Entrepreneurial Finance, 6th Edition Test Bank
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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Finance is any transaction where money is exchanged for goods and services.1)Answer:TrueFalse2)Finance is any transaction where money is exchanged for money or a money-like instrument.2)Answer:TrueFalse3)A dividend is an after tax payment that must be made by all stock companies to the stockholderseach year.3)Answer:TrueFalse4)The United States operates with a free enterprise system.4)Answer:TrueFalse5)A market economy is one where all goods and services are exchanged freely.5)Answer:TrueFalse6)Wheat, soybeans, oil, and gold are commodities.6)Answer:TrueFalse7)The mental and physical talents of human beings are entrepreneurial resources.7)Answer:TrueFalse8)The stocks and bonds issued by a corporation are the economic capital resources of the corporation.8)Answer:TrueFalse9)The stocks and bonds issued by a corporation are the financial capital resources of the corporation.9)Answer:TrueFalse10)In market transactions, when one party wins, the other usually feels as though he or she lost.10)Answer:TrueFalse11)The law of demand states that as the price of an item falls, the quantity demanded will decrease,ceteris paribus.11)Answer:TrueFalse12)As the price of an item increases, the quantity of the item provided to the marketplace will increase,ceteris paribus.12)Answer:TrueFalse13)First National Bank is the central bank of the United States.13)Answer:TrueFalse1
ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Finance is any transaction where money is exchanged for goods and services.1)Answer:TrueFalse2)Finance is any transaction where money is exchanged for money or a money-like instrument.2)Answer:TrueFalse3)A dividend is an after tax payment that must be made by all stock companies to the stockholderseach year.3)Answer:TrueFalse4)The United States operates with a free enterprise system.4)Answer:TrueFalse5)A market economy is one where all goods and services are exchanged freely.5)Answer:TrueFalse6)Wheat, soybeans, oil, and gold are commodities.6)Answer:TrueFalse7)The mental and physical talents of human beings are entrepreneurial resources.7)Answer:TrueFalse8)The stocks and bonds issued by a corporation are the economic capital resources of the corporation.8)Answer:TrueFalse9)The stocks and bonds issued by a corporation are the financial capital resources of the corporation.9)Answer:TrueFalse10)In market transactions, when one party wins, the other usually feels as though he or she lost.10)Answer:TrueFalse11)The law of demand states that as the price of an item falls, the quantity demanded will decrease,ceteris paribus.11)Answer:TrueFalse12)As the price of an item increases, the quantity of the item provided to the marketplace will increase,ceteris paribus.12)Answer:TrueFalse13)First National Bank is the central bank of the United States.13)Answer:TrueFalse1
14)The Federal Reserve is the central bank of the United States.14)Answer:TrueFalse15)In order to increase the money supply, the Fed will sell government securities.15)Answer:TrueFalse16)A person making less than the cutoff rate for Social Security pays 6.2% of his income in SocialSecurity taxes.16)Answer:TrueFalse17)A person making $90,000 or less pays 6.2% of his salary in Social Security taxes.17)Answer:TrueFalse18)An athlete making $7,000,000 pays 6.2% on the full $7,000,000 in Social Security taxes.18)Answer:TrueFalse19)Social Security tax is regressive to the person making less than the cutoff rate.19)Answer:TrueFalse20)The Medicare tax of 1.45% is a proportionate tax for all.20)Answer:TrueFalseMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.21)Which of the following can be used to finance a small business?21)A)borrowing from other individualsB)using one's own savingsC)borrowing money from financial institutionsD)using cash generated from current salesE)all of the aboveAnswer:E22)Which of the following is NOT a viable source of financing for the small business?22)A)borrowing from other individualsB)using cash generated from current salesC)using one's own savingsD)borrowing money from financial institutionsE)issuing bonds to the general publicAnswer:E23)An organized effort where goods and services are freely exchanged is known as a23)A)market.B)business.C)religion.D)government.Answer:A24)Which of the following is NOT a primary participant in the financial marketplace?24)A)military unitsB)individual householdsC)businessesD)governmentsAnswer:A2
14)The Federal Reserve is the central bank of the United States.14)Answer:TrueFalse15)In order to increase the money supply, the Fed will sell government securities.15)Answer:TrueFalse16)A person making less than the cutoff rate for Social Security pays 6.2% of his income in SocialSecurity taxes.16)Answer:TrueFalse17)A person making $90,000 or less pays 6.2% of his salary in Social Security taxes.17)Answer:TrueFalse18)An athlete making $7,000,000 pays 6.2% on the full $7,000,000 in Social Security taxes.18)Answer:TrueFalse19)Social Security tax is regressive to the person making less than the cutoff rate.19)Answer:TrueFalse20)The Medicare tax of 1.45% is a proportionate tax for all.20)Answer:TrueFalseMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.21)Which of the following can be used to finance a small business?21)A)borrowing from other individualsB)using one's own savingsC)borrowing money from financial institutionsD)using cash generated from current salesE)all of the aboveAnswer:E22)Which of the following is NOT a viable source of financing for the small business?22)A)borrowing from other individualsB)using cash generated from current salesC)using one's own savingsD)borrowing money from financial institutionsE)issuing bonds to the general publicAnswer:E23)An organized effort where goods and services are freely exchanged is known as a23)A)market.B)business.C)religion.D)government.Answer:A24)Which of the following is NOT a primary participant in the financial marketplace?24)A)military unitsB)individual householdsC)businessesD)governmentsAnswer:A2
25)There are several markets in the United States. The market where property is exchanged is the25)A)commodity market.B)retail market.C)real estate market.D)financial market.E)none of the above.Answer:C26)There are several markets in the United States. The market where corn, wheat, soybeans, and oil areexchanged is the26)A)retail market.B)real estate market.C)financial market.D)commodity market.E)none of the above.Answer:D27)There are several markets in the United States. The market where stocks, bonds, and money areexchanged is the27)A)financial market.B)retail market.C)real estate market.D)commodity market.E)none of the above.Answer:A28)There are several markets in the United States. The market where television sets are exchanged isthe28)A)financial marketB)real estate market.C)retail market.D)commodity market.E)none of the above.Answer:C29)There are several markets in the United States. The market where final goods and services areexchanged is the29)A)real estate market.B)commodity market.C)financial market.D)retail market.E)none of the above.Answer:D30)The primary savers of funds in the United States are30)A)households.B)governments.C)businesses.D)all of the above.E)none of the above.Answer:A3
31)The users of funds in the United States are31)A)households.B)governments.C)businesses.D)all of the above.E)none of the above.Answer:D32)Human beings have ________ wants and desires for goods and services. They also have ________financial means with which to pay for them.32)A)limited; unlimitedB)limited; limitedC)unlimited; unlimitedD)unlimited; limitedAnswer:D33)A tree in a forest is an example of a(n)33)A)capital resource.B)entrepreneurial resource.C)natural resource.D)human resource.Answer:C34)The classroom on a college campus is an example of a(n)34)A)capital resource.B)human resource.C)natural resource.D)entrepreneurial resource.Answer:A35)When Bill Gates developed MS-DOS and founded Microsoft to market this product, he was usinga(n)35)A)human resource.B)capital resource.C)natural resource.D)entrepreneurial resource.Answer:D36)When a college hires a professor, they are employing a(n)36)A)capital resource.B)natural resource.C)entrepreneurial resource.D)human resource.Answer:D37)Which of the following is NOT an example of economic capital?37)A)a bond issued by IBMB)an electric plant used by a local utility to generate electricityC)a desk in a classroomD)a delivery truck used by Federal ExpressE)all of the aboveAnswer:A38)Which of the following is NOT an example of economic capital?38)A)a delivery truck used by Federal ExpressB)a share of stock issued by IBMC)an electric plant used by a local utility to generate electricityD)a desk in a classroomE)all of the aboveAnswer:B4
39)Which of the following is an example of financial capital?39)A)a share of stock issued by IBMB)a delivery truck used by Federal ExpressC)an electric plant used by a local utility to generate electricityD)a desk in a classroomE)all of the aboveAnswer:A40)A local computer manufacturer hires an additional worker and pays $10.00 per hour for an 8-hourday. The worker is capable of assembling 3 computers an hour. The firm sells each computer for$1,500. What is the marginal physical product of this worker?40)A)$1,500 per unit producedB)3 computers per hourC)$80.00 per dayD)$10.00 per hourAnswer:B41)The highest value surrendered when a decision is made is41)A)capital cost.B)economic cost.C)marginal cost.D)absolute cost.E)opportunity cost.Answer:E42)The cost associated with hiring one more unit of labor is42)A)absolute cost.B)opportunity cost.C)marginal cost.D)capital cost.E)economic cost.Answer:C43)John's friend just gave him a pair of concert tickets to see his favorite rock group perform thisweekend. Each ticket sells for $25. John's boss asked him to work overtime the same weekend andat the same time as the concert. John currently makes $10.00 an hour and his overtime pay for thefour hours his boss asked him to work is double the hourly rate. If John decides to go to the concert,his opportunity cost is43)A)$50.00 because that is what his friend paid for the tickets.B)$80.00 in lost pay.C)$40.00 in lost pay.D)$50.00 for the two tickets.E)nothing because the concert tickets were free for John.Answer:B5
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44)Jane just graduated from college with a Bachelor of Science Degree in Computer InformationSystems. She received the following job offers. Jones and Associates at a starting salary of $30,000.Smith Brothers at a starting salary of $33,000. Joan Cannery Consulting at a starting salary of$35,000. Consultants-R-We at a starting salary of $32,000. Andrews Computer Vendors at astarting salary of $36,000. If she takes the job with Andrews Computer Vendors, her opportunitycost is44)A)$30,000.B)$32,000.C)$33,000.D)$35,000.E)nothing because she took the job with the highest salary.Answer:D45)Jane just graduated from college with a Bachelor of Science Degree in Computer Informationsystems. She received the following job offers. Jones and Associates at a starting salary of $30,000.Smith Brothers at a starting salary of $33,000. Joan Cannery Consulting at a starting salary of$35,000. Consultants-R-We at a starting salary of $32,000. Andrews Computer Vendors at astarting salary of $36,000. If she takes the job with Jones and Associates, her opportunity cost is45)A)$30,000.B)$32,000.C)$33,000.D)$35,000.E)$36,000.Answer:E46)Which of the following is included in Gross Income?46)A)interest earned on savings accountsB)wages and tipsC)profit made by an entrepreneurD)rental income on propertyE)all of the aboveAnswer:E47)Which of the following is NOT a form of taxes that governments use?47)A)proportional taxesB)proposed taxesC)regressive taxesD)progressive taxesE)all of the aboveAnswer:B48)John Gates made $25,000 last year and paid $2,500 in taxes on this income. Jane Smith made $30,000last year and paid $3,000 in taxes on this income. What type of tax is the government using?48)A)progressive taxesB)proposed taxesC)regressive taxesD)proportional taxesE)impossible to calculate with the information providedAnswer:D6
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49)John Gates made $25,000 last year and paid $1,500 in taxes on this income. Jane Smith made $30,000last year and paid $3,000 in taxes on this income. What type of tax is the government using?49)A)progressive taxesB)regressive taxesC)proportional taxesD)proposed taxesE)impossible to calculate with the information providedAnswer:A50)John Gates made $25,000 last year and paid $2,500 in taxes on this income. Jane Smith made $30,000last year and paid $2,700 in taxes on this income. What type of tax is the government using?50)A)progressive taxesB)proportional taxesC)regressive taxesD)proposed taxesE)impossible to calculate with the information providedAnswer:C51)John Gates made $25,000 last year and paid $2,500 in taxes. What percentage of his income did Johnpay in taxes?51)A)1%B)9%C)10%D)90%E)impossible to calculate with the information providedAnswer:C52)Jane Smith made $30,000 last year and paid $8,400 in taxes. What percentage of her income did Janepay in taxes?52)A)2.8%B)3.57%C)7.2%D)28%E)72%Answer:D53)Which of the following is an example of a regressive tax?53)A)flat taxB)sales taxC)property taxD)income taxE)All taxes are regressive taxes.Answer:B54)Which of the following is an example of a progressive tax?54)A)flat taxB)income taxC)property taxD)sales taxE)Both A and B above were noted in the text as progressive taxes.Answer:E7
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55)Which of the following is an example of a progressive tax?55)A)Social Security taxB)sales taxC)income taxD)property taxE)All taxes are progressive taxes.Answer:C56)The price paid for money is56)A)the interest rate charged by the lender.B)the principal and interest rate charged by the lender.C)the amount borrowed from the lender.D)the actual payment made by the borrower to the lender.E)There is no price paid for money as it is not for sale.Answer:A57)The supply of money saved includes all of the following EXCEPT57)A)stocks held for investors by brokerage houses.B)demand deposits in banks.C)savings accounts in banks.D)money market mutual funds in brokerage houses.E)all of the above.Answer:A58)A union has negotiated a contract that states the following: work up to 40 hours per week will bepaid at a base rate of $10 per hour. All work in excess of 40 hours, but less than 48 hours will bepaid at a rate equal to 112times the base rate. Any work in excess of 48 hours will be paid at doubletime. This pay scale agrees with58)A)the law of supply.B)the law of supply and demand.C)the law of demand.D)ceteris paribus.E)can't tell with the information provided.Answer:A59)Albert Jones went to his local department store to purchase a pair of Levi's®. He thought that thestyle of Levi's®that he wanted would sell for about $30 a pair. When he got to the store, he saw asign which said, Levi's®, all styles, $18 a pair. Albert bought three pairs of Levi's®. The behavior ofAlbert is consistent with59)A)the law of supply and demand.B)the law of demand.C)the law of supply.D)ceteris paribus.E)can't tell with the information provided.Answer:B8
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Table 1-1. Supply and Demand for Personal ComputersMarket Priceper ComputerQuantityDemandedQuantitySupplied$2,00014,00020,000$1,90015,00019,000$1,80016,00018,000$1,70017,00017,000$1,60018,00016,000$1,50019,00015,00060)Refer to Table 1-1. At a market price of $1,600, there will be60)A)a surplus or a shortage of 2,000 computers.B)a surplus of 2,000 computers.C)a shortage of 2,000 computers.D)neither a surplus nor a shortage of computers as the market is in equilibrium at this price.Answer:C61)Refer to Table 1-1. At a market price of $1,700, there will be61)A)a shortage of 2,000 computers.B)a surplus or a shortage of 2,000 computers.C)neither a surplus nor a shortage of computers as the market is in equilibrium at this price.D)a surplus of 2,000 computers.Answer:C62)Refer to Table 1-1. At a market price of $1,800, there will be62)A)a surplus or a shortage of 2,000 computers.B)a surplus of 2,000 computers.C)neither a surplus nor a shortage of computers as the market is in equilibrium at this price.D)a shortage of 2,000 computers.Answer:B63)When the supply of money saved exceeds the demand for money, then banks will63)A)increase interest rates to attract more savers.B)lower interest rates to discourage savers.C)put money on sale by making loans more attractive.D)both A and B above.E)both B and C above.Answer:E64)Changing the supply of money to expand or contract economic activity is64)A)legislative policy.B)monetary policy.C)judicial policy.D)presidential policy.E)congressional policy.Answer:B9
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65)The four basic factors that affect the price paid (interest rate) for money are65)A)the supply of money saved, the demand for borrowed funds, Federal Reserve policy, and risk.B)the demand for money saved, the supply for borrowed funds, Federal Reserve policy, andrisk.C)the supply of money saved, the supply for borrowed funds, Federal Reserve policy, and risk.D)the demand for money saved, the demand for borrowed funds, Federal Reserve policy, andrisk.Answer:A66)When the Federal Reserve increases the interest rate it charges banks to borrow reserves, it iscontrolling the money supply by using which of the following tools?66)A)reserve requirements ratioB)riskC)open market operationsD)discount rateE)unable to tell with the information providedAnswer:D67)When the Federal Reserve notifies banks that they must hold fifteen cents for every dollar that isdeposited, it is controlling the money supply by using which of the following tools?67)A)riskB)reserve requirements ratioC)open market operationsD)discount rateE)unable to tell with the information providedAnswer:B68)You read an article in the paper that stated the Federal Reserve Bank sold $500 million ofgovernment securities on Tuesday of last week. When the Fed did this they were controlling themoney supply by using which of the following tools?68)A)open market operationsB)reserve requirements ratioC)discount rateD)riskE)unable to tell with the information providedAnswer:A69)If the Fed sells $10,000 in government securities, it will have the effect of69)A)decreasing the money supply.B)changing the money supply, but the direction is not clear.C)increasing the money supply.D)having no effect on the money supply.E)unable to tell with the information provided.Answer:A10
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70)If the Fed purchases $10,000 in government securities it will have the effect of70)A)decreasing the money supply.B)changing the money supply, but the direction is not clear.C)increasing the money supply.D)having no effect on the money supply.E)unable to tell with the information provided.Answer:C71)The probability that the desired return on an investment will be different from the desired return isdefined as71)A)reserve requirements ratio.B)risk.C)open market operations.D)discount rate.E)unable to tell with the information provided.Answer:B72)Jerry Jones has a Visa®card with the Very Big Interstate Bank. He notices that the interest ratecharged on this card is 19.5% per annum. Jerry has been employed by the same company for 15years and has excellent credit. The company has a credit union that will issue Jerry a Visa®cardwith an interest rate of 14.6%. The credit union offered Jerry this reduced rate because72)A)all Visa®credit cards charge the same rate.B)the credit union manager likes Jerry.C)the unsystematic risk is lower for credit union members than it is for the general population.D)the systematic risk is lower for credit union members than it is for the general population.Answer:C11
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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)A plan that relates to a specific area of a business, such as marketing, is known as a strategic plan.1)Answer:TrueFalse2)A plan that relates to a specific area of a business, such as marketing, is known as a functional plan.2)Answer:TrueFalse3)A goal is a measurable objective that can be reached in a specified time frame.3)Answer:TrueFalse4)Public corporations have double taxation, unlimited liability for owners, and can raise largeamounts of cash by selling stocks or bonds.4)Answer:TrueFalse5)Public corporations have double taxation, limited liability for owners, and can raise large amountsof cash by selling stocks or bonds.5)Answer:TrueFalse6)Limited partnerships have limited liability for all of the partners.6)Answer:TrueFalse7)A Subchapter S corporation can sell its stock to any number of shareholders.7)Answer:TrueFalse8)Franchisers purchase the right to sell products or services of the franchisee.8)Answer:TrueFalse9)A franchiser sells the right to produce a product or service to the franchisee.9)Answer:TrueFalse10)The Service Core of Retired Executives (SCORE) is a group of retired government bureaucrats whoprovide help to small business owners.10)Answer:TrueFalse11)The Service Core of Retired Executives (SCORE) is a group of retired business owners andmanagers who provide help to small business owners.11)Answer:TrueFalse12)Prior to applying for a loan through an approved Small Business Administration lender, you mustestablish the form of business ownership.12)Answer:TrueFalse13)Partnerships have the same basic tax requirements as the sole proprietorship and are, therefore, themost popular form of business ownership.13)Answer:TrueFalse1
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14)The buy-sell agreement prevents a partner from selling a partnership interest without the consentof the other partners.14)Answer:TrueFalse15)If a partner dies, his share of the partnership must be sold to an outsider.15)Answer:TrueFalse16)The buy-sell agreement preserves the continuity of ownership and insures that everyone is treatedfairly.16)Answer:TrueFalse17)In a limited liability partnership, all of the partners have unlimited liability.17)Answer:TrueFalse18)In a limited liability partnership, all of the partners can participate in day-to-day operations.18)Answer:TrueFalse19)A limited liability partnership is legal in all states.19)Answer:TrueFalse20)The SBA, SCORE, and the authors recommend that an executive summary be attached to thebeginning of the business plan.20)Answer:TrueFalse21)When composing a business plan, the executive summary should be written first21)Answer:TrueFalse22)The executive summary is the initial introduction to the business plan.22)Answer:TrueFalse23)A mission statement is specific.23)Answer:TrueFalse24)Company goals describe where you want your business to be at some future date.24)Answer:TrueFalse25)A marketing mix is a marketing strategy.25)Answer:TrueFalse26)Secondary data gathers information firsthand.26)Answer:TrueFalse27)The Operational plan describes how a business will actually deliver your product or service to thecustomer.27)Answer:TrueFalse28)If your business has more than 10 people, you do not need an organizational chart.28)Answer:TrueFalse2
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29)Every succession plan must have a buy-sell agreement.29)Answer:TrueFalse30)When borrowing funds for a business, lenders provide money in exchange for partial ownership ofthe business.30)Answer:TrueFalse31)When obtaining funds for a business, investors provide money in exchange for partial ownership ofthe business.31)Answer:TrueFalse32)A company in the Later Stage of development usually has negative cash flow.32)Answer:TrueFalse33)The best place to get a loan for a business is the Small Business Administration because they loanyou government funds.33)Answer:TrueFalse34)The SBA lends the funds for a business start-up but is not a guarantor of the loan.34)Answer:TrueFalse35)The SBA has two major programs: 7(a) for general business purposes and 504 for the purchase ofbuildings or major equipment.35)Answer:TrueFalse36)Grants are moneys provided to businesses that don't have to be repaid.36)Answer:TrueFalseMULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.37)The management function that takes us from some current state to a desired future state is37)A)organizing.B)controlling.C)planning.D)directing.E)staffing.Answer:C38)The basic five functions that every manager must perform include38)A)planning, financing, bookkeeping, controlling, staffing.B)planning, organizing, controlling, directing, financing.C)planning, directing, organizing, staffing, controlling.D)planning, organizing, bookkeeping, directing, staffing.E)None of the above include all of the management functions.Answer:C3
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39)The time horizon for strategic plans is39)A)more than one year.B)ten or more years.C)five years.D)fifteen or more years.E)There is no definite time horizon for strategic plans.Answer:E40)Carla has just started a business and is asking herself the following question. Where do I want mybusiness to be in five years? Carla is in the process of40)A)developing a strategic plan.B)determining how to write a functional plan.C)establishing the basic control functions for her business.D)establishing basic parameters for her business.E)analyzing her financial requirements.Answer:A41)Converting functional plans into annual dollar requirements is the process of41)A)financial planning.B)monetary planning.C)budgeting.D)controlling.E)accounting.Answer:C42)Timothy is in the process of establishing goals for his company. Which of the following is a goal?42)A)Our business should increase sales by 10 percent.B)Our business should increase sales every year.C)Our business should increase sales by 10 percent every year for the next five years.D)Our business should market to all customers.E)Our marketing area should include the entire United States.Answer:C43)Gathering all of the monetary requirements that a firm will need in order to support eachfunctional plan is the process of43)A)financial planning.B)accounting.C)budgeting.D)controlling.E)monetary planning.Answer:A44)Geoffrey is in the process of determining how many people he will require to operate his restaurantduring each business day. He is performing the management function of44)A)staffing.B)directing.C)organizing.D)planning.E)controlling.Answer:A4
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45)Jennifer is the manager of a credit card processing department. She has determined that eachprocessor should be able to input information on 75 credit purchases per hour. She has establisheda range of plus or minus 5 purchases and an error rate of no more than 2 per hour. Jennifer isperforming the management function of45)A)staffing.B)organizing.C)planning.D)directing.E)controlling.Answer:E46)Carl is a construction supervisor. He has to make sure that the inside rooms of the house arepainted by this evening because the carpeting company is scheduled to bring in the carpeting firstthing tomorrow morning. He told Tim to paint the hall and told Anne to paint the master bedroom.Because he is short-handed, he will paint the kitchen. Carl is performing the management functionof46)A)organizing.B)staffing.C)directing.D)controlling.E)planningAnswer:C47)Tom is establishing some basic plans for his business. He is in the process of writing down somebasic questions that he believes the plans should answer. Which of the following questions does notrelate to establishing a functional plan?47)A)Where will they perform their duties?B)Who will carry out this plan?C)What skills do they need?D)When will it be accomplished?E)Where do I want my business to be in five years?Answer:C48)The majority of businesses in the United States today are organized as48)A)corporations.B)sole proprietorships.C)partnerships.D)Subchapter S corporations.E)limited partnerships.Answer:B49)Which of the following is NOT a disadvantage of the sole proprietorship?49)A)limited liability for the ownerB)limited lifetime of the businessC)limited management expertiseD)limited access to capitalAnswer:A5
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50)The sole proprietor has all of the following advantages, EXCEPT50)A)choice of product to be sold.B)choice of retirement plan.C)choice of location for the business.D)choice of how to pay federal and local taxes.E)choice of services to be offered.Answer:D51)One drawback to a partnership is that it51)A)generally has more management expertise than the sole proprietorship.B)generally has more access to capital than the sole proprietor.C)has unlimited liability for each of the partners.D)is subject to double taxation.Answer:C52)The form of business ownership that gives the owner total control of how the business is run is the52)A)limited partnership.B)partnership.C)Subchapter S corporation.D)sole proprietorship.E)corporation.Answer:D53)The form of business ownership that involves double taxation and limited liability for the owners isthe53)A)corporation.B)sole proprietorship.C)partnership.D)limited partnership.E)Subchapter S corporation.Answer:A54)Jane is the president of a business. She runs the business on a daily basis and makes all of thedecisions because she has ten years of experience in this business. There are ten other owners in thisbusiness, but they have no say in how this business is being run. Jane's business is probablyorganized as a54)A)limited partnership.B)Subchapter S corporation.C)sole proprietorship.D)partnership.E)corporation.Answer:A6
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55)Carl, Anne, and Al were friends in college. After graduation they decided to open a computerconsulting business. They each have $20,000 to put into the business, and want equal shares of thebusiness. However, they are worried about liability because they had heard of a consultant whocrashed a client's computer and was sued for $1,000,000. They also want to avoid double taxation.The most likely form of business organization for them would be a55)A)corporation.B)partnership.C)Subchapter S corporation.D)limited partnership.E)sole proprietorship.Answer:C56)Carl, Anne, and Al were friends in college. After graduation they decided to open a company thatsells computer printer ribbons and cartridges. They each have $20,000 to put into the business, andwant equal shares of the business. They are not worried about liability because they are not actuallygoing to work on printers or going to work in their customer's place of business. They also want toavoid double taxation. The most likely form of business organization for them would be a56)A)sole proprietorship.B)corporation.C)Subchapter S corporation.D)limited partnership.E)partnership.Answer:C57)Unlimited liability for the owner is a problem for which of the following?57)A)limited partnershipB)corporationC)partnershipD)sole proprietorshipE)both C and DAnswer:E58)Which of the following is true for a Limited Liability Company (LLC)?58)A)Business income is taxed at the individual's personal rate.B)The company is limited in its liability.C)Business income is taxed at the corporate rate.D)The owners have unlimited liability.E)None of the above.Answer:A59)You have always wanted to own your own McDonald's restaurant. You contacted this corporationand received the details of purchasing one of these restaurants. If you are granted permission, youwill become a ________ and the McDonald's corporation is the ________.59)A)franchiser; franchiserB)franchiser; franchiseeC)franchisee; franchiseeD)franchisee; franchiserAnswer:D7
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60)Which of the following is NOT an advantage of obtaining a franchise?60)A)name recognitionB)marketing strategy and advertisingC)training of employees and managersD)standardization of products and servicesE)having a predetermined location that guarantees a profitAnswer:E61)Which of the following pertain to the internal workings of a company?61)A)strengths and threatsB)opportunities and threatsC)strengths and weaknessesD)opportunities and weaknessesE)strengths and opportunitiesAnswer:C62)Which of the following pertain to the external factors that are outside the control of a company?62)A)opportunities and weaknessesB)strengths and threatsC)opportunities and threatsD)strengths and weaknessesE)strengths and opportunitiesAnswer:C63)SWOT is an acronym which stands for63)A)Strengths, Weaknesses, Obligations, and Threats.B)Strengths, Working capital, Opportunities, and Threats.C)Strengths, Weaknesses, Opportunities, and Troubles.D)Strengths, Working capital, Obligations, and Threats.E)Strengths, Weaknesses, Opportunities, and Threats.Answer:E64)George is analyzing the market for his bagel business. He noticed that there are no bagel shops inthe northeast section of his city. For George's bagel business, this represents a(n)64)A)opportunity.B)strength.C)threat.D)obligation.E)weakness.Answer:A65)George is analyzing the market for his bagel business. He saw an advertisement for a new bagelshop that has just opened one mile from his bagel shop. For George's bagel business, this representsa(n)65)A)weakness.B)strength.C)opportunity.D)threat.E)obligation.Answer:D8
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66)George is analyzing the market for his bagel business. He knows that his shop has the highestquality bagel in the city. He has picked up several customers who previously shopped at acompetitor but told him they switched because of his consistent quality. For George's bagelbusiness, this represents a(n)66)A)opportunity.B)obligation.C)strength.D)weakness.E)threat.Answer:C67)Environmental factors can lead the business owner to evaluate and change his or her businessplans. An industry that recently underwent a major shift in marketing due to technological changeand new competition, according to the textbook, is67)A)the convenience store industry.B)the oil industry.C)the cereal industry.D)the automobile industry.E)the fast food industry.Answer:A68)When applying for a loan with the Small Business Administration, you will have to provide taxreturns for a period of68)A)four years.B)five years.C)one year.D)three years.E)two years.Answer:D69)SCORE is a source of information and training for the small business owner. The acronym SCOREstands for69)A)Special College for Retraining Employees.B)Special Core of Retired Entrepreneurs.C)Service Core of Retired Executives.D)Service College for Retaining Employees.E)none of the above.Answer:C70)Location is probably the single most important factor affecting the success of the ________ businessestablishment.70)A)manufacturingB)retailingC)wholesaleD)both A and B aboveE)both B and C aboveAnswer:B9
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71)When running a SWOT analysis, one should also consider personal strengths and weaknessesbecause71)A)business owners should evaluate those items where they are weak.B)business owners should list those items that they really dislike doing.C)business success requires that owners have no weaknesses.D)both A and B above.E)both B and C above.Answer:D72)Which of the following is a weakness?72)A)an area of your business that you perform well inB)you perform better than your competitorsC)inexperienced workersD)none of the aboveAnswer:C73)An executive summary should be attached to73)A)the middle of the business plan.B)the beginning of the business plan.C)the end of the completed business plan.D)none of the above.Answer:B74)Which of the following should NOT be in the executive summary?74)A)a brief description of the product or serviceB)tour business strategy for successC)a summary of quarterly revenueD)an estimate of how much money you will needAnswer:C75)A mission statement75)A)is a brief statement explaining the purpose of the company and its guiding principles.B)helps the organization reach its goals.C)is very specific.D)none of the above.Answer:A76)In identifying your form of business ownership, which of the following should be included?76)A)your ownership structureB)advantages of your choiceC)reasons for your selectionD)all of the aboveAnswer:D77)Which of the following is an example of primary data?77)A)public information in librariesB)reading the newspaperC)gathering your own data firsthandD)gathering information about your competitionAnswer:C78)Which of the following variables in the marketing mix is the easiest to change rapidly?78)A)productB)priceC)promotionD)placeAnswer:B10
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79)The financial plan consists of79)A)a 4-year profit projection.B)breakeven analysis.C)a 12-month projection.D)all of the above.Answer:D80)Bankers differ from investors in that80)A)bankers are looking for assurances of interest payments and repayment of the principal of theloan.B)bankers are looking for company growth.C)bankers are looking for a return on equity.D)all of the above.Answer:A81)Which of the following stages has a concept and is less than 18 months old?81)A)seed/start-up stageB)early stageC)expansion stageD)later stageAnswer:A82)Which of the following stages has high revenue growth but does not show a profit?82)A)seed/start-up stageB)early stageC)expansion stageD)later stageAnswer:C83)Which of the following stages is when a company is less than 3 years old and the product or serviceis commercially available?83)A)seed/start-up stageB)early stageC)expansion stageD)later stageAnswer:B84)Which of the following stages has a positive cash flow?84)A)seed/start-up stageB)early stageC)expansion stageD)later stageAnswer:D85)Which of the following does NOT hold true for angel investors?85)A)They take an active position and provide mentoring.B)They normally are wealthy individuals.C)They provide the seed money for the startup and early stages of company growth.D)They have an intolerance for loss.Answer:D86)Which of the following does hold true for venture capitalists?86)A)They invest several million dollars.B)They provide financing at the later stages of business development.C)Invest in companies with proven track records.D)All of the above.Answer:D11
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87)Which of the following forms of business ownership is the most prevalent for a buy-sellagreement?87)A)corporationB)partnershipC)LLCD)Subchapter S CorporationAnswer:B88)When formulating a Business Succession Plan, the owner should determine several things. Whichof the following is NOT considered?88)A)Are the owner and the spouse on the same page with respect to continuing the business?B)Should the business be sold to pay inheritance taxes?C)Should ownership be held by family members only?D)Does the owner want the business ownership to pass directly to the heirs or in trust?Answer:B89)Which of the following are NOT included in the financial section of a business proposal whenseeking a bank loan?89)A)The interest rate that will be paid for the loan.B)What collateral you are offering for the loan.C)How many years it will take to repay the loan.D)The amount of the loan.Answer:A90)Which of the following holds true for the Small Business Administration?90)A)The SBA does not guarantee small business loans.B)The SBA requires that you create your business plan or loan proposal prior to applying for anSBA guaranteed loan.C)The SBA actually loans money to small business and is a bank.D)A 504 Loan Program requires a 25% minimum down payment.Answer:B91)Which of the following hold true with regard to grants?I.Grants are moneys provided to business and other entities that don't have to be repaid.II.Grantee must perform the service for which the grant was approved.III.Government grants exceed $400 billion per year.IV.Size standards for all businesses to qualify for grants are the same for all industries.91)A)I & IIB)I & IVC)I, II, & IVD)I, II, & IIIAnswer:D12
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ExamName___________________________________TRUE/FALSE. Write 'T' if the statement is true and 'F' if the statement is false.1)Your company is effective if you establish a specific goal and accomplish that goal.1)Answer:TrueFalse2)Your company is efficient if you set a specific goal and accomplish that goal with the use ofmaximum resources.2)Answer:TrueFalse3)Profitability is an absolute number that appears on the bottom line of an income statement.3)Answer:TrueFalse4)Profit is an absolute number that appears on the bottom line of an income statement.4)Answer:TrueFalse5)Another term for entrepreneurial profit is accounting profit.5)Answer:TrueFalse6)When you go into business, your goal should be to earn both an accounting and an entrepreneurialprofit.6)Answer:TrueFalse7)For a business using leverage, the owner of the business can always count on having to pay thesame interest payments on debt.7)Answer:TrueFalse8)You are using financial leverage when you use your own money to finance your debt.8)Answer:TrueFalse9)Chapter 11 bankruptcy occurs when a business has to liquidate all of its assets in order to pay off itscreditors.9)Answer:TrueFalse10)Chapter 11 bankruptcy occurs when a business seeks court protection to hold off its creditors whilea plan is developed to pay off its creditors.10)Answer:TrueFalse11)Chapter 7 bankruptcy occurs when a company is forced to liquidate all of its assets in order to payoff its creditors.11)Answer:TrueFalse12)When a corporation enters Chapter 7 bankruptcy, the stockholders don't have to worry becauseafter the business is sold, they will receive their investment back.12)Answer:TrueFalse1
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13)Once a company sells more units of a product than are required to break even, the company willmake a profit.13)Answer:TrueFalse14)When a company sells fewer units of a product than are required to break even, the company islosing money.14)Answer:TrueFalse15)Retail firms that sell hundreds of items will normally calculate break even for every product theysell.15)Answer:TrueFalse16)The degree of combined leverage is the product of the degree of operating leverage and the degreeof financial leverage.16)Answer:TrueFalse17)In a leveraged approach, the break-even point is higher than in a conservative approach.17)Answer:TrueFalse18)The degree of operating leverage can be explained by using the following 2 variables : sales andearnings per share.18)Answer:TrueFalse19)The degree of financial leverage can be explained by using the following 2 variables: operatingincome and earnings per share.19)Answer:TrueFalse20)The degree of combined leverage can be explained by using the following 2 variables: sales andearnings per share.20)Answer:TrueFalse21)Leverage uses those fixed costs of finance only to magnify a company's return.21)Answer:TrueFalse22)The lower the DOL, the greater the change in operating income will be as a result of a slight changein sales.22)Answer:TrueFalse23)If a company has no operating leverage, its degree of financial leverage is equal to its degree ofcombined leverage.23)Answer:TrueFalse24)Florida is a state that has the Homestead exemption.24)Answer:TrueFalse25)President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act on April 20,2005.25)Answer:TrueFalse2
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MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.26)Joan purchases a government bond for $10,000 that pays 7% annual interest. Jim purchases $20,000worth of corporate bonds that pay 10% annual interest. If Joan's goal is to earn $700 per year on herinvestment, and Jim's goal is to earn $2,000 per year on his investment, then26)A)both Jim and Joan are effective.B)Jim is more efficient than Joan.C)Joan is more efficient than Jim.D)both A and B above are correct.E)both A and C above are correct.Answer:D27)Obtaining the highest possible return with the minimum use of resources committed is the basicdefinition of27)A)effectiveness and efficiency.B)efficiency.C)effectiveness.D)none of the above.Answer:B28)Accomplishing a specific task or reaching a goal is the basic definition of28)A)effectiveness.B)effectiveness and efficiency.C)efficiency.D)none of the above.Answer:A29)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an29)A)accounting profit of $40,000.B)accounting profit of $40,000 and an entrepreneurial profit of $40,000.C)entrepreneurial profit of $40,000, but had an accounting loss.D)entrepreneurial profit of $40,000.E)Both A and D above are correct.Answer:A30)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $150,000 and total expenses of $110,000. Sam earned an30)A)accounting profit of $40,000.B)entrepreneurial profit of $40,000, but had an accounting loss.C)accounting profit of $40,000 and an entrepreneurial profit of $40,000.D)entrepreneurial loss of $40,000.E)Both A and D above are correct.Answer:E3
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31)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $190,000 and total expenses of $110,000. Sam earned an31)A)accounting profit of $80,000 and an entrepreneurial profit of $40,000.B)accounting profit of $40,000.C)entrepreneurial profit of $80,000, and an accounting profit of $40,000.D)entrepreneurial profit of $80,000.E)Cannot tell with the information provided.Answer:A32)Sam quit his job as an accountant with We Keep Books Accurately to open his own accounting firm.He earned $40,000 with the accounting firm We Keep Books Accurately. During the current year,Sam had revenues of $150,000 and total expenses of $110,000. For Sam, the opportunity cost ofgoing into business was32)A)$150,000.B)$40,000.C)$110,000.D)zero, because he had a profitable business.Answer:B33)Profitability is the same as33)A)effectiveness.B)meeting a goal.C)return on investment.D)expectations of the owners.E)profit.Answer:C34)You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation. Both of thesecorporations have $100 million in total assets. The Cog corporation had a net profit of $5 millionand the Gear corporation had a net profit of $10 million. You read their annual reports and bothcompanies had established a goal of having a net profit equal to 15% of total assets.34)A)Cog is more effective than Gear.B)Gear is more efficient than Cog.C)Cog is more efficient than Gear.D)Gear is more effective than Cog.E)Cannot tell without more information.Answer:B35)You invested $5,000 in the Cog corporation and $5,000 in the Gear corporation. Both of thesecorporations have $100 million in total assets. The Cog corporation had a net profit of $5 millionand the Gear corporation had a net profit of $10 million. You read their annual reports and bothcompanies had established a goal of having a net profit equal to 10% of total assets.35)A)Gear is effective and more efficient Cog.B)Cog is effective but less efficient than Gear.C)Cog is effective and more efficient than Gear.D)Gear is effective but less efficient than Cog.E)Cannot tell without more information.Answer:C4
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36)In order to determine the break-even point, we must identify several variables. At a minimum wemust know36)A)variable costs.B)sales.C)fixed costs.D)all of the above.Answer:D37)Normally to compute break even, the manufacturing firm will use ________ and the retail firm willuse ________.37)A)discrete units; discrete unitsB)sales dollars; sales dollarsC)sales dollars; discrete unitsD)discrete units; sales dollarsAnswer:D38)Break-even analysis is the process of determining ________ before we begin earning a profit.38)A)what price we will charged for a product, or how many units must be producedB)how many units must be produced, or how much revenue must be obtainedC)how much net profit will be made, or how many units will be producedD)how much revenue must be obtained, or how much net profit will be madeE)what price will be charged for a product, or how much net profit will be madeAnswer:B39)The contribution margin in break-even analysis is derived by subtracting39)A)fixed costs from price.B)variable cost per unit from fixed costs.C)price from variable costs.D)fixed costs from variable costs.E)variable cost per unit from price.Answer:E40)All of the costs that a firm must pay, even if there are no sales are40)A)contribution costs.B)prices charged.C)sales costs.D)fixed costs.E)variable costs.Answer:D41)The basic formula for calculating break even is41)A)FC/(P-VC).B)VC/(FC-P).C)VC/(P-FC).D)FC/(VC-P).E)P/(FC-VC).Answer:A5
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Table 5-1. Steel Shelf CompanyCategory CostPayment PeriodCostRentMonthly$3,000UtilitiesMonthly1,100InsuranceQuarterly1,200Property TaxesAnnually6,000SteelPer Shelf9.00FormingPer Shelf0.25LaborPer Shelf0.75PricePer Shelf20.0042)Refer to Table 5-1. The Steel Shelf Company will break even with monthly production of ________units, and sales of ________ dollars42)A)250; 5,000B)10,000; 500C)500; 10,000D)5,000; 250Answer:C43)Refer to Table 5-1. The Steel Shelf Company has variable costs per unit of43)A)$25.00B)$18.33.C)$20,00.D)$10.00.Answer:D44)Refer to Table 5-1. The Steel Shelf Company charges a price of ________ per unit.44)A)$25.00B)$10.00C)$20.00D)$18.33Answer:C45)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company will make a profit of45)A)$12,000.B)$5,000.C)$6,000.D)$1,000.Answer:D46)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company has monthly fixed costs of46)A)$6,000.B)$12,000.C)$1,000.D)$5,000.Answer:D47)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company has total revenue of47)A)$12,000.B)$6,000.C)$1,000.D)$5,000.Answer:A48)Refer to Table 5-1. At 600 units of production, the Steel Shelf Company has total variable costs of48)A)$5,000.B)$6,000.C)$1,000.D)$12,000.Answer:B49)Refer to Table 5-1. At 300 units of production, the Steel Shelf Company49)A)earns $2,000.B)earns $1,000.C)loses $2,000.D)loses $1,000.Answer:C6
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50)Refer to Table 5-1. The Steel Shelf Company has monthly fixed costs of ________ and acontribution margin of ________.50)A)$5,000; $20B)$11,300; $10C)$11,300; $20D)$5,000; $10E)$5,800; $10Answer:D51)Refer to Table 5-1. The Steel Shelf Company has a monthly break-even quantity of ________shelves.51)A)580B)250C)1,1300D)500E)Cannot calculate with information provided.Answer:D52)Refer to Table 5-1. If the Steel Shelf Company wants to earn a profit of $3,000 per month they willhave to produce ________ shelves.52)A)800B)1,000C)1,500D)500Answer:A53)Refer to Table 5-1. The Steel Shelf Company has variable costs of ________ per shelf.53)A)$10.00B)$9.25C)$9.00D)$30.00E)$20.00Answer:A54)Refer to Table 5-1. The Steel Shelf Company has annual fixed costs of ________.54)A)$69,600B)$5,300C)$60,000D)$135,600E)$56,400Answer:C55)Refer to Table 5-1. The Steel Shelf Company has to produce ________ shelves on an annual basis tobreak even.55)A)6,000B)500C)6,960D)13,560E)Cannot calculate with information that is provided.Answer:A56)Refer to Table 5-1. The Steel Shelf Company has to have total annual revenue of ________ in orderto break even.56)A)$69,600B)$135,600C)$120,000D)$10,000E)Cannot calculate with information that is provided.Answer:C7
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