the opportunity to start a business with limited capital and to make use of the business experience of others.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: p. 154 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Comprehension

The disadvantages of franchising mainly affect the franchisee because the franchisor retains a great deal of control.

ANS: T PTS: 1 DIF: Difficulty: Challenging

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Some franchisors claim that contracts are unfairly tilted toward the franchisees.

ANS: F PTS: 1 DIF: Difficulty: Moderate

REF: pp. 154-155 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

All franchisors give geographical protection to their franchise holders.

ANS: F PTS: 1 DIF: Difficulty: Challenging

REF: pp. 155-156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

International trade will become more important to small-business owners in the new century.

ANS: T PTS: 1 DIF: Difficulty: Easy

REF: pp. 155-156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

Small businesses are expected to remain the dominant form of organization in this country.

ANS: T PTS: 1 DIF: Difficulty: Moderate

REF: pp. 155-156 OBJ: LO: 5-7 NAT: BUSPROG: Analytic

TOP: The Growth of Franchising KEY: Bloom’s: Analysis

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Business 12th Edition by William M. Pride - Test Bank

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