Business Foundations O C Ferrell 12e - Test Bank Instant Download - Complete Test Bank With Answers Sample Questions Are Posted Below Business Foundations: A Changing World, 12e (Ferrell) Chapter 5 Small Business, Entrepreneurship, and Franchising 1) Entrepreneurship is the process of creating and managing a business to achieve desired …
$19.99
Business Foundations O C Ferrell 12e – Test Bank
Instant Download – Complete Test Bank With Answers
Sample Questions Are Posted Below
Business Foundations: A Changing World, 12e (Ferrell)
Chapter 5 Small Business, Entrepreneurship, and Franchising
1) Entrepreneurship is the process of creating and managing a business to achieve desired objectives.
Answer: TRUE
Explanation: Entrepreneurship is the process of creating and managing a business to achieve desired objectives. Some entrepreneurs who start small businesses have the ability to see emerging trends; in response, they create a company to provide a product that serves customer needs.
Difficulty: 1 Easy
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
2) Small businesses, by their very nature, are small and therefore do not contribute significantly to job creation.
Answer: FALSE
Explanation: The energy, creativity, and innovative abilities of small-business owners have resulted in jobs for many people. About 63 percent of net new jobs annually are created by small businesses.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
3) Manufacturing businesses are attractive to entrepreneurs because of the low start-up costs required to establish a manufacturing business.
Answer: FALSE
Explanation: It is expensive to start a manufacturing business, so many entrepreneurs are attracted to retailing instead. Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend the large sums of money for the equipment and distribution systems that a manufacturing business requires.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
4) Trevor lives in Florida during the winter months. While in Florida, he rents out his main home in Colorado to people traveling there for the skiing season. Trevor is participating in the sharing economy.
Answer: TRUE
Explanation: The past few years have seen a rise in the sharing economy, an economic model involving the sharing of underutilized resources. Under this model, entrepreneurs earn income by renting out an underutilized resource such as lodging or vehicles.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
5) A drawback of franchising is the need for franchisees to strictly adhere to standardized operations.
Answer: TRUE
Explanation: In franchising, a shortcoming experienced by franchisees includes strict adherence to standardized operations. Entrepreneurs who want to be their own bosses are often frustrated with the restrictions of a franchise.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
6) Marissa is a fitness expert who starts her own personal training company. She conducts fitness classes for women and provides personal training sessions for clients. Marissa can be regarded as a(n)
Answer: B
Explanation: Marissa can be regarded as an entrepreneur. Entrepreneurs are people involved in entrepreneurship, which is the process of creating and managing a business to achieve desired objectives.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
7) A person who is involved in the process of creating and managing a business to achieve his or her desired objectives is engaged in
Answer: E
Explanation: Entrepreneurship is the process of creating and managing a business to achieve desired objectives.
Difficulty: 1 Easy
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
8) While growing up, Carlos noticed that many families in his community struggled to make ends meet and provide for their children’s education. As a result, he started a business to provide low-cost tutoring and scholarship opportunities for low-income families in his community. As his company has grown, Carlos has been able to extend free tutoring and college scholarships to five impoverished students per year. Carlos is a
Answer: C
Explanation: Carlos is a social entrepreneur because he uses entrepreneurship to address a social problem. These entrepreneurs operate nonprofit or for-profit organizations committed to creating social change.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
9) Robert’s Music Center is a local music shop. Along with selling musical instruments, it also rents instruments to students in school band programs. Robert is the owner and he employs three full-time and five part-time employees. Robert’s business is a
Answer: C
Explanation: A small business is defined as any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people. A local Mexican restaurant may be the most patronized Mexican restaurant in your community, but because it does not dominate the restaurant industry as a whole, the restaurant can be considered a small business.
Difficulty: 2 Medium
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
10) Randy owns a small, local catering business. He has been hired for company picnics, backyard barbecues, and family celebrations. As word of mouth has spread about his delicious food, good service, and fair prices, he has started getting more business. To handle this, he has hired three employees to help cook and serve food at these events. What kind of entrepreneur is Randy?
Answer: E
Explanation: Randy is a microentrepreneur because he employs five or fewer employees. Sometimes called micropreneurs, this type of business is growing rapidly.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
11) Dante runs Night Moves, his own DJ and party planning company. He has built a good reputation for organizing weddings and corporate events and his business has grown. He recently moved his business from his home to an office located in a corporate building and has increased his staff to 40 employees. Dante’s company can be categorized as a
Answer: E
Explanation: Dante’s company can be categorized as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
12) What is the purpose of the Small Business Administration?
Answer: B
Explanation: The Small Business Administration is an independent agency of the federal government that offers managerial and financial assistance to small businesses. On its website, the SBA outlines the first steps in starting a small business and offers a wealth of information to current and potential small-business owners.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) Mahie owns an Indian restaurant that employs around 20 people. She is solely responsible for the management of the restaurant. Her business competes with a larger chain of restaurants that offers the same cuisine. Mahie’s restaurant can be classified as a
Answer: E
Explanation: Mahie’s restaurant can be classified as a small business. A small business is independently owned and operated, is not dominant in its competitive area, and does not employ more than 500 employees.
Difficulty: 3 Hard
Topic: Define Entrepreneurship
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
14) What type of business has been growing faster than other classifiable firms and represents almost 30 percent of all small businesses?
Answer: B
Explanation: Small businesses provide opportunities for minorities and women to succeed in business. Minority-owned businesses have been growing faster than other classifiable firms, representing 28.6 percent of all small businesses.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
15) Which type of business has created a majority of net new jobs annually?
Answer: C
Explanation: More than 99 percent of all U.S. firms are classified as small businesses, and they employ about half of private workers. About 63 percent of net new jobs annually were created by small businesses.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
16) Baubles and Bangles, an independent jewelry store, acquires jewelry and accessories from producers and wholesalers and sells them to consumers. Baubles and Bangles is a
Answer: C
Explanation: Baubles and Bangles is a retailer. Retailers acquire goods from producers or wholesalers and sell them to consumers. Main streets, shopping centers, and malls are generally lined with independent music stores, sporting-goods stores, dry cleaners, boutiques, drugstores, restaurants, caterers, service stations, and hardware stores that sell directly to consumers.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
17) If Yvette wants to start her own business, what might persuade her to open a retail operation?
Answer: D
Explanation: Retailing attracts entrepreneurs because gaining experience and exposure in retailing is relatively easy. Additionally, an entrepreneur opening a new retail store does not have to spend large sums of money for the equipment and distribution systems that a manufacturing business requires. However, it is important for entrepreneurs to anticipate the costs of opening a retail business beforehand.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
18) Clarissa makes one-of-a-kind ceramic vases. To avoid the costs of opening a store, she sells these pieces on Etsy. This is an example of
Answer: E
Explanation: This is an example of direct marketing, which gives consumers the opportunity to place orders by mail, telephone, or the Internet. This is a type of nonstore retailing, which provides a great opportunity for entrepreneurs because of the lower cost of entry. Smaller business can engage in direct marketing by featuring their products on eBay, Amazon, and Etsy.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
19) A clothing store located in a shopping mall wants to give customers an opportunity to place orders. What is one form of direct marketing the store can use to provide this service?
Answer: A
Explanation: A direct marketing activity the store can use to encourage customers to order its clothing by mail, telephone, or the Internet is sending catalogs to its customers. Market research findings suggest that catalog users are more inspired to purchase items online.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
20) While Justin attends college, he is working part-time for a cutlery company. He goes door-to-door and offers consumers face-to-face presentations in their homes. This is an example of
Answer: A
Explanation: This is an example of direct selling, which involves the marketing of products to ultimate consumers through face-to-face sales presentations at home, in the workplace, and in party environments. Many people view direct selling as a part-time business opportunity.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
21) All of the following are true of direct selling EXCEPT
Answer: C
Explanation: The cost of getting involved in direct selling is low and often involves buying enough inventory to get started. Many people view direct selling as a part-time business opportunity. Often, those who become involved in direct selling are enthusiastic about the product and have the opportunity to recruit other distributors and receive commissions on their sales.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
22) Which scenario best illustrates a small business operating in a retail industry as opposed to wholesaling its products?
Answer: D
Explanation: The Case Place illustrates a small business operating in a retail industry as opposed to wholesaling its products. Retailers acquire goods from producers or wholesalers and sell them to consumers. Wholesalers supply products to industrial, retail, and institutional users for resale or for use in making other products.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
23) What is true of wholesalers?
Answer: E
Explanation: Wholesalers provide goods and services to producers and retailers. Their activities include planning and negotiating for supplies, promoting, distributing, and providing management and merchandising assistance to clients. Wholesalers are extremely important for many products because of the marketing activities they perform. Wholesalers can be eliminated, but their functions must be passed on to some other organization or intermediary.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
24) Many service providers are considered retailers because they
Answer: B
Explanation: The service sector includes businesses that do not actually produce tangible goods. Many of these service providers are retailers who provide their services to ultimate consumers.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) Walt owns a business in which he offers standardized test preparation classes and individual tutoring for students. This is an example of a
Answer: D
Explanation: This is a service business because it does not produce tangible goods. The service sector accounts for 80 percent of U.S. jobs, excluding farmworkers. Real estate, insurance and personnel agencies, barbershops, banks, television and computer repair shops, copy centers, dry cleaners, and accounting firms are all service businesses.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
26) In the manufacturing sector, small businesses sometimes have an advantage over large firms because small businesses
Answer: B
Explanation: Small businesses sometimes have an advantage over large firms because they can customize products to meet specific customer needs and wants. Such products include custom artwork, jewelry, clothing, and furniture.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) What is a difference between high technology businesses and other small businesses?
Answer: B
Explanation: High technology businesses require greater capital and have higher initial startup costs than other small businesses. Nonetheless, many of the biggest started out in garages, basements, kitchens, and dorm rooms.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
28) Menami and Michael recently had their first child. As two working parents, they struggled to find good, economical childcare. As a result, they developed their own software to link parents with licensed, reasonably priced childcare providers. This is an example of the
Answer: A
Explanation: This is an example of the sharing economy, or gig economy, which uses technology to connect consumers with the service providers they need. In this scenario, Menami and Michael develop software to connect parents with licensed, fairly priced childcare providers.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-01 Define entrepreneurship and small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
29) Bob and Tom live and work in Texas, but they love vacationing in the Bahamas. After several years, they decide to buy a vacation home in the Bahamas. When they are not there, they rent the property to other people for $1,200 per week. This is an example of
Answer: D
Explanation: This is an example of the sharing economy, an economic model involving the sharing of underutilized resources. Under this model, entrepreneurs can earn income by renting out an underutilized resource such as lodging or vehicles.
Difficulty: 3 Hard
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
30) A challenge associated with the sharing economy is
Answer: A
Explanation: In the sharing economy, companies can control variables such as rates, and they hire independent contractors who have the flexibility to take on work when it is convenient for them. Services offered through this model often cost less than more traditional services, and it is even taking market share away from established firms. Despite the opportunities in the sharing economy, firms have been experiencing pressure over whether workers are independent contractors or employees.
Difficulty: 2 Medium
Topic: Industries Associated with Small Business
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
31) As an advantage of being a small business owner, independence means
Answer: A
Explanation: Independence is probably one of the leading reasons that entrepreneurs choose to go into business for themselves. Being a small-business owner means being your own boss. Many people start their own businesses because they believe they will do better for themselves than they could do by remaining with their current employer or by changing jobs.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
32) Seamus has worked for a large corporation for years, and he feels like he just does not fit in the “corporate mold” anymore. He decides to start his own business because he wants the freedom to choose with whom he works and when and where he works. What advantage of small business ownership seems the most prevalent in this example?
Answer: B
Explanation: Independence is the most prevalent advantage of a small business in this example. Often, small business owners want the freedom to choose whom they work with, the flexibility to pick where and when to work, and the option of working in a family setting. Many people choose to start their own business because they don’t fit in the “corporate mold.”
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
33) A small businesses wanting to minimize its operating costs might do all of the following EXCEPT
Answer: A
Explanation: Small businesses require less money to start and maintain than larger ones. A firm with less employees and a smaller factory spends less money on wages and salaries, rent, utilities, and other expenses. Rather than maintaining the expense of keeping separate departments for accounting, advertising, and legal counseling, small businesses can hire other firms to supply these services as needed. Additionally, small business owners can sometimes rely on friends and family to help with difficult projects.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
34) Take One Inc. is a small apparel store started by an aspiring designer. The store needs to compete against larger, well-established multinational brands. What strategy will most help Take One Inc. avoid competition from larger firms?
Answer: E
Explanation: Take One should focus on and target small market niches or product needs to avoid competition from larger firms. By targeting small niches or product needs, small businesses can sometimes avoid competition from larger firms, helping them to grow into stronger companies. Small firms, because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
35) Which description is the BEST example of a market niche?
Answer: C
Explanation: A firm focusing its efforts on elderly people, residing in assisted living centers who suffer from macular degeneration, is an example of a market niche—that is, a specific group of customers. Potential customers wanting to buy a new vehicle or wanting to take a cruise are not market niches because the customer bases are too broad. By targeting small niches or product needs, businesses can sometimes avoid competition from larger firms, helping them to grow into stronger companies.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
36) What is true regarding the reputation of small businesses?
Answer: B
Explanation: Since small firms have the capacity to focus on narrow niches, they can develop enviable reputations for quality and service.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-03 Specify the advantages of small-business ownership.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
37) What is one of the difficulties faced by small business owners?
Answer: D
Explanation: Entrepreneurs experience a great deal of independence but also a great deal of stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
38) Mark owns his own small bakery. In addition to being the owner, he also serves as the manager, sales force, head baker, shipping and receiving clerk, bookkeeper, and custodian. Mark is the first person to arrive at the bakery every morning and the last to leave every night. What is the most applicable challenge Mark faces?
Answer: C
Explanation: In this scenario, Mark has to multitask, which can result in long hours and a high stress level. Many creative persons fail, not because of their business concepts, but rather because of difficulties in managing their business.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
39) If a small business has to cope with growth, it requires the owner to
Answer: A
Explanation: Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) Oliver came up with the idea of producing mayonnaise in neon colors. He was sure that kids would love the idea and this would become the hottest product on the market. Unfortunately, the neon-colored mayonnaise wasn’t such a hit. What is the most likely cause of Oliver’s product failure?
Answer: D
Explanation: A poor business concept will produce disaster for a small business nearly every time. Other notable causes of small-business failure include the burdens imposed by government regulation, insufficient funds to withstand slow sales, vulnerability to competition from larger companies, undercapitalization, managerial inexperience or incompetence, and inability to cope with growth.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
41) Chai Ling decides to open a Vietnamese restaurant in her neighborhood. She will be solely responsible for the management of the restaurant. Which problem is she likely to face while running the business?
Answer: E
Explanation: Chai Ling may find it difficult to deal with the stress of rent increase. Small-business owners tend to be the victims of physical and psychological stress. There are ongoing worries about competition, employee problems, new equipment, expanding inventory, rent increases, or changing market demand.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
42) A business that lacks funds to operate normally faces a problem known as
Answer: E
Explanation: The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) Kaden and Elizabeth run a small farm stand on their property, selling vegetables, fruits, and plants to support themselves. During a particularly bad growing season, they try to get financing from a small rural bank in their community but they do not get it. What is the most likely reason for this?
Answer: D
Explanation: Many small rural operations, like this one, cannot obtain financing within their own communities because small rural banks often lack the necessary financing expertise or assets sizable enough to counter the risks involved with small-business loans.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
44) Elaine has a great idea for starting a new business, but she is not sure if she has the knowledge or experience to run a growing business effectively. This relates to which cause of small business failure?
Answer: D
Explanation: Although Elaine has a great idea for a small business, that does not mean she has the knowledge or experience to manage a growing business effectively. Often, a person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
45) Leon starts a business using the savings from his previous job. He plans to run his business on the revenue generated from sales. However, after a few months, he finds it difficult to pay his staff, rent, and other expenses. Seasonal sales and inability to secure sufficient credit from local banks make it difficult for Leon to operate the business normally. Which cause of small-business failure does this scenario best illustrate?
Answer: A
Explanation: The scenario best illustrates undercapitalization. The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally. Too many entrepreneurs think that all they need is enough money to get started, that the business can survive on cash generated from sales soon thereafter. But almost all businesses suffer from seasonal variations in sales, which make cash tight, and few businesses make money from the start.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
46) ________ is considered to be the shortest path to failure in business.
Answer: B
Explanation: The shortest path to failure in business is undercapitalization, the lack of funds to operate a business normally and sustain it through slow initial sales and seasonal variations.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
47) Cruz is a very talented computer programmer who starts his own small software development firm. He finances the firm from his savings. Initially, he is able to get many projects from customers and completes them successfully. However, as his business grows, he fails to make good decisions in hiring new employees, billing the clients, and negotiating prices. He eventually ends up liquidating the business. Which cause of small-business failure does this scenario best illustrate?
Answer: B
Explanation: The scenario best illustrates Cruz’s managerial inexperience. Poor management is the cause of many business failures. Just because an entrepreneur has a brilliant vision for a small business does not mean he or she has the knowledge or experience to manage a growing business effectively. A person who is good at creating great product ideas and marketing them may lack the skills and experience to make good management decisions in hiring, negotiating, finance, and control.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
48) Elana recently opened a fashion boutique. She is successful in creating a strong brand image and a loyal customer base. In order to meet the increasing demands of her business, she hires a store manager. However, she finds it hard to let the manager make important decisions about the store. She often finds herself disagreeing with the manager’s decisions, and in the process, she loses several existing customers. Which cause of small-business failure does this scenario best illustrate?
Answer: B
Explanation: The scenario best illustrates Elana’s inability to cope with growth. Sometimes, the very factors that are advantages for a small business turn into serious disadvantages when the time comes to grow. Growth often requires the owner to give up a certain amount of direct authority, and it is frequently hard for someone who has called all the shots to give up control.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
49) Why do some small businesses choose to stay small and are not interested in wide-scale growth?
Answer: D
Explanation: The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt. For this reason, some small-business owners choose to stay small and are not interested in wide-scale growth.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) Amber starts a small firm that manufactures clothing for leading fashion brands in the United States. What would likely be a principal immediate threat to this firm?
Answer: D
Explanation: The principal immediate threats to small and mid-sized businesses include rising inflation, energy and other supply shortages or cost escalations, and excessive household and/or corporate debt.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
51) It has often been said that the greatest impediment to the success of a small business is
Answer: A
Explanation: It has often been said that the greatest impediment to the success of a small business is the entrepreneur.
Difficulty: 1 Easy
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
52) Manuel wants to start his own small business. All of the following are things he must to do to start a business EXCEPT
Answer: A
Explanation: To start any business, large or small, Manuel must have some kind of general idea. Next, he needs to devise a strategy to guide planning and development in the business. Finally, he must make decisions about the form of ownership; the financial resources needed; and whether to acquire an existing business, start a new one, or buy a franchise.
Difficulty: 2 Medium
Topic: The Business Plan
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
53) A precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals is known as a(n)
Answer: C
Explanation: A key element of business success is a business plan—a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals.
Difficulty: 1 Easy
Topic: The Business Plan
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
54) Which statement is true of a business plan?
Answer: D
Explanation: A business plan should act as a guide and reference document, not a shackle to limit the business’s flexibility and decision-making ability. It should also establish a strategy for acquiring sufficient funds to keep the business going.
Difficulty: 1 Easy
Topic: The Business Plan
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
55) Brenda is starting her own small home decorating company. She is developing the company’s business plan. What is something the business plan should accomplish?
Answer: B
Explanation: A business plan should act as a guide and reference document, not a shackle to limit the business’s flexibility and decision-making ability. The business plan should include an explanation of the business, an analysis of the competition, estimates of income and expenses, and other information. The business plan must be revised periodically to ensure that the firm’s goals and strategies adapt to changes in the environment.
Difficulty: 2 Medium
Topic: The Business Plan
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
56) Arnie approaches a bank to get a loan for a business he plans to launch later that year. He explains his business idea and its capital requirements to the bank manager. The manager asks Arnie to provide a formal document that includes a rationale for the business, an explanation of how it will achieve its goals, an analysis of the competition, and estimates of income and expenses, among other information. What document does the bank want from Arnie?
Answer: A
Explanation: The bank expects Arnie to present a business plan. A key element of business success is a business plan—a precise statement of the rationale for the business and a step-by-step explanation of how it will achieve its goals. Many financial institutions decide whether to loan a small business money based on its business plan.
Difficulty: 3 Hard
Topic: The Business Plan
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
57) In the process of starting a business, along with developing a business plan, the entrepreneur needs to
Answer: C
Explanation: After developing a business plan, the entrepreneur next must decide on an appropriate legal form of business ownership—whether it is best to operate as a sole proprietorship, partnership, or corporation—and to examine the many factors that affect that decision.
Difficulty: 1 Easy
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
58) To make profits from a small business, the owner must first provide or obtain ________ to start the business and keep it running smoothly.
Answer: E
Explanation: To make money from a small business, the owner must first provide or obtain money (capital) to get started and to keep it running smoothly. Often, the small-business owner has to put up a significant percentage of the necessary capital. Few new business owners have a large amount of their own capital, and they must look to other sources for additional financing.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
59) Jayla wants to open her own business making cakes. She has $10,000 of her own money and receives another $20,000 from family and friends. This combined $30,000 that Jayla can use toward her new business is referred to as
Answer: A
Explanation: The expression “it takes money to make money” holds especially true in developing a business enterprise. To make money from a small business, the owner must first provide or obtain money—otherwise known as capital.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
60) Steven wants to start his own tour company. What will be the most important source of funds for this new business?
Answer: A
Explanation: The most important source of funds for any new business is the owner. Many owners include among their personal resources ownership of a home, the accumulated value in a life insurance policy, or a savings account. A new business owner may sell or borrow against the value of such assets to obtain funds to operate a business.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
61) The act of financing one’s business by using real personal assets is known as
Answer: D
Explanation: A new business owner may sell or borrow against the value of his or her assets to obtain funds to operate a business. Additionally, the owner may bring useful personal assets—such as a computer, desks and other furniture, a car or truck—as part of his or her ownership interest in the firm. Such financing is referred to as equity financing because the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
62) What is a source of equity financing?
Answer: B
Explanation: A loan—from a family member or a financial institution—is a form of debt financing. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
63) Nathan sells a piece of land he inherited from his grandparents and starts a business with the proceeds. Which source of funding is this?
Answer: A
Explanation: Nathan has used equity financing to raise funds for his business. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
64) Roland wants to start a small editing company. He has enough funds to start the business but not enough to run it effectively. What is one thing he can do to provide working capital to his company?
Answer: C
Explanation: Roland can provide working capital by reinvesting profits into the business or simply by not drawing a full salary.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
65) Tamika borrows $40,000 from her father for her new business venture. She promises that he will be a partner in the business and be entitled to a significant percent of the business’s profits at the end of the year. This is an example of
Answer: C
Explanation: This is an example of equity financing. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
66) Sandy works in a factory that manufactures decorative lighting for office spaces, hotels, and designer homes. She wants to start her own business because she believes that the market for decorative lighting has a great growth potential. However, she does not want to depend on anyone else for procuring the initial capital and wants to raise the amount herself. In this scenario, which method could Sandy adopt to raise funds through equity financing?
Answer: D
Explanation: Sandy could invest her savings in the new business to raise funds through equity financing. Many owners include among their personal resources ownership of a home, the accumulated value in a life-insurance policy, or a savings account. A new business owner may sell or borrow against the value of such assets to obtain funds to operate a business. In equity financing, the owner uses real personal assets rather than borrowing funds from outside sources to get started in a new business.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
67) Liam and Rachel are business partners. They initially started the business with their savings, but now the company plans to expand its operations, and the required amount of capital cannot be raised through savings or by reinvesting profits. Thus, the partners decide to sell stock in their business to family members, friends, and employees. Which source of capital are Liam and Rachel using for the expansion of their business?
Answer: C
Explanation: Liam and Rachel are using equity financing for their business’s expansion. Small businesses can obtain equity financing by finding investors for their operations. They may sell stock in the business to family members, friends, employees, or other investors.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
68) Persons or organizations that agree to provide some funds for a new business in exchange for ownership interest or stock are called
Answer: C
Explanation: Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
69) Mark funds small businesses that he believes have the potential to grow large. When these companies are still in their initial stages and need investment, he buys their stocks at a low price and later sells them at higher prices when they are successful. Thus, Mark is a(n)
Answer: D
Explanation: Mark is a venture capitalist. Venture capitalists are persons or organizations that agree to provide some funds for a new business in exchange for an ownership interest or stock. Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
70) Fiona’s small catering business requires more financing than she can provide from her savings. As a result, she is looking for investors to provide financing in exchange for stock ownership. What is a disadvantage of this arrangement?
Answer: C
Explanation: Although finding investors to finance the business in exchange for stock ownership has helped many small businesses, it requires the small-business owner to share the profits of the business—and sometimes control, as well—with the investors.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
71) Obtaining money from venture capitalists to start a new business venture is an example of
Answer: C
Explanation: Venture capitalists hope to purchase the stock of a small business at a low price and then sell the stock for a profit after the business has grown successful. This form of equity financing requires that a small-business owner share the profits of the business—and sometimes control, as well—with the investors.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
72) Which entity is the main supplier of external financing to small businesses?
Answer: B
Explanation: Banks are the main suppliers of external financing to small businesses.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
73) Securing a mortgage from a bank for a new business venture is an example of
Answer: C
Explanation: Banks are the main suppliers of external financing or debt financing to small businesses. A small-business owner may have to provide personal property as collateral when borrowing money from a bank, in which case the loan is called a mortgage.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
74) Yolanda requests financing from the bank for her small hair salon. The bank requires Yolanda to put up a financial interest in the property or fixtures of the business to guarantee payment of the debt. What is this financial interest called?
Answer: A
Explanation: A lending bank will often require the entrepreneur to put up collateral, a financial interest in the property or fixtures of the business, to guarantee payment of the debt.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
75) If a small business fails to repay a bank loan, what will the lending institution do to recover its loss?
Answer: D
Explanation: The bank will often require the entrepreneur to put up collateral, a financial interest in the property or fixtures of the business, to guarantee payment of the debt. A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
76) Banks and other financial institutions can grant a small business a ________, which is an agreement by which a financial institution promises to lend a business a predetermined sum on demand.
Answer: A
Explanation: Banks and other financial institutions can grant a small business a line of credit—an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
77) Small businesses may obtain funding from their suppliers in the form of a ________, which means that suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.
Answer: B
Explanation: Small businesses may obtain funding from their suppliers in the form of a trade credit—that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
78) Tunde, an entrepreneur, starts a consulting firm with very limited funds. In order to conduct business, he purchases a few laptops and other office equipment from a local electronics wholesaler. The wholesaler understands his financial situation and allows him to pay for the goods in installments. In this scenario, the type of funding obtained by Tunde can be regarded as a
Answer: B
Explanation: In this scenario, the type of funding obtained by Tunde is referred to as a trade credit. Small businesses may obtain funding from their suppliers in the form of a trade credit—that is, suppliers allow the business to take possession of the needed goods and services and pay for them at a later date or in installments.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
79) Nina recently opened a spice shop. She did not have enough savings and, hence, applied for a loan to obtain the additional funds required to start the shop. She had to provide her house as collateral to obtain the loan. The type of financing obtained by Nina can be regarded as a
Answer: A
Explanation: The type of financing obtained by Nina can be regarded as a mortgage. A small-business owner may have to provide personal property as collateral, such as his or her home, in which case the loan is called a mortgage. If the small business fails to repay the loan, the lending institution may eventually claim and sell the collateral or mortgage to recover its loss.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
80) Which statement best describes bartering?
Answer: A
Explanation: Occasionally, small businesses engage in bartering—trading their own products for the goods and services offered by other businesses. For example, an accountant may offer accounting services to an office supply firm in exchange for office supplies and equipment.
Difficulty: 1 Easy
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
81) Antonio is an interior designer who starts his own consulting firm. His friend Vanessa is the owner of a coffee shop. Antonio decorates Vanessa’s coffee shop in exchange for a supply of coffee for his office. Which source of funding does this scenario best illustrate?
Answer: B
Explanation: The scenario best illustrates bartering. Occasionally, small businesses engage in bartering—trading their own products for the goods and services offered by other businesses. For example, an accountant may offer accounting services to an office supply firm in exchange for office supplies and equipment.
Difficulty: 2 Medium
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
82) Tabitha borrows some capital for her business at a low rate of interest from a community organization called Women Entrepreneurs Unite. Which form of funding a new small business does this scenario best illustrate?
Answer: D
Explanation: The scenario best illustrates debt financing. In debt financing, some community groups sponsor loan funds to encourage the development of particular types of businesses. State and local agencies may guarantee loans, especially to minority business people or for development in certain areas.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
83) Frank, the owner of a local hardware store, decides to stock extra snow blowers and shovels this year, since his city is predicted to have an unusually snowy winter. Lacking sufficient capital to purchase the extra inventory, he borrows a predetermined sum of money from his bank. Which source of funding does this scenario best illustrate?
Answer: E
Explanation: Frank is using a line of credit to meet his capital requirement. Banks and other financial institutions can grant a small business a line of credit—an agreement by which a financial institution promises to lend a business a predetermined sum on demand. A line of credit permits an entrepreneur to take quick advantage of opportunities that require external funding.
Difficulty: 3 Hard
Topic: Debt and Equity Financing
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
84) Juanita wants to run her own bowling alley, but she does not want to start it from scratch. She decides to buy an existing business. What is one advantage of doing this?
Answer: D
Explanation: Buying an existing business has the advantage of providing a built-in network of customers, suppliers, and distributors and reducing some of the guesswork inherent in starting a new business from the ground up.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
85) Noel decides to buy an existing home goods store, instead of starting his own from scratch. After he takes over the business, he learns that several customers have complained that one of the company’s distributors does not pack items sufficiently for shipping, and their items arrived broken. What is Noel’s responsibility in resolving this problem?
Answer: A
Explanation: An entrepreneur, like Noel, who buys an existing business also takes on any problems the business already has. As a result, in this scenario, Noel would be responsible to resolve this problem between his distributor and customers.
Difficulty: 3 Hard
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
86) A license to sell another’s products or to use another’s name in business, or both, is called a(n)
Answer: A
Explanation: A license to sell another’s products or to use another’s name in business, or both, is a franchise. The company that sells a franchise is the franchiser. The purchaser of a franchise is called a franchisee.
Difficulty: 1 Easy
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
87) Since Sanjana decides to use her savings to purchase the rights to own and operate a Subway outlet rather than starting her own restaurant, she is most likely to be a(n)
Answer: B
Explanation: Sanjana is most likely to be a franchisee. A license to sell another’s products or to use another’s name in business, or both, is a franchise. A franchisee is a purchaser of a franchise.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
88) Cole started the first outlet of Powerhouse, a youth athletic training facility in Chicago. The business expanded over time, and he became the owner of a chain of facilities in Illinois. Though the business had potential to expand outside Illinois, Cole did not want to take the risk or responsibility. Hence, he decided to sell the license to own and operate facilities under the brand name Powerhouse to independent owners. In return, he charged them an initial fee and a small share in the monthly profits. In this scenario, Cole is a(n)
Answer: D
Explanation: In this scenario, Cole is a franchiser. A license to sell another’s products or to use another’s name in business, or both, is a franchise. The company that sells a franchise is the franchiser.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
89) In the business approach known as franchising,
Answer: E
Explanation: In franchising, the franchisee pays the franchiser a monthly or annual fee based on a percentage of sales or profits. In return, the franchisee often receives building specifications and designs, site recommendations, management and accounting support, and perhaps most importantly, immediate name recognition.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
90) Which statement describes an advantage of franchising instead of building an independent business from scratch?
Answer: B
Explanation: Franchising allows a franchisee the opportunity to set up a small business relatively quickly, and because of its association with an established brand, a franchise outlet often reaches the break-even point faster than an independent business would.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
91) All of the following are advantages of franchising EXCEPT
Answer: A
Explanation: Advantages of franchising include management training and support, brand-name appeal, standardized quality of goods and services, national and local advertising programs, financial assistance, proven products and business formats, centralized buying power, site selection and territorial protection, and greater chance for success.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
92) Jill has always dreamed of owning and managing a hotel. Instead of starting her own independent hotel, she decides to buy a franchise from Hilton. What is one thing she should keep in mind about becoming a franchisee?
Answer: C
Explanation: Jill will acquire the rights to the franchiser’s name, logo, methods of operation, national advertising, products, and other elements associated with the business in return for a financial commitment and the agreement to conduct business in accordance with the franchiser’s standard of operations. As a franchisee, Stephanie will have to buy equipment, pay for training, and obtain a mortgage or lease.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
93) What is one commonly reported disadvantage of franchising?
Answer: D
Explanation: Some of the disadvantages of franchises include franchise fees and profit sharing with the franchiser, strict adherence to standardized operations, restrictions on purchasing, limited product line, possible market saturation, and less freedom in business decisions.
Difficulty: 2 Medium
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
94) Claire opened her own Starbucks franchise in her community. She is pleased with how quickly she was able to open her franchise and that she was able to establish a good customer base from the start because of name recognition. However, since she started this business to be her own boss, Claire is likely to
Answer: C
Explanation: In franchising, strict uniformity is the rule rather than the exception. Since Claire wants to be her own boss, she would likely get frustrated with the restrictions of a franchise.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
95) Peter has recently quit his job and plans to open a restaurant so he can be his own boss. He has two options: he can either start his own new restaurant from scratch or purchase a franchise from an already established restaurant or fast-food chain. His wife Linda supports the former plan. Which statement strengthens the argument in favor of Linda’s choice of opening a restaurant independently?
Answer: D
Explanation: It is easier and more flexible to make and execute decisions in an independent business. In franchising, the franchisee must sacrifice some freedom to the franchiser. Franchisees experience less freedom in business decisions.
Difficulty: 3 Hard
Topic: Franchising
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
96) All of the following are programs and resources a small business owner can use to improve his or her ability to compete with other businesses EXCEPT
Answer: A
Explanation: Because of the crucial role that small businesses and entrepreneurs play in the U.S. economy, a number of organizations offer programs to improve the small-business owner’s ability to compete. These include entrepreneurial training programs and programs sponsored by the SBA. Additional resources include seminars and college courses, local chambers of commerce, national publications, and weekly business journals.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
97) Jessie owns a small data processing company. In setting up her business, she asks a few other small-business owners she knows for advice on dealing with employees and government regulation, improving processes, and solving problems. What does this scenario exemplify?
Answer: E
Explanation: This scenario exemplifies networking, building relationships and sharing information with colleagues. Small-business owners often obtain advice from other small-business owners, suppliers, and even customers. Communicating with other business owners is a great way to find ideas for dealing with employees and government regulation, improving processes, or solving problems.
Difficulty: 3 Hard
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
98) Which statement accurately describes baby boomers?
Answer: C
Explanation: America’s baby boom started in 1946 and ended in 1964. The baby boomer generation consists of 75 million Americans. This segment of the population is wealthy, but many small businesses do not actively pursue it.
Difficulty: 2 Medium
Topic: Generational Cohorts
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
99) Millennials number around 83 million and represent a huge business opportunity in the United States. What is a defining feature of millennials?
Answer: E
Explanation: Millennials, born between 1981 and 1997, are also known as Generation Y, and represent a large market for small businesses. This cohort is not solely concerned about money. They are also concerned with advancement, recognition, and improved capabilities. Working remotely is more acceptable to this group than previous generations, and virtual communication may become as important as face-to-face meetings.
Difficulty: 2 Medium
Topic: Generational Cohorts
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
100) Rosemary was born in 1952. She is a wealthy North Carolina native. As she ages, Rosemary spends more of her money on travel, financial planning, and health care. Rosemary is a(n)
Answer: C
Explanation: Rosemary is a baby boomer. America’s baby boom started in 1946 and ended in 1964. This segment of the population is wealthy. As baby boomers age, industries such as travel, financial planning, and health care will continue to grow.
Difficulty: 3 Hard
Topic: Generational Cohorts
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
101) Jess is a human resource (HR) manager at a company. A survey of the company’s employees reveals that more than 80 percent of the employees belong to the demographic segment Generation Y. Based on this, which HR strategy should Jess implement in order to best serve the needs of the employees?
Answer: E
Explanation: Millennials or Generation Y, those born between 1981 and 1997 is not solely concerned about money. Those that fall into this group are also concerned with advancement, recognition, and improved capabilities. They need direct, timely feedback and frequent encouragement and recognition.
Difficulty: 3 Hard
Topic: Generational Cohorts
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
102) What is an implication of technological advances to small businesses?
Answer: D
Explanation: Technological advances and an increase in service exports have created new opportunities for small companies to expand their operations abroad. Changes in communications and technology can allow small companies to customize their services quickly for international customers.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
103) Which group represents over 17 percent of those living in the United States and is largely employed in the retail industry?
Answer: C
Explanation: There are a growing number of immigrants living in the United States, who now represent over 17 percent, or 27.6 million, of the total U.S. workforce. The largest employer of legal immigrants is retail, followed by educational services and non-hospital health care services.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
104) What is true of home-based businesses?
Answer: C
Explanation: Technology has enabled the substantial growth of entrepreneurs working out of their houses, known as home-based businesses. Many of today’s largest businesses started out from their homes. Approximately 52 percent of all small businesses are based out of the home.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
105) What affect has the economic turbulence of recent years had on small businesses?
Answer: D
Explanation: In recent years, economic turbulence has provided both opportunities and threats for small businesses. While well-funded dot-coms were failing, many small businesses found new niche markets.
Difficulty: 2 Medium
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
106) A company is struggling in the marketplace and decides to reduce layers of management, personnel, and work tasks in order to remain competitive. This company is
Answer: E
Explanation: More and more firms are emulating small businesses in an effort to improve their own bottom line. Beginning in the 1980s and continuing through the present, the buzzword in business has been to downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.
Difficulty: 2 Medium
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-06 Evaluate the demographic, technological, and economic trends that are affecting the future of small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
107) Samuel is a human resource manager at a large multinational company. After a drastic drop in revenue, his company thinks of ways to correct the situation. At a meeting with the top management, the CEO suggests that the company should reduce its workforce by 20 percent. This move would help the company cut costs and continue functioning on the current projects. In this scenario, which strategy is Samuel’s company planning to use?
Answer: E
Explanation: Samuel’s company is planning to use downsizing. Downsizing is a way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.
Difficulty: 3 Hard
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
108) What is one purpose for downsizing?
Answer: A
Explanation: Downsizing is a way to gain the advantages of small businesses. Large firms downsize or right-size to reduce management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative.
Difficulty: 2 Medium
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
109) Bette works for a large company that is trying to function like a smaller company. What might the company do to achieve this goal?
Answer: C
Explanation: More and more firms are emulating small businesses in an effort to improve their own bottom line. To do so, a company can downsize, reducing management layers, corporate staff, and work tasks in order to make the firm more flexible, resourceful, and innovative. Other firms have sought to make their businesses smaller by making their operating units function more like independent small businesses, each responsible for its profits, losses, and resources.
Difficulty: 2 Medium
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
110) Which statement accurately describes intrapreneurs?
Answer: E
Explanation: In major corporations, intrapreneurs take responsibility for, or “champion,” the development of innovations of any kind within the larger organization.
Difficulty: 1 Easy
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Remember
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
111) Brett works for a large sporting goods corporation. He champions a new football helmet with advanced concussion protection. Brett is a(n)
Answer: B
Explanation: Brett is an intrapreneur, an individual who takes responsibility for, or “champions,” the development of innovations of any kind within the larger organization.
Difficulty: 3 Hard
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
112) Javier is an employee at a company that provides information technology solutions to other firms. Recognizing his potential to innovate, the top management of the company gives him the complete liberty to develop a new smartphone application using company resources. In this scenario, Javier best illustrates a(n)
Answer: C
Explanation: In this scenario, Javier best illustrates an intrapreneur. In major corporations, intrapreneurs, like entrepreneurs, take responsibility for, or “champion,” the development of innovations of any kind within the larger organization. Often, they use company resources and time to develop a new product for the company.
Difficulty: 3 Hard
Topic: The Factors that Affect the Success or Failure of an Organization
Learning Objective: 05-07 Explain why many large businesses are trying to “think small.”
Bloom’s: Apply
AACSB: Knowledge Application
Accessibility: Keyboard Navigation
113) How do small businesses contribute to the American economy?
Answer: Small businesses are vital to the American economy. A huge percentage of all U.S. firms are classified as small businesses, and they employ about half of private sector employees. Small firms are also important as exporters. In addition, small businesses are largely responsible for fueling job creation and innovation. Small businesses also provide opportunities for minorities and women to succeed in business.
The energy, creativity, and innovative abilities of small-business owners have resulted in jobs for many people. Many small businesses today are being started because of encouragement from larger ones. Many new jobs are also created by big-company/small-company alliances. Whether through formal joint ventures, supplier relationships, or product or marketing cooperative projects, the rewards of collaborative relationships are creating many jobs for small-business owners and their employees.
Perhaps one of the most significant strengths of small businesses is their ability to innovate and to bring significant benefits to customers. Small firms produce more than half of all innovations.
Difficulty: 2 Medium
Topic: The Importance of Small Business Ownership to the U.S. Economy
Learning Objective: 05-02 Explain the importance of small business in the U.S. economy and why certain fields attract small business.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
114) What is undercapitalization? How does it contribute to the failure of a business?
Answer: The shortest path to failure in business is undercapitalization, which is the lack of funds to operate a business normally. Too many entrepreneurs think that all they need is enough money to get started, that the business can survive on cash generated from sales soon thereafter. But most businesses do not start making a profit right away, and many have seasonal variations in sales, which make cash tight. Without sufficient funds, the best small-business idea in the world will fail.
Difficulty: 2 Medium
Topic: The Advantages and Disadvantages of Small Business Ownership
Learning Objective: 05-04 Analyze the disadvantages of small business ownership and the reasons why many small businesses fail.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
115) What is a business plan and why is it important?
Answer: A key element of any business success is a business plan. A business plan is a precise statement of the rationale for a business and a step-by-step explanation of how it will achieve its goals. The business plan should include an explanation of the business, an analysis of the competition, estimates of income and expenses, and other information.
The business plan may be used by a financial institution to determine whether to loan money to the small business. It acts as a guide and reference document and helps companies assess market potential, determine price and manufacturing requirements, identify optimal distribution channels, and refine product selection.
Difficulty: 2 Medium
Topic: The Business Plan
Learning Objective: 05-05 Describe how to start a small business and what resources are needed.
Bloom’s: Understand
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
Original price was: $30.00.$20.00Current price is: $20.00.
