In franchising, the reputation of the franchiser is dependent on:

Text:

Authors:

Publisher:

Effective Small Business Management: An Entrepreneurial Approach

9th Edition, 2009 ISBN-13: 9780136152705

Norman M. Scarborough, Douglas L. Wilson, and Thomas W. Zimmerer

Pearson Education

925 N. Spurgeon Street, Santa Ana, CA 92701 Phone: 714-547-9625 Fax: 714-547-5777

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BAM 418 Small Business Management

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Final Examination

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BAM 418 - Small Business Management

Multiple Choice Questions (Enter your answers on the enclosed answer sheet)

1) The nation is rapidly moving from:

a. industrial to knowledge-based b. industrial to capitalism c. capitalism to industrial d. none of the above

2) Entrepreneurs start businesses for a number of reasons including:

a. the opportunity to get rich much quicker than if they work for a large company b. having to deal with less government regulation than as an executive of a large company c. an opportunity to make a difference d. a much lower risk of career failure due to layoff or acquisition than working for a large company

3) Surveys show that owners of small businesses believe that:

a. they work harder on their own than if they worked for someone else b. they earn less than if they worked for someone else c. venture capital is relatively easy to raise d. they are less satisfied than if they worked for someone else

4) Which of the following is true about home-based businesses?

a. The average home-based business earns over $50,000 a year. b. The growth of technology has significantly slowed the growth of home-based busi- nesses. c. Over 2/3 of all home-based businesses are owned by minority males. d. Home-based businesses tend to focus on blue-collar, lower skill industries.

5) “Copreneurs” are marked by:

a. a decline in the number of businesses b. their similarity to the traditional mom and pop operation c. a greater success at raising venture capital than sole proprietorship-type busi- nesses d. a division of labor by expertise

6) The location of the business is especially important for what type of start-up business?

a. manufacturing b. service c. retail d. computer-based service

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Final Examination

BAM 418 - Small Business Management

7) The key ingredient-the crucial element-to avoiding the failure of a new business is:

a. the business plan b. differentiating the business and product from the competition c. technical expertise regarding the product d. knowing the business

8) “Copreneurs” are:

a. personality traits of entrepreneurs b. business magazines targeted towards entrepreneurs c. entrepreneurial couples who work together as co-owners of their business d. none of the above

9) Forces driving the entrepreneurial trend in our economy include which of the follow- ing?

a. Technological advancement b. World Wide Web c. Shift to a service economy d. all of the above

10) Management incompetence includes all but:

a. insufficient capital b. the owner lacks the leadership ability necessary to operate it successfully c. lack of capacity to make the business work d. inexperience

11) Which of the following best expresses the relationship of a company vision to its mis- sion?

a. There is no relationship between the two. b. The company vision comes from the company mission. c. The mission statement is the written expression of the company vision. d. The company mission statement is the verbal expression of the written vision.

12) ________ are negative internal factors that inhibit the accomplishment of a firm’s objectives.

a. Threats b. Opportunities c. Weaknesses d. Strengths

Final Examination

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BAM 418 - Small Business Management

13) ________ are relationships between a controllable variable–plant size, quality, packag- ing–and a critical factor influencing the firm’s ability to compete in the marketplace.

a. The competitive advantages b. Key success factors c. Core competencies d. Goals and objectives

14) The information-gathering process in competitive analysis:

a. is an expensive process that only established small companies can afford b. is closely regulated by various federal laws c. can be relatively inexpensive and easy for the small business owner to conduct d. is a process that requires expert help but is relatively inexpensive

15) ________ are the broad, long-range attributes the small business seeks to accomplish; ________ are the specific, measurable milestones the company wants to achieve.

a. Strategies; goals b. Objectives; goals c. Goals; objectives d. Goals; strategies

16) A differentiation strategy:

a. must create the perception of value in the customer’s eyes through the lowest possible price b. seeks to find and defend an identifiable market niche c. focuses solely on making the physical characteristics of the product as unique as possible d. is built on a company’s competence

17) The final step of the strategic planning process is:

a. translating the strategic plan into operational plans b. choosing a marketing strategy to pursue c. evaluating the competitive environment d. establishing accurate controls

18) The ________ is a set of measures unique to the company that gives managers a quick and comprehensive view of how the business is doing and includes both finan- cial and operational factors.

a. balanced scorecard b. core competencies c. key success factors d. action plan

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Final Examination

BAM 418 - Small Business Management

19) It is important for the small business owner to remember that the strategic planning process is:

a. a top management process completed only once every two years b. an ongoing process that must be repeated c. one that should produce a detailed, elaborate plan for running the business over the next 3—5 years d. a process which involves all the employees once every five years

20) The key to choosing the “right” form of ownership is:

a. the fact you cannot change the form of ownership once your company is estab- lished b. understanding how each form affects both business and personal circumstances c. having an experienced attorney and accountant to advise you in the choice d. knowing the cost factor in time and money

21) Sole proprietorships characteristically are:

a. easy to discontinue b. subject to special legal restrictions c. fairly complex to create d. expensive to create

22) The most critical disadvantage of the sole proprietorship is:

a. unlimited personal liability b. limited skills and capacities of the owner c. limited access to capital d. lack of continuity

23) Which form of ownership generally has the least ability to accumulate capital?

a. Partnership b. S-corporation c. Sole proprietorship d. Corporation

Final Examination

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BAM 418 - Small Business Management

24) While a sole proprietorship gives the owner maximum flexibility in running the busi- ness, it also:

a. creates a sense of isolation b. makes it difficult to sell c. makes the company a prime target for an acquisition or merger d. makes it difficult to hire management talent to help grow the business

25) Probably the most important feature of a partnership agreement is:

a. that it resolves potential sources of conflict b. that it states the purpose and location of the business c. that determines how the partnership will pay taxes and fees d. that it identifies the name of the partnership

26) In a limited partnership, the limited partners are treated like ________ by the law.

a. honorary partners b. general partners c. investors d. sole proprietors

27) The ________ is a document that states in writing all of the terms of operating the partnership for the protection of each partner involved.

a. Partnership document b. Certificate of Incorporation c. Certificate for Conducting Business as Partners d. Partnership agreement

28) Shares the corporation itself owns are called:

a. preferred stock b. bonds c. common stock d. treasury stock

29) In franchising, the reputation of the franchiser is dependent on:

a. the rate of growth and the number of national outlets b. the quality of the goods and services provided c. the brand name recognition and appeal d. their locations and popularity with the local customer

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Final Examination

BAM 418 - Small Business Management

30) The primary advantage of buying a franchise over starting your own company is:

a. the fact it is much less expensive than doing your own business start-up b. in the purchase of the franchiser’s experience, expertise, and products c. the absolute territory protection offered by all franchisers d. the extensive assistance offered in finding start-up capital

31) Based on the principle of ___________, the idea is to put a franchise’s products or services directly in the paths of potential customers, wherever that may be.

a. franchise marketing b. path marketing c. guerilla marketing d. intercept marketing

32) To protect investors from unscrupulous franchisers, the ____________ adopted legislation similar to California’s Franchise Investment Law.

a. FTC b. Justice Department c. FDA d. FCC

33) The Uniform Franchise Disclosure Document (UFDD):

a. is only necessary in the 33 states that do not have their own franchise disclosure laws b. includes 23 major topics in its disclosure statement c. was developed in 1946 in the State of California d. requires the release of a detailed earnings projection

34) Which of the following should make a potential franchisee suspicious about a franchiser’s honesty?

a. Not providing detailed operational information until 10 days before signing the contract. b. An offer of direct financing of a specific element of the franchise package. c. Requiring franchisees to spend a certain percentage of profits on advertising. d. Claims that the franchise contract is a standard one and that there’s no need to read it.

35) The franchiser has the right to cancel a contract if a franchisee:

a. fails to maintain quality standards b. declares a bankruptcy c. fails to make required payments on time d. all of the above

Final Examination

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BAM 418 - Small Business Management

36) The most efficient method of franchising, from the franchiser’s point-of-view, is called ___________ and permits one franchise to hold several franchises from the same franchise company.

a. multi-unit franchising b. piggybacking c. conversion franchising d. master franchising

37) ________ is when owners of independent businesses become franchisees to gain the advantage of name recognition.

a. Combination franchising b. Master franchising c. Multiple-unit franchising d. Conversion franchising

38) According to the text, the first step in buying a business is:

a. explore various financing options that are beneficial to creating a profitable business. b. conduct a “self-audit” to determine the ideal business. c. develop a list of the criteria that define the “ideal business”. d. None of the above.

39) The valuation approach that considers the value of goodwill is the:

a. excess-earnings method b. balance sheet technique c. market approach d. discounted future earnings approach

40) The capitalized earnings approach determines the value of a business by capitalizing its expected profits using:

a. the prime interest rate b. the normal rate of return c. the prevailing rate of inflation d. the rate of return reflecting the risk level

41) In a business sale, the buyer seeks to:

a. negotiate favorable payment terms, preferably over time b. minimize the amount of cash paid up front c. get the business at the lowest price possible d. all of the above

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Final Examination

BAM 418 - Small Business Management

42) To avoid a bumpy transition, a business buyer should do the following:

a. concentrate on communicating with employees b. listen to employees restructure the company & devote time to selling your vision for the company to its key stakeholders c. be honest with employees d. all of the above

43) A purchase agreement draft should include which of the following?

a. Whether the purchaser assumes any liabilities, and, if so- which ones. b. Allocation of purchase price to specific assets. c. Special conditions that the parties must satisfy to close the deal. d. all of the above

44) Sometimes, business owners sell the majority interest in their companies to investors, competitors, suppliers, or large companies with an agreement that they will stay on after the sale. This is called:

a. restructuring the company b. sale of controlling interest c. use a two-step sale d. none of the above

45) A well-developed business plan provides the entrepreneur with a number of benefits, such as:

a. a valuable tool for recruiting management to help in running the business b. assisting the entrepreneur in going public with his/her new venture on the stock market c. a way to identify probable financial backers d. determining the principle risks confronting the business

46) An explanation of how the product will be distributed is contained within the:

a. description of the product line b. business strategy section of the business plan c. marketing strategy portion of the business plan d. competitive analysis

47) The most common reason cited by banks for rejecting small business loans is:

a. lack of collateral b. poor credit history c. undercapitalization or too much debt d. insufficient cash flow or poor profitability

Final Examination

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BAM 418 - Small Business Management

48) Any assets pledged to the bank as security for repayment of the loan are the ________ of the five Cs.

a. capacity b. collateral c. capital d. conditions

49) A ________ is what a customer gains from the product or service feature

a. benefit b. feature c. discount d. bonus

50) Proving that a profitable market exists involves:

a. showing customer interest b. documenting market claims c. both A and B d. neither A nor B

51) Depreciation is:

a. the owner’s total investment at the company’s inception plus retained earnings b. creditors’ total claims against the firm’s assets c. the difference between the total sources available to the owner and the total uses of those assets d. listed as a source of funds because it is a non-cash expense, deducted as a cost of doing business

52) Projecting financial statements via the budgeting process helps the small business owner to:

a. measure liquidity of the firm b. calculate his/her return on the amount invested in the company c. transform business goals into reality d. track and monitor current expenses

53) The ________ ratio is a conservative measure of a firm’s liquidity and shows the ex- tent to which a firm’s most liquid assets cover its current liabilities.

a. turnover b. net profit c. current d. quick

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Final Examination

BAM 418 - Small Business Management

54) ________ ratios help a business owner evaluate the company’s performance and indi- cate how effectively the business employs its resources.

a. Leverage b. Liquidity c. Profitability d. Operating

55) Which of the following expenses would likely be classified “semi-variable”?

a. sales commissions b. rent c. wages d. electric utilities

56) Which of the following expenses would be considered “fixed?”

a. utilities b. raw materials c. rent d. wages

57) The first step in managing cash more effectively is:

a. having an adequate cash reserve for emergency expenditures b. understanding the company’s cash flow cycle c. rapid payment of accounts payable d. speeding up payment of accounts receivable

58) Bill and Henry are discussing the volume of cash that has been coming into and going out of their business during the accounting period. They are discussing:

a. profit b. cash flow c. net income d. accounts receivable and payable

59) A cash budget is only as accurate as the ________ forecast from which it is derived.

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

Final Examination

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BAM 418 - Small Business Management

60) When forecasting cash disbursements in the cash budget:

a. the money can be used for other purposes until it is due for disbursement b. the disbursement should be recorded in the month the obligation was incurred c. they count as a cash receipt until they are paid d. they should be recorded in the month they will be paid

61) The most important item on the balance sheet is:

a. cash b. expenses c. disbursements d. receivables

62) Which of the following are credit reporting services a small business owner could use to check a customer’s credit?

a. National Association of Credit Management b. Dun & Bradstreet c. TRW d. all of these

63) The focus of the small company’s marketing plan is:

a. attracting capital b. an evaluation of key competitors c. the customer d. its product or service

64) ________ puts the customer at the center of a company’s thinking, planning, and action and shifts the focus from a product or service to customers and their needs and wants.

a. Entertailing b. Guerilla marketing strategy c. Customer Relationship Management (CRM) d. Data mining

65) Small companies with limited financial resources can often use ________ as a way to differentiate themselves from larger competitors.

a. innovation b. high price and high quality c. customer service d. lower prices with higher quality

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Final Examination

BAM 418 - Small Business Management

66) Which of the following principles can help business owners create powerful, effective guerrilla marketing strategies?

a. don’t just sell, entertain b. strive to be unique c. focus on the customer d. all of the above

67) _______ is(are) where a small number of customers to give you feedback on specific issues in your business–quality, convenience, hours of operation, service, and so on.

a. Questionnaires b. Surveys c. Focus groups d. all of the above

68) The Last Hole, a small golf shop, sponsors a hole-in-one contest in a golf tournament to raise money for charity. Anyone scoring a hole-in-one on #16 wins a complete set of clubs; the golfer closest to the pin on #16 wins a golf wardrobe. The Last Hole is the subject of several reports and stories in the local media. This is an example of:

a. sales promotion b. advertising c. publicity d. personal selling

69) The key to the success of direct mail advertising is:

a. designing the right envelope b. creative use of color and photographs in the mailing c. using key words such as “free,” “hurry,” and “savings” d. the accuracy of the customer mailing list

70) Which of the following is an advantage of outdoor ads?

a. flexibility b. long exposure c. prominence of the ads d. narrow reach

Final Examination

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BAM 418 - Small Business Management

71) Transit advertising’s advantages include:

a. the high quality color reproduction b. its generality c. its wide coverage d. the prominence of display

72) Under the ________ method of establishing an advertising budget, the owner sees advertising as a luxury.

a. matching competitors b. objective-and-task c. what-is-affordable d. percentage of sales

73) A new product ________ pricing strategy is often used in markets with little competi- tion and when the company seeks to recover start-up costs quickly.

a. penetration b. sliding-down-the-demand-curve c. skimming d. discount

74) The Pastry Shop normally sells cheese Danishes for 60 cents each. On Mondays and Tuesdays, its slowest days, The Pastry Shop offers cheese Danishes at “4 for $2.00.” This is:

a. leader pricing b. price lining c. multiple pricing d. odd pricing

75) To establish a reasonable, profitable price for service, the small business owner needs to know:

a. competitors’ prices, and costs of direct and indirect labor b. fixed and variable costs, the break-even point, and his/her contribution percent- age c. full-absorption costs, direct and indirect labor, and the break-even point d. the cost of materials, direct labor, and overhead for each unit of service

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Final Examination

BAM 418 - Small Business Management

76) For some customers, a higher price equals:

a. uniqueness b. higher quality c. greater perceived value d. all of the above

77) Price ________ usually begin when one competitor believes that they can achieve a higher volume through lower price, or they believe that they can exert enough pres- sure on competitor’s profits to drive them out of business.

a. discounts b. wars c. penetration d. markdowns

78) A relatively easy way of getting into international marketing, which currently handles about 10% of all U.S. exports, is through ________ where two or more U.S. small businesses form an alliance for the purpose of exporting their goods and services abroad.

a. joint ventures b. export trading companies c. international franchises d. foreign licensees

79) A/an ________ is a business that buys and sells products in a number of countries, offering a range of services–importing, exporting, shipping, distributing, and others to their clients.

a. foreign joint venture b. foreign licensee c. export trading company d. resident buying office

80) Candi is thinking through a number of management issues in making her exporting decision. She is thinking about her company’s ________ capacity when she is thinking about how exporting will affect meeting domestic orders, her pricing structure, collec- tion process, and what it will cost her for the company to make enough product for foreign export.

a. management b. marketing c. financial d. production

Final Examination

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BAM 418 - Small Business Management

81) ________ is the exchange of goods and services for other goods and services.

a. Export b. Import c. Bartering d. Countertrade

82) A key to successfully establishing an international location is:

a. securing the necessary licenses to operate in the foreign country b. being able to speak the language of the foreign country c. making a substantial investment in personnel d. finding the right person to manage the international office

83) E-commerce requires a basic infrastructure somewhere in the channel of distribution to process orders, maintain inventory, ________, and handle customer service.

a. technology b. fill orders c. process e-mail d. all of the above

84) KHA.com started selling sporting goods designed for senior citizens who live in retire- ment homes and apartments. KHA.com is selling its products using:

a. senior citizens strategy b. niche strategy c. mass strategy d. community strategy

85) A ________ is one that visitors are willing to share with their friends.

a. banner b. viral site c. sticky site d. pop-up

86) Another word for browse-to-buy is:

a. tracker b. conversion c. controller d. None of the above.

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Final Examination

BAM 418 - Small Business Management

87) Which of the following is correct?

a. Make it easy for customers to change the contents of their shopping carts. b. Make it easy for customers to pay for their online purchases. c. Give customers the option of calling to resolve problems they encounter during checkout. d. all of the above

88) When raising money to launch new businesses, the entrepreneurial segment of the nation’s economy:

a. needs $170 billion per year in seed capital to fuel its growth b. is spending less time and finding more money than in the past decade c. finds it easier every year to find risk capital d. knows where to find it, as traditional sources are full of venture capital

89) Most venture capitalists purchase ownership in a small business through:

a. loans with an option to buy stock b. a general partnership c. a common stock or convertible preferred stock d. an ESOP

90) One of the biggest advantages of going public is:

a. the ability to retain control while gaining maximum funding b. the ability to attract low cost equity funding c. enhanced credibility and improved corporate image d. better employee morale and productivity

91) Working capital can be calculated by:

a. Current Asset - Current Liabilities b. Total Asset - Current Liabilities c. Total Asset - Total Liabilities d. Total Liabilities - Total Asset

92) Equity capital is also called:

a. stock money b. equity money c. risk capital d. none of the above

Final Examination

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BAM 418 - Small Business Management

93) Which form of financing works especially well for manufacturers, wholesalers, dis- tributors, and other companies with significant stocks of inventory, accounts receiv- able, equipment, real estate, or other assets?

a. asset-based lenders b. government funding c. corporate investors d. none of the above

94) The most common method used by commercial finance companies to provide credit to small businesses is:

a. balance-sheet based b. insurance-based c. unsecured lines of credit or “character loans” d. asset-based

95) A loan from a stockbroker, based on the stocks and bonds in the customer’s portfolio:

a. has a fixed repayment schedule and must be paid within 90 days b. can be “called” for payment in a matter of hours or days c. is for a maximum of $50,000 d. tends to be at a higher rate than a bank but easier to obtain

96) Which of the following businesses would be eligible for an SBA loan?

a. Small computer manufacturer b. Nonprofit business c. Casino d. Magazine publisher

97) The science of adapting work and working conditions to complement employees and to suit customers is called:

a. kinesiology b. ergonomics c. layout design d. physiology

98) Approximately ________ of a store’s customers will go more than halfway into the store.

a. three-fourths b. one-fourth c. one-third d. one-half

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Final Examination

BAM 418 - Small Business Management

99) Entrepreneurs must evaluate the impact of which of the following?

a. property taxes b. specialized taxes c. sales tax d. all of the above

100) Joe wanted to start an outside café in his neighborhood. When he started the con- struction, the building department made him stop since he was not in accordance to the local zone. What would be the best option for Joe?

a. Joe should hire an attorney and sue the city for the money he has spend thus far. b. Joe could appeal to the local zoning commission. c. He could have the subcontractors to complete the café at night so the building department will not be around. d. He should quit and consider another location.

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