Chapter 1

21. According to the text, small business involves _____ people and has its owner managing the
business on a day-to-day basis.
A. 100-200
B. 1-50
C. between 200 to 500
D. at least 500

22. Identify the two hurdles that people need to overcome to move from thinking about owning
their own business to achieving it.
A. Moving from inaction to action and taking the right action.
B. Financing the business and government regulation.
C. Experience from large corporations for needed skill sets and organization abilities.
D. Family support and finding the right people for the organization.

23. According to the Small Business Administration, about _____ of new firms with employees
survive four years, and for owner-only firms this rate is _____ percent surviving four years.
A. one-fourth; 30
B. one-half; 75
C. two-thirds; 50
D. two-fifths; 60

24. A facility which offers subsidized space and business advice to companies in their earliest
stages of operation is called a(n)
A. small business administration center.
B. franchise.
C. small business development center.
D. incubator.

D
25. What percent of firms getting help in incubators were still going at four years?
A. 50
B. 81
C. 66
D. 87

D
26. _____ are the offices co-sponsored by states and the federal government, that offer free or
low-cost help to existing and potential small businesses.
A. Small Business Development Centers
B. Small Business Administration Offices
C. Research and Outreach Services
D. Occupational structures

27. The U.S. government agency that helps people start business is the
A. Small Business Administration.
B. U.S. Department of Business Development.
C. Department of Business Development.
D. U.S. Entrepreneurial Administration.

28. The Small Business Administration categorizes a business in the U.S. as small, if it has fewer
than _____ employees.
A. 50
B. 500
C. 300
D. 1,000

29. Among SMEs, medium enterprises have _____ people.

A. 51-500
B. 251-500
C. 1-50
D. 1-20

30. A business owned by an individual or small group is referred to as a(n)

A. franchise.
B. incubator.
C. team-dependent business.
D. independent small business.

D
31. _____ refers to constant or at least daily management of a business by its owner.
A. Franchise.
B. Licensing
C. Franchising
D. Owner-management

32. A(n) _____ is one who profits from a business but is not involved in its day-to-day
operations.
A. incubator
B. absentee owner
C. owner-manager
D. franchisor

33. Truly entrepreneurial businesses are characterized by _____, in their products, services, or
business models.
A. novelty
B. imitation
C. experience
D. government subsidy

34. Small businesses are

A. imitative in nature.
B. characterized by novelty.
C. described as being unique and distinctive.
D. prepackaged businesses you buy or lease from a franchisor.

35. A prepackaged business bought, rented, or leased from a company is called a(n)
A. incubator.
B. imitative firm.
C. franchise.
D. novelty.

C
36. A person who becomes an owner through inheriting or being given a stake in a family
business is called a(n)
A. founder.
B. manager.
C. heir.
D. buyer.

37. People starting high-growth ventures

A. require key market knowledge that focuses on their immediate marketplace and communities.
B. focus on how to start small, with resources from the owner, family, and friends.
C. need to know how to seek and obtain external financing.
D. require a key type of knowledge of how to grow on the schedule set by and for the purposes
of the owner.

38. The key market knowledge for a small business

A. is to know how to seek and obtain external financing.
B. focuses on its immediate marketplace and communities.
C. is to know how to cash out through the sale of an initial public offering of stock or through the
sale of the company to a larger company.
D. focuses on the need to know how to dominate the market and grow dramatically and quickly.

39. Which of the following is a characteristic of a small business?

A. Preferred funding source is other people's money
B. Focus is on efficiency
C. Approach to human resource is to professionalize
D. Delegation is essential

40. Which of the following is an attribute of a high-growth venture?

A. When the firm is in trouble, it cuts costs
B. Metastrategy is novelty
C. High-growth ventures grow when necessary
D. Delegation is difficult

B
41. Identify the characteristic of a small business.
A. When the firm is in trouble, it focuses on selling more products/services
B. Approach to human resources is to professionalize
C. Focus is on effectiveness
D. Metastrategy is imitation

42. Identify the characteristic of a high-tech venture.

A. Owner's own money is the preferred funding source
B. Focus is on efficiency
C. Delegation is essential
D. Sales are more important than marketing

43. Which of the following refers to the eventual size of the market, which can range from a
small, local, or niche market to something used by millions or even billions?
A. Innovativeness
B. Mindshare
C. Potential for growth
D. Occupational structure

44. Rating firms high or low on innovativeness and potential for growth helps identify the
different types of businesses in what is called
A. Dynamic Capitalism Typology.
B. General Equilibrium Economics.
C. Creative destruction.
D. PICS Model of Entrepreneurship.

45. Identify the most numerous and widely available type of firm, ranging from low to moderate
levels of innovation and growth.
A. Resource constrained sector
B. Ambitious firm sector
C. Glamorous sector
D. Economic core sector

D
46. Why are small businesses considered the economic core of society?
A. They are high growth and high innovation firms.
B. They are made up of franchises and multisite firms, who are generally not very innovative,
but are designed for high levels of growth.
C. They have lots of innovative ideas but lack the funds to bring them to market.
D. They are the most numerous and most widely available type of firms.

47. According to the Dynamic Capitalism Typology, the glamorous sector

A. consists of firms with high growth and high innovation.
B. consists of the most numerous and most widely available type of firms.
C. consists of franchises and multisite firms, with low to moderate innovation and high levels of
growth.
D. consists of firms high in innovation but low in growth rate due to a lack of resources.

48. Which of the following is an example of the glamorous sector?

A. Inventors
B. Fortune 500s
C. Small businesses
D. Franchises and multisite firms

49. All of the following relate to firms in the ambitious firm sector EXCEPT
A. they are mostly franchises and multisite firms.
B. they are characterized by low to moderate innovation.
C. they are made up of inventors and research and development firms.
D. they are designed for high levels of growth.

50. The resource constrained sector

A. are firms that have low to moderate levels of innovation and growth.
B. are high growth and high innovation firms.
C. are firms that have lots of innovative ideas but lack the funds to bring them to market.
D. are generally not very innovative, but are designed for high levels of growth.

C
51. All of the following are the popular reward types for small business owners EXCEPT
A. flexibility.
B. power.
C. income.
D. growth.

52. Which of the following is a reward that is rarely mentioned by entrepreneurs?

A. Building great wealth
B. Flexibility
C. Continuing a family tradition in business
D. Personal growth

53. _____ rewards are what people get from facing and beating or learning from challenges.
A. Recognition
B. Flexibility
C. Income
D. Growth

54. These rewards refer to the money made from owning your own business.
A. Growth rewards
B. Flexibility rewards
C. Income rewards
D. Performance rewards

55. For entrepreneurs, perhaps the most rapidly growing type of reward is _____ rewards.
A. recognition
B. flexibility
C. income
D. growth

B
56. The ability of business owners to structure life in the way that suits their needs best refers to
A. flexibility rewards.
B. family rewards.
C. growth rewards.
D. wealth rewards.

57. Which of the following is NOT a myth about small businesses?

A. There is not enough financing to start businesses.
B. You need to make something if you are going to make money.
C. You can never try again if you fail once.
D. There is no flexibility when you own your own business.

58. Funding invested for a share of a firm or given as loans or credit from family, friends, and
other businesses used to help start or grow a firm is known as
A. committed capital.
B. informal capital.
C. mezzanine capital.
D. formal social capital.

59. According to Sageworks, in 2008, amid a recession, which of the following represented the
most profitable industries for small businesses?
A. Manufacturing industries
B. Financial services
C. Service industries
D. Software industries

60. According to the BRIE model, in order to start a business, you need all of these elements to
come together EXCEPT
A. boundary.
B. resources.
C. intention.
D. experience.

D
61. Which factor distinguishes a firm from the process of buying or selling or bartering we all do
occasionally?
A. Resources
B. Boundary
C. Intention
D. Exchange

62. A business name or government registration, a phone or e-mail address dedicated to the
business, or a specific location for the firm in a home, commercial space, or on the Internet are
examples of a(n)
A. exchange.
B. resource.
C. boundary.
D. intention.

63. Resources
A. include a business name or government registration.
B. refer to moving goods or service to others in exchange for money.
C. are the most frequently occurring element of the BRIE model.
D. include the product or service to be offered.

64. Which is the most frequently occurring element of the BRIE model?
A. Intention
B. Boundary
C. Exchange
D. Resources

65. The desire to start a business represents which element of the BRIE model?
A. Intention
B. Boundary
C. Exchange
D. Resources

A
66. The BRIE model can help an individual deal with one of the biggest hurdles in starting a
business, which is
A. getting resources.
B. being inactive.
C. setting boundaries.
D. making an exchange.

67. According to the latest statistics, small businesses have created _____ percent of the new
jobs.
A. 75
B. 25
C. 50
D. 95

68. The sequence or organization of jobs and careers in the economy refers to
A. franchising.
B. creative destruction.
C. occupational structure.
D. incubators.

69. The way newly created goods, services, or firms can hurt existing goods, services, or firms
refers to
A. franchising.
B. creative destruction.
C. occupational structure.
D. incubators.

B
70. Mandarin is a restaurant which has opened recently. People from all over town flock to
Mandarin to find out how good it is. This gives a big boost to the restaurant's initial business. But
it causes the other restaurants in the area to lose business temporarily. The way in which
Mandarin hurts existing restaurants is an example of
A. creative destruction.
B. efficiency.
C. innovative disruption.
D. market penetration.

71. According to the U.S. Small Business Administration, small businesses generate _____ the
number of patents per employee than big businesses.
A. 13 to 14 times
B. about twice
C. 40 to 50 times
D. about half

72. A nation where the major forces for jobs, revenues and taxes come from farming or
extractive industries like forestry, mining, or oil production is a(n)
A. factor-driven economy.
B. efficiency-driven economy.
C. innovation-driven economy.
D. competency-driven economy.

73. A nation where industrialization is becoming the major force providing jobs, revenues and
taxes, and where minimizing costs while maximizing productivity is a major goal is a(n)
A. factor-driven economy.
B. efficiency-driven economy.
C. innovation-driven economy.
D. dynamic-driven economy.

B
74. Innovation-driven economies
A. are those where entrepreneurship becomes a key way to build the middle class.
B. are nations where industrialization is becoming the major force providing jobs, revenues and
taxes.
C. are focused on high-value-added manufacturing but are marked by a very large service sector.
D. are those where entrepreneurship is essential to helping build personal wealth and break the
cycle of low-wage jobs.

75. Entrepreneurship levels in countries such as Germany, Israel, the Republic of Korea, and the
United States average the lowest of the
A. innovation-driven economies.
B. efficiency-driven economies.
C. factor-driven economies.
D. competency-driven economies.

76. Which of the following statements about virtual instant global entrepreneurship (VIGE) is
false?
A. VIGE depends on using Web sites like eBay for products to quickly establish a global
presence.
B. Many VIGE sites offer procedures, services, and Web page templates which incorporate best
practices for global trading.
C. The VIGE approach produces large numbers of smaller-scale exporters.
D. VIGE sites replace institutional procedures with personal contacts to help even the smallest
small businesses go global.

77. Which aspect of entrepreneurship refers to being in-tune with one's market?
A. Efficiency
B. Creation
C. Customer-focus
D. Growth

C
78. The form of entrepreneurship in which a person or group own their own for-profit business
is
A. independent entrepreneurship.
B. social entrepreneurship.
C. public entrepreneurship.
D. corporate entrepreneurship.

79. The entrepreneurial focus which refers to doing the most work with the fewest resources is
A. innovation.
B. creation.
C. efficiency.
D. customer-focus.

80. The entrepreneurial focus which looks at a new thing or a new way of doing things is
A. customer-focus.
B. innovation.
C. creation.
D. efficiency.

81. Public entrepreneurship

A. focuses typically on customer-focus and innovation, bringing new products or services to
market, or opening up new markets to your firm.
B. involves creating new charitable and civic organizations which are financially self-sufficient.
C. requires all four elements, and that is what makes small business so important as the role
model for the other forms.
D. involves revitalizing government agencies, so it tends to focus on the customer-focus and
efficiency aspects of entrepreneurship.

D
82. Identify the type of entrepreneurship which concentrates typically on innovation and
customer-focus.
A. Public entrepreneurship
B. Corporate entrepreneurship
C. Independent entrepreneurship
D. Social entrepreneurship

83. Which of the following best describes a corporate form of entrepreneurship?

A. It is a form of entrepreneurship involving the creation of self-sustaining charitable and civic
organizations.
B. It is a form of entrepreneurship that involves revitalizing government agencies.
C. It is a form of entrepreneurship in which a person or group owns their own for-profit business.
D. It is a form of entrepreneurship which takes place in existing businesses around new products,
services or markets.

84. Social entrepreneurship

A. involves creating new charitable and civic organizations which are financially self-sufficient.
B. involves bringing new products or services to market.
C. involves a person or group who owns their own for-profit business.
D. involves revitalizing government agencies.

85. This is the degree of attention your target market pays to your idea or organization.
A. Efficiency
B. Identity
C. Mindshare
D. Growth

Scenario: Jamie Johnson and "For Kidz"

Taking classes at a local university, Jamie heard a consistent theme from many professors,
students, and parents in the community: "There is nothing for children in this rural area." Jamie
always liked children and thought of starting a business "For Kidz" targeting children 12 and
under.
86. Where can Jamie go to get some help with his business idea?
A. Small Business Development Center
B. U.S. Department of Commerce office
C. Incubator
D. Small Business Administration Center

87. If Jamie gets "For Kidz" up and running, he could be described as all of the following
EXCEPT
A. founder.
B. owner-manager.
C. independent small business.
D. franchisor.

88. Given that "For Kidz" will be a small business in a rural area, which of the following
characteristics would be true?
A. Its focus should be on effectiveness
B. The approach to human resources should be to professionalize
C. Metastrategy should be imitation
D. It should grow when possible

89. Jamie should be aware that all of the following are myths about a small business EXCEPT
A. there is not enough financing to start businesses.
B. you need to make something if you are going to make money.
C. you can never try again if you fail.
D. the biggest hurdle facing an individual considering a business opportunity is inaction.

D
90. In order to start "For Kidz" successfully, Jamie needs all of the following elements to come
together EXCEPT
A. boundary.
B. recruitment.
C. intention.
D. exchange.

Chapter 2

21. Following the BRIE model in starting a business, the entrepreneur creates a boundary within
the environment, setting his firm apart from the rest of the environment. In doing this, the
entrepreneur gives the firm a(n)
A. identity.
B. bootstrap.
C. organizational culture.
D. network.

A
22. Using low-cost or free techniques to minimize your cost of doing business is known as
A. caveat emptor.
B. sustainable entrepreneurship.
C. bootstrapping.
D. the billboard principle.

23. Which of the following is at the core of exchange in the BRIE model?
A. The boundary
B. The environment
C. Identity
D. Resources

24. The _____ of a firm consists of those people inside the boundary—the owner, any
employees, and any other owners or board members of the firm.
A. macroenvironment
B. external environment
C. operating environment
D. internal environment

25. Identify the set of shared beliefs, basic assumptions, or common accepted ways of dealing
with problems and challenges within a company that demonstrate how things get done.
A. Trust
B. Modeling
C. Organizational culture
D. Social networking

26. When a small business is first getting started, there is a lot of flexibility in terms of
A. ethics.
B. finances.
C. government regulations.
D. roles and expected behaviors.

D
27. Those parts of the environment that directly and consistently touch on the firm are called the
A. task environment.
B. internal environment.
C. macroenvironment.
D. general environment.

28. Which of the following statements about the task environment is true?
A. The economic sector includes the trends and current conditions of the overall market for
goods and services.
B. This part of the environment is made up of those people the firm deals with every day, as well
as important groups you may deal with directly less often, but that are always on your mind.
C. The technological sector includes innovation, invention, and modernization.
D. It is a part of the external environment made up of sectors of major forces that shape the
people and institutions, such as the economic sector or the demographic sector.

29. Which of the following would be a part of the task environment?

A. The owners
B. The political-legal sector
C. Environmental groups
D. Employees

30. A part of the external environment made up of sectors of major forces that shape the people
and institutions of the task and internal environments is the
A. general environment.
B. macroenvironment.
C. task environment.
D. internal environment.

A
31. Which of the following is an example of the general environment?
A. The government
B. The board of directors
C. The economic sector
D. Unions

32. The economic sector includes

A. trends in the mix of ages, races, and gender in society.
B. innovation, invention, and modernization.
C. the availability of equity and credit.
D. cultures often based on things such as nationality or religion.

33. The general description for the processes and skills used in the management of a firm's
interactions with people, organizations and institutions outside of its boundary is
A. external relations.
B. community planning partnerships.
C. organizational culture.
D. utilitarianism.

34. According to the text, the goal of any small business owner is to
A. manage external relations in order to create social capital.
B. make sure the customer knows about the details of its products.
C. generate alternatives that could meet ethical, legal, and economic goals.
D. to keep track of social and business contacts.

35. All of the following are true of social capital EXCEPT

A. it includes characteristics like trust, consistency, and networks.
B. it can be accumulated or spent.
C. it is not associated with the concept of "goodwill."
D. it is capital in the same sense that cash or land can be.

C
36. Which of the following includes characteristics of a business, like trust, consistency, and
networks that help make business operations smooth and efficient?
A. Social capital
B. Universalism
C. Legitimacy
D. Utilitarianism

37. Which of the following statements about small businesses that are high in social capital is
false?
A. They are not given the benefit of the doubt when problems occur
B. They are more trusted
C. They are treated more fairly by regulators
D. They are checked up on less

38. The two ways to build social capital are through

A. consistency and visibility.
B. legitimacy and social networking.
C. culture and personal ethics.
D. individuals and teams.

39. _____ is the major component of "goodwill," and can be found on a business's balance sheet.
A. Economic capital
B. Social capital
C. Cultural capital
D. Financial capital

40. _____ means that a firm is worthy of consideration or doing business with because of the
impressions or opinions of customers, suppliers, investors, or competitors.
A. Visibility
B. Flexibility
C. Legitimacy
D. Modeling

C
41. Achieving _____ means building trust among customers and other key groups.
A. modeling
B. legitimacy
C. visibility
D. flexibility

42. The three general forms of legitimacy that you can develop are based on
A. products, people, and organization.
B. individuals, teams, and industry views.
C. universalism, utilitarianism, and the Golden Rule.
D. integration, distribution, and universalism.

43. Selling brand name merchandise or services is a people-based legitimate indicator of

A. attire.
B. product/service name recognition.
C. business network membership.
D. organizational size.

44. Having well-known or well-regarded owners, employees, supporters, or spokespeople is a

people-based legitimate indicator of
A. public recognition.
B. goodwill.
C. business network membership.
D. service name recognition.

45. _____ refers to certification for having met a standard of quality that is consistently evaluated
around the world.
A. ANSI
B. Six Sigma
C. ISO
D. TQM

C
46. The _____ is given by the U.S. Government to businesses and nonprofit organizations that
have been judged outstanding in quality leadership; strategic planning; customer and market
focus; measurement, analysis, and knowledge management; human resource focus; process
management; and results.
A. Economic Times Award
B. Ron Brown Award
C. Malcolm Baldrige National Quality Award
D. Deming Prize

47. Documentation and demonstration offered for products are product-based legitimacy
indicators of
A. customer assurance.
B. experiential supports.
C. customer service.
D. quality standards.

48. Which of the following is a product-based legitimacy indicator?

A. Organization size
B. Testimonials
C. Business network membership
D. Internet identity

49. Having trademarks, service marks, patents, or copyrights are product-based legitimacy
indicators of
A. certifications.
B. customer service.
C. intellectual property.
D. quality standards.

C
50. Setting technological or service standards adopted by competitors are product-based
legitimacy indicators of
A. quality standards.
B. certifications.
C. experiential supports.
D. industry leadership.

51. Which of the following is an organization-based legitimacy indicator?

A. Testimonials
B. Intellectual property
C. Legal form
D. Attire

52. Which of the following legal forms of organization-based legitimacy indicators would be the
least legitimate?
A. Corporation
B. LLC
C. Sole proprietorship
D. Partnership

53. Following rules and orders, not swearing, and dressing appropriately would be examples of
which class of ethical standards?
A. Employees should be dependable organizational citizens
B. Employees should not do anything that will harm the organization
C. Employees should be good to customers
D. Employees should protect confidential information

A
54. Which of the following statements about legitimacy indicators is true?
A. Across the three types of legitimacy indicators, there are 15 characteristics.
B. Part of legitimacy and building trust comes from the consistency of a firm's actions over time.
C. Most small businesses incorporate all the elements of the different types of legitimacy
indicators.
D. Changing the legitimacy characteristics daily does more to build social capital than repeating
one legitimacy characteristic stressed by the firm.

55. An entrepreneur's relationships and contacts with others is termed as

A. a social network.
B. visibility.
C. the Golden Rule.
D. mutuality.

56. The number one type of help sought by entrepreneurs from the PSED is
A. introduction.
B. information.
C. financial resources.
D. physical resources.

57. According to the text, what is the most important part of social networking that would make
a difference in how you would conduct business every day?
A. Asking for help when you need it
B. Respecting the other person's time
C. Respecting the other person's expertise
D. Being willing to reciprocate if asked

58. The idea and action of each person helping another refers to
A. networking.
B. flexibility.
C. mutuality.
D. consistency.

C
59. Interacting with others in order to build relationships useful to a business refers to
A. networking.
B. flexibility.
C. mutuality.
D. consistency.

60. Which of the following is the largest online social networking site?
A. Facebook.com
B. MySpace.com
C. LinkedIn.com
D. Twitter.com

61. Which of the following is NOT a key to success in electronic networking?

A. Making it easy for people to contact you
B. Taking initiative to ask others on the network to link with you
C. Taking time to develop networks
D. Finding and linking up with network mavens

62. Electronic social networks

A. often have membership costs.
B. offer the all-important personal touch.
C. are usually fast and easy to develop.
D. offer the all-important local connections.

63. When faced with a crisis, what is the first step that a small business owner should follow?
A. Get to the scene as soon as possible
B. Communicate facts you know
C. Appoint one person as the spokesperson
D. Admit you are in trouble

D
64. According to the gold standard for crisis leadership, all of the following are steps to follow in
a crisis EXCEPT
A. show caring and accountability.
B. have one person serve as the firm's spokesperson.
C. deal with the crisis quickly.
D. desegregate crisis management with the everyday management of the firm.

65. To help small businesses with crisis planning, the federal government recommends all of the
following steps for preparing for disasters EXCEPT
A. plan to stay in business.
B. plan when the crisis arises.
C. talk to your people.
D. protect your investment.

66. _____ is an approach to operating a firm or a line of business which identifies, creates and
exploits opportunities to make a profit in a way that can minimize the depletion of natural
resources, maximize the use of a recycled material, or improve the environment.
A. Business entrepreneurship
B. Economic entrepreneurship
C. Sustainable entrepreneurship
D. Intrapreneurship

67. _____ is a certification standard from the U.S. Green Building Council for buildings that are
more environmentally friendly.
A. LEED
B. Green audit
C. ISO
D. BATNA

A
68. Green retailing is
A. is at the core of exchange in the BRIE model.
B. another term for sustainable entrepreneurship taken from the belief that green is the color of a
healthy environment.
C. minimizing waste and environmental degradation.
D. selling products that have a better environmental footprint.

69. A system of values that people consider in determining whether actions are right or wrong is
referred to as
A. organizational culture.
B. ethics.
C. trust.
D. modeling.

70. _____ occurs when a person's values are in conflict, making it unclear whether a particular
decision is the right thing to do.
A. Modeling
B. Social networking
C. Ethical dilemma
D. Mutuality

71. Which of the following can occur when there are several different options for a decision one
has to make and the best choice is not clear?
A. Community impact
B. Lack of flexibility
C. Innovation
D. Ethical dilemma

72. Which of the following is a three-step process that helps people make better and more ethical
decisions?
A. First principles
B. Golden rules
C. Ethical decision-making
D. Mutuality development process

C
73. The first step of ethical decision-making is
A. creating options for action.
B. defining the moral problem.
C. conducting ethical tests.
D. obtaining employee approval on planning.

74. Which of the following is NOT a question in step one of ethical decision-making?
A. Who will be hurt, and how badly?
B. What do others owe you, if anything?
C. What regulations get broken, and how badly?
D. Who will benefit, and how much?

75. The question in step one of ethical decision-making, "What do you owe others?" focuses on
the _____ of people who make decisions.
A. mutuality
B. distributive view
C. integrative view
D. obligations

76. _____ means "let the buyer beware" is a philosophy sometimes used by businesses to put the
burden for consumer protection onto the customer.
A. Caveat emptor
B. Habeas corpus
C. Quid pro quo
D. Respondeat superior

77. Which of the following statements about caveat emptor is true?

A. Caveat emptor is often the first line of defense by producers of mediocre merchandise.
B. As a legal principle, the phrase "caveat emptor" has been routinely approved.
C. Using it as a defense puts the entrepreneur who uses it in a positive light.
D. If you find a business using caveat emptor as a principle, accept them.

A
78. Which ethical model supports seeking the greatest good for the greatest number of people?
A. Utilitarianism
B. The billboard principle
C. The Golden Rule
D. Universalism

79. An ethical model that suggests that there is a code of right and wrong that everyone can see
and follow refers to
A. the billboard principle.
B. universalism.
C. the Golden Rule.
D. utilitarianism.

80. Which of the following observations concerning the Golden Rule is NOT true?
A. It is an ethical model.
B. It suggests that you treat others in the same manner you wish to be treated.
C. Almost every major religious tradition in the world has some version of it.
D. It suggests that there is a code of right and wrong that everyone can see and follow.

81. An ethical model which suggests you treat others in the manner you wish to be treated refers
to
A. the billboard principle.
B. universalism.
C. the Golden Rule.
D. utilitarianism.

82. "Would others think worse of you if they knew what you had done to resolve your ethical
dilemma?" This question is fundamental to which ethical model?
A. The billboard principle
B. Universalism
C. The Golden Rule
D. Utilitarianism

A
83. In a negotiation, _____ is the second-best outcome identified by the parties to help clarify the
value of achieving a successful negotiation.
A. caveat emptor
B. bootstrapping
C. LEED
D. BATNA

84. Often, the alternative to negotiating together can be _____ if the amounts are small, or
undertaking legal action if the amounts warrant legal fees or the hassles of enforcing small
claims court decisions.
A. "holding a strike"
B. "lumping it"
C. seeking a new job
D. seeking results from higher authorities

85. The creation of something new or trying something for the first time refers to
A. personal ethics.
B. innovation.
C. universalism.
D. flexibility.

Scenario: Amanda Albertson and "Durable Doors"

Amanda is a small business owner of "Durable Doors", a manufacturer and installer of garage
doors, based in the northeast. Amanda has built the business working very hard in the
community. She has earned the reputation as a reliable, trustworthy business owner with solid
garage doors. However, given the soft economic conditions with higher gasoline and wood
prices, Amanda faces a tough situation. If she continues with her quality standard, she will lose
money, but if she inserts panels of mixed lower quality wood she can remain profitable.

86. The situation that Amanda faces can be described as a(n)

A. mutuality.
B. ethical dilemma.
C. decadence.
D. discourse ethic.

B
87. If Amanda has tried many ways to think the situation through and still cannot decide whether
what she plans to do is ethical, she should explore the ethical model of _____ by asking herself
whether she would be comfortable having her decision and name advertised for the public to
see.
A. the billboard principle
B. universalism
C. utilitarianism
D. the Golden Rule

88. Which of the following might help Amanda with her situation of inserting a lower quality
panel in the garage doors to remain profitable?
A. Consistency and visibility
B. Social obligations
C. People-based legitimacy
D. Ethical decision-making

89. If Amanda wants a solution that is the best thing for most people, she should explore the
ethical model of
A. universalism.
B. the Golden Rule.
C. utilitarianism.
D. the billboard principle.

C
90. 'Durable Doors' is known for its high quality standards, exceptional personalized customer
service, and industry leadership. These are indicators of which type of legitimacy?
A. Product-based
B. Organization-based
C. People-based
D. Industry-based

Chapter 3

21. A loner, often socially isolated, a hard worker, a fast learner, and a risk taker seeking wealth
represents the profile of a(n)
A. idea person.
B. classic entrepreneur.
C. managerial entrepreneur.
D. small business owner.

22. Unlike _____, _____ are actually risk-averse.

A. idea persons; classic entrepreneurs
B. managerial entrepreneurs; classic entrepreneurs
C. sales entrepreneurs; idea persons
D. classic entrepreneurs; small business owners

23. Like classic entrepreneurs, small business owners are all of the following EXCEPT
A. risk takers.
B. socially isolated.
C. often alone.
D. hard workers.

24. Idea people are not particularly driven by _____, but they are driven by _____.
A. greatness; great wealth
B. hard work; risk taking
C. great wealth; having their idea achieve greatness
D. fame; socialization

C
25. Which of the following personality types is often very risk-averse, preferring to build wealth
through careful planning and action?
A. Idea person
B. Small business owner
C. Managerial entrepreneur
D. Classic entrepreneur

C
26. All of the following observations are true of the salesperson type of entrepreneur EXCEPT
A. they work hard.
B. they are very socially driven.
C. they use their networks to minimize risk.
D. they are most concerned with their wealth.

27. Which of the following personality types is more concerned with their social standing and
acceptance than their personal wealth?
A. Salesperson entrepreneur
B. Managerial entrepreneur
C. Classic entrepreneur
D. Idea person

28. Identify the trait which all entrepreneurial personality types have in common.
A. Loneliness
B. Social isolation
C. Risk taking
D. Hard work

29. The forms of business-related expertise are called

A. competencies.
B. core processes.
C. personalities.
D. ethics.

30. The competency suggested by _____ relates to the organizational and business processes of a
firm.
A. intention
B. resource
C. exchange
D. boundary

D
31. There are certain fundamental activities that all businesses must perform, which are called
A. engineering business functions.
B. basic business functions.
C. business accreditations.
D. key business functions.

32. Key business functions and industry-specific knowledge are parts of _____ competency.
A. resource
B. basic business
C. determination
D. opportunity

33. Getting organized and registered—which creates a boundary—is an example of a(n)

A. financial activity.
B. operations activity.
C. human resources activity.
D. management activity.

34. The ability or skill of the entrepreneur at finding expendable components necessary to the
operation of the business such as time, information, location, financing, raw materials, and
expertise is called
A. basic business competencies.
B. opportunity competencies.
C. resource competencies.
D. determination competencies.

35. The intention component of the BRIE model reflects _____ competencies.
A. basic business
B. opportunity
C. resource
D. determination

D
36. The energy and focus needed to bring a business into existence relates to which of the
following competencies?
A. Determination
B. Resource
C. Opportunity
D. Basic business

37. Which of the following deals with the actual process of exploring an opportunity for profit?
A. Resource
B. Exchange
C. Intention
D. Boundary

38. Which of the following relates to the skills necessary to identify and exploit elements of the
business environment that can lead to profitable and sustainable business?
A. Determination competencies
B. Basic business competencies
C. Resource competencies
D. Opportunity competencies

39. For those businesses that do get started, the amount of _____ is what distinguishes the more
successful from the less successful firms.
A. effort
B. opportunities
C. subordination
D. expertise

40. _____ refers to the extent to which a firm meets or exceeds the standard business practices of
its industry.
A. Standard operating procedure
B. Organizational commitment
C. Professionalization
D. Intention

C
41. Being asked if you want to supersize your order at a fast-food restaurant is an example of
A. a key business function.
B. a resource competency.
C. a standard business practice.
D. industry-specific knowledge.

42. According to the text, there are three levels of professionalization. These are
A. low, medium, and high.
B. company, industry, and global.
C. personal, team, and organizational.
D. expert, specialized, and minimalized.

43. Expert businesses

A. are those which have owners who are passionate about one key business function.
B. are those where the entrepreneur does nearly everything in the simplest way possible.
C. usually lack good business procedures.
D. are those in which you notice everything seems to be done in the best way possible.

44. Which of the following relates to expert businesses?

A. The entrepreneur does nearly everything in the simplest way possible.
B. All the major functions of the firm follow standard business practices of the industry.
C. The founders are passionate about one or two of the key business functions.
D. They are satisfied if other activities are no worse than other businesses in their market.

45. Following certain "best practices" are typical of these types of businesses.
A. Specialized businesses
B. Expert businesses
C. Minimalized businesses
D. Factor businesses

B
46. _____ businesses have founders or owners who are passionate about one or two of the key
business functions, such as sales or operations.
A. Expert
B. Specialized
C. Minimalized
D. Global

47. The middle level of professionalization is called _____, where as opposed to a "best"
restaurant, there is probably a restaurant you know of with great food but so-so service.
A. specialized
B. minimalized
C. expertise
D. standard

48. Which of the following does NOT hold true of the minimalized level of professionalization?
A. The entrepreneur does nearly everything in the simplest way possible.
B. Usually, there is no systematic accounting.
C. Record keeping will vary between nonexistent and haphazard.
D. Inspires the highest levels of trust among customers.

49. At which of these levels of professionalization does the entrepreneur do nearly everything in
the simplest way possible?
A. Expert
B. Specialized
C. Minimalized
D. Global

50. Which of the following is NOT a typical career path for entrepreneurs?
A. Habitual entrepreneurship
B. Harvest entrepreneurship
C. Mature entrepreneurship
D. Spiral entrepreneurship

C
51. _____ entrepreneurs are owners for a lifetime, sometimes in one business, and sometimes
across several firms.
A. Habitual
B. Harvest
C. Growth
D. Spiral

52. The career goal of which entrepreneur is personal satisfaction first, income second?
A. Growth entrepreneurs
B. Harvest entrepreneurs
C. Occasional entrepreneurs
D. Habitual entrepreneurs

53. Which of the following holds true of habitual entrepreneurs?

A. Their goal is to work first in order to play later
B. Usually they have no succession plan
C. When they do retire, they tend to want to micromanage their successors
D. They work on a seasonal basis

54. What is the goal of growth entrepreneurs?

A. Personal satisfaction
B. Major success
C. Income
D. Work first in order to play later

55. All of the following observations are true of growth entrepreneurs EXCEPT
A. their goal is to achieve major success.
B. they are interested in giving their firms strong balance sheets.
C. they are lifetime owners.
D. when they retire, they tend to want to micromanage their successors.

B
56. Which of the following are owners with an exit plan?
A. Growth entrepreneurs
B. Harvest entrepreneurs
C. Occasional entrepreneurs
D. Habitual entrepreneurs

57. Harvest entrepreneurs

A. are often wealthy, but largely unknown.
B. alternate periods of growth and stability which are determined by personal needs.
C. may scale down their ventures as they get older, but continue to work in their business.
D. are people who generally have another job that is their primary one.

58. As they age, these entrepreneurs' unspoken exit strategy is to let the time between deals drag
out.
A. Harvest entrepreneurs
B. Helical entrepreneurs
C. Occasional entrepreneurs
D. Growth entrepreneurs

59. _____ entrepreneurs alternate periods of growth and stability which are determined by
personal or family needs.
A. Occasional
B. Harvest
C. Spiral
D. Growth

60. Identify the strategy where the idea is to slow down when children are young and push for
growth when the children are older.
A. Spiral
B. Harvest
C. Growth
D. Habitual

A
61. A(n) _____ entrepreneur's typical end-game strategy involves scaling down the business.
A. occasional
B. helical
C. harvest
D. growth

62. _____ entrepreneurs are people who generally have another job that is their primary one.
A. Harvest
B. Occasional
C. Helical
D. Spiral

63. These entrepreneurs are the classic part-time entrepreneurs, who might work on a seasonal
basis.
A. Habitual
B. Spiral
C. Growth
D. Occasional

64. Doing work on a seasonal basis such as doing taxes or making Christmas wreaths is an
example of
A. occasional entrepreneurship.
B. spiral entrepreneurship.
C. growth entrepreneurship.
D. habitual entrepreneurship.

65. Family owned and managed small businesses represent what percent of American
businesses?
A. 58
B. 25
C. 39
D. 72

C
66. Which of the following entrepreneurs employ about 58 percent of America's total
workforce?
A. Women entrepreneurs
B. Second career entrepreneurs
C. Family business owners
D. Minority entrepreneurs

67. All of the following are characteristics of a family-owned business EXCEPT

A. they are the only group that faces the challenge of access.
B. they are a major source of funds and personnel for new small businesses.
C. they are a self-perpetuating source for future small businesses.
D. a strong family bond can become a strong business culture.

68. Two challenges typical to family businesses are

A. motivation and nepotism.
B. leadership and finances.
C. succession and access.
D. role conflict and succession.

69. What best describes the problem that arises when people have multiple responsibilities and
each makes different demands on them?
A. Role conflict
B. Succession
C. Leadership
D. Role ambiguity

70. Which of the following does not pertain to role conflict?

A. It describes the kind of problem that arises when people have multiple responsibilities
B. It is at its worst when people fail to recognize it
C. It causes a shortage of time
D. It is the process of intergenerational transfer of a business

D
71. For family business, the most effective approach for avoiding role conflict is
A. time management.
B. to avoid schedule overload.
C. to try and make decisions based on family necessities.
D. to keep family issues out of the business.

72. Only _____ of family-owned businesses survive beyond the first generation.
A. three-quarters
B. one-half
C. one-fourth
D. one-third

73. _____ refers to the process of intergenerational transfer of business.

A. Role conflict
B. Succession
C. Leadership
D. Access

74. Which of the following statements about a family council is false?

A. One way to maximize communication in the succession process is to create a family council.
B. The main function of the family council is to be focused on running the business.
C. A family council includes family members with immediate interests in the business.
D. The meetings can be a good forum for grappling with issues like role expectations.

75. What is the key difference between a family council and a board of directors?
A. The board is focused on business-family relationships.
B. The board includes significant family membership.
C. The function of the family council is to keep the family involved.
D. Family councils should get professional advice at the start.

C
76. Which of the following statements about entrepreneurial teams is false?
A. Most teams are nonfamily related
B. The majority of new businesses have a team of two or more co-owners
C. The trend is toward even more businesses being developed by teams of entrepreneurs
D. When family members start a business, they start with already knowing and trusting each
other

77. The two fastest growing minority groups represent the largest segments of minority business
owners. These are
A. Hispanics and Asians.
B. Hispanics and Africans.
C. Asians and Africans.
D. Asians and Pacific Islanders.

78. Identify the simplest form of discrimination.

A. Access
B. Role conflict
C. Set-asides
D. Collusion

79. When woman or minority-owned businesses are simply excluded from the opportunities
offered to firms owned by white males, it is called the challenge of
A. consistency.
B. access.
C. flexibility.
D. mutuality.

80. Access problems for women- and minority-owned small businesses crop up most often as
A. differences in labeling.
B. discrimination in financing.
C. problems involved in business contacts.
D. the presence and absence of certain skills.

B
81. All of the following observations pertain to set-asides EXCEPT
A. they are government contracting funds.
B. they are earmarked for particular types of firms.
C. they focus on extra efforts to network.
D. they are a solution for access-based challenges.

82. Which of the following statements about certification for women- and minority-owned small
businesses is false?
A. Certification consists of an examination based acknowledgement that the firm is owned and
operated as specified.
B. Certification is for every women- or minority-owned small business.
C. For those businesses that qualify, certification provides a ready means of access to
opportunity and to networks of businesses and government agencies.
D. For corporations, certification is handled by organizations that are not affiliated with the
government or big business, such as the National Minority Supply and Diversity Council.

83. People who begin their business after having retired or resigned from work in corporations at
the age of 50 or later are called _____ entrepreneurs.
A. harvest
B. helical or spiral
C. late career
D. growth

84. Which of the following is NOT a challenge faced by second career entrepreneurs?
A. Adjusting to the entrepreneurial life
B. Reestablishing self-confidence
C. Keeping personal finances out of the business
D. Deciding whether to return to work

D
85. The key for managing the demanding life of the entrepreneur is to
A. list all your responsibilities as soon as you get them.
B. prioritize your tasks based on their importance to your business and their due date.
C. get advice from people in your line of business about the basic activities of the small business.
D. perform all the business functions including sales, operations, accounting, finance, and human
resources yourself.

Scenario: B&B Music

Bart Barker has always had the talent for playing several musical instruments and has a fabulous
voice. Bart has been playing music at family and friends' events for several years. At age 21,
Bart is determined to open his own business with his brother Brad who is a business major. Bart
is the idea person, whereas Brad is more the contemporary classic entrepreneur. Bart wants to
start and own the business as a lifetime venture, whereas Brad already has an exit plan for their
business. Despite these differences, the two brothers launch their business B&B Music Inc., with
great fanfare.

86. Being an idea person, Bart would not be driven by

A. great wealth.
B. hard work.
C. fame.
D. fast learning.

87. Being a contemporary classic entrepreneur, Brad would exhibit all of the following traits
EXCEPT being
A. a hard worker.
B. socially isolated.
C. an average income seeker.
D. a fast learner.

C
88. Bart appears to express an interest in which of the following careers?
A. Habitual
B. Harvest
C. Spiral
D. Occasional

89. Brad appears to be leaning toward which of the following careers?

A. Habitual
B. Harvest
C. Spiral
D. Occasional

B
90. B&B Music can be described as a(n)
A. minority business.
B. entrepreneurial team.
C. second-career entrepreneurship.
D. expert business.
B

Chapter 4

21. Which of the following refers to searching and capturing new ideas that lead to business
opportunities?
A. Innovation
B. Entrepreneurial alertness
C. Opportunity recognition
D. Technology transfer

22. Researchers in the field of entrepreneurship and small business believe that _____ behavior
is the most basic and important entrepreneurial behavior.
A. opportunity recognition
B. idea networking
C. observational
D. question-seeking

A
23. A special set of observational and thinking skills that help entrepreneurs identify good
opportunities refers to
A. innovation.
B. opportunity recognition.
C. technology transfer.
D. entrepreneurial alertness.

24. All of the following pertain to entrepreneurial alertness EXCEPT

A. entrepreneurs have a special set of observational skills.
B. entrepreneurs have thinking skills that help them identify opportunities.
C. it is the ability to notice things that have been overlooked.
D. it involves launching a formal search for opportunities.

D
25. If an owner of a fast-food restaurant notices that customers are asking for substitutions of
healthier ingredients to food items, she may be motivated to contact her suppliers to ask about
getting new ingredients, changing the menu, and increasing the healthy offerings on the menu to
keep customers satisfied. This is an example of
A. creativity.
B. technology transfer.
C. innovation.
D. entrepreneurial alertness.

26. According to the PSED, a majority of entrepreneurs indicated that

A. the decision to start a business came first.
B. the business idea came first.
C. both idea and decision were simultaneous.
D. they have no recollection of what happened with business start-up.

27. Working for a very large organization in the tractor manufacturing industry, John always
heard complaints from customers about the parts and service aspect of the business. Taking an
early retirement, John started his small business to address the customer complaints he had been
hearing. Which of the following best describes the factor that led John to this business idea?
A. A similar business
B. Chance
C. Work experience
D. Family and friends

28. You might see a business in an area that intrigues you because you learn that there is a
growing market for this business and you think of a way to expand on the opportunity. Which of
the following factors is considered the business idea behind this?
A. Serendipity
B. Personal interest
C. A similar business
D. Work experience

C
29. According to the text, all of the following factors lead business owners to their business ideas
EXCEPT
A. work experience.
B. government regulation.
C. serendipity.
D. family and friends.

30. When people find a way to turn their hobbies into successful businesses, which of the
following factors is considered as leading them to their business idea?
A. Family and friends
B. Education and expertise
C. Serendipity
D. Personal interest

31. When you happen to be at the right place at the right time resulting in a successful business
idea, which of the following factors can be said to be responsible?
A. Family and friends
B. Education and expertise
C. Serendipity
D. Personal interest

32. Many owners of consulting companies took their own skills and launched businesses by
selling those skills to other companies who needed them. This is an example of which of the
following factors leading to business ideas?
A. Family and friends
B. Serendipity
C. Education and expertise
D. Personal interest

C
33. According to the entrepreneurs studied in PSED, which of the following factors was the most
frequently mentioned source that led to their business idea?
A. Discussion with potential investors
B. Education and expertise
C. Family and friends
D. Work experience

34. One powerful but rarely used source of ideas is

A. family and friends.
B. work experiences.
C. existing customers.
D. government agencies.

35. A _____ is a legal agreement granting you rights to use a particular piece of intellectual
property.
A. caveat emptor
B. franchise
C. set-aside
D. license

36. The firm that obtains the rights to use a particular piece of intellectual property is the
A. licensor.
B. licensee.
C. obligor.
D. assignor.

37. The person or organization which is offering the rights to use a particular piece of intellectual
property is the
A. consignee.
B. assignee.
C. licensor.
D. licensee.

C
38. _____ is a payment to a licensor based on the number or value of licensed items sold.
A. Milestone payment
B. Lump sum payment
C. Royalty
D. An exclusive right

39. Which of the following best describes a licensee?

A. It is a person or organization offering the rights to use a particular piece of intellectual
property.
B. It is a legal agreement granting rights to use a particular piece of intellectual property.
C. It is a person or firm obtaining the rights to use a particular piece of intellectual property.
D. It is a person or organization offering the rights to use any piece of intellectual property.

40. In a typical I 2 P analysis, this is a nontechnical description of the concept simple enough for
everyone to understand it.
A. What is the market and its size?
B. What is your product or idea?
C. Why will customers buy your product?
D. Who are the people behind the idea?

41. "Why might a cell phone that can play music MP3s be a better approach than a dedicated
MP3 player?" pertains to which of the following questions?
A. Is your product or idea innovative?
B. Why will customers buy your product?
C. Is your underlying technology unique?
D. Who are the people behind the idea?

42. This question looks at the specific individuals, groups, or organizations you would approach
first to buy your product or service.
A. Who are the people behind the idea?
B. Describe how you create value for your customers.
C. How would you define the best initial set of customers?
D. What marketplace need does your product address better than any other option?

C
43. Which of the following looks like the simplest question but is actually the hardest one?
A. Is your underlying technology unique?
B. Who will buy your product?
C. What is your product or idea?
D. What is the market and its size?

44. Which of the following is NOT a focus while answering the eight questions in a typical I 2 P
analysis?
A. People
B. Product
C. Market
D. Intellectual property protection

45. "Beyond the start-up dollars that will be needed to buy any raw materials to make the product
or develop the service, what information, relationships, and degree of effort will be needed to
turn the idea into reality?" pertains to which of the following?
A. Is your product or idea innovative?
B. What resources are needed to take the idea and sell it to the customer?
C. Describe how you create value for your customers.
D. What marketplace need does your product address better than any other option?

46. "S" in the creativity tool SCAMPER stands for

A. strategize.
B. substitute.
C. submit.
D. solicit.

47. A feature that allows your customers to order directly from a Web site rather than visiting
your store is an example of
A. elimination.
B. adaptation.
C. magnification.
D. substitution.

D
48. Which of the following is an idea trigger for the "substitute" cue in SCAMPER?
A. What opportunities can you think of that come as a result of replacing something that already
exists?
B. What separate products, services, or whole businesses can you put together to create another
distinct business?
C. What could you adapt from other industries or fields to your business?
D. What could I make more noticeable or dramatic, or different in some way from my
competitors?

49. The idea trigger "What separate products, services, or whole businesses can you put together
to create another distinct business?" pertains to which cue in SCAMPER?
A. Substitute
B. Magnify
C. Adapt
D. Combine

50. _____ is a process of producing an idea or opportunity that is novel and useful, frequently
delivered from making connections among distinct ideas or opportunities.
A. Ethics
B. Creativity
C. Imitation
D. Flexibility

51. When a bookstore starts to sell videos, music, and coffee as well, they are using which
element of SCAMPER?
A. Rearrange
B. Eliminate
C. Combine
D. Substitute

C
52. Which popular innovation strategy can be just as effective and much more likely in the real
world, than business opportunities that result from radical innovations?
A. Magnifying
B. Adapting
C. Eliminating
D. Rearranging

53. Looking at the concept of "Book-of-the-Week" from Borders, if Olive Garden starts a "Pasta-
of-the-Week", it would be an example of which element of SCAMPER?
A. Adapt
B. Magnify
C. Combine
D. Substitute

54. Rejecting existing ideas, and presenting a way to do things differently refers to _____
strategy.
A. imitative
B. cost leadership
C. radical innovation
D. integration

55. The microchip industry was born when someone asked the question, "What if we shrunk
them?" This refers to which of the following cues?
A. Rearrange
B. Minimize
C. Put to other uses
D. Adapt

B
56. The idea trigger "Suppose you learned that all the traditional uses for your product had
disappeared and that you have trailer truckloads out back with tons of product. What other uses
might there be?" refers to which cue?
A. Substitute
B. Put to other uses
C. Eliminate
D. Rearrange

57. "M" in the creativity tool SCAMPER stands for

A. manage.
B. match.
C. market.
D. modify.

58. There is much a small business can do to create memorable images and advertising for itself,
and it does not need expensive television ads to do it. Which element of SCAMPER is being
referred to here?
A. Magnify
B. Substitute
C. Combine
D. Put to other use

59. When Crest toothpaste introduces "New and Improved" toothpaste, it is an example of which
element of SCAMPER?
A. Modify
B. Substitute
C. Rearrange
D. Eliminate

A
60. Which element of SCAMPER involves thinking of ways to generate a high number of
opportunities for a service beyond its traditional function?
A. Putting to other uses
B. Magnifying or modifying
C. Adapting
D. Combining

61. "What if people didn't have to leave their houses to go grocery shopping?" refers to which
cue?
A. Minimize
B. Reverse
C. Eliminate
D. Substitute

62. Using paradox to challenge old ways of thinking such as using stimulants to calm
hyperactive children refers to which of the following cues?
A. Minimize
B. Substitute
C. Reverse
D. Rearrange

63. Searching for opportunities that arise when you get rid of something or stop doing something
refers to
A. adapting.
B. eliminating.
C. rearranging.
D. modifying.

64. According to Graham Wallas, the creative thought includes which of the following stages?
A. Industry survey
B. Elimination
C. Combination
D. Incubation

D
65. According to Graham Wallas, exploring the problem or opportunity in all directions is called
A. illumination.
B. incubation.
C. preparation.
D. verification.

66. According to Graham Wallas, thinking about the problem or opportunity in a "not-conscious"
way is called
A. preparation.
B. verification.
C. illumination.
D. incubation.

67. The creative thought process, according to Graham Wallas, includes all of the following
stages EXCEPT
A. incubation.
B. illumination.
C. combination.
D. verification.

68. According to the text, all of the following are techniques that you can try as you practice the
business of innovation EXCEPT
A. read magazines and trade journals about your area.
B. have a "scan the environment" day.
C. redesign your work environment.
D. invite someone you have never included before to a meeting at which you are solving a
problem.

A
69. All of the following are major pitfalls that business owners can become victims of when
trying to become more innovative EXCEPT
A. judging ideas too quickly.
B. stopping with the first good idea.
C. obeying rules that do not exist.
D. getting the "bandits on the train."

70. You assume, as the business owner, that you need to do all the work, make all the sales calls,
and solve everybody's problems. This refers to which major pitfall that business owners can
become victim to when trying to become more innovative?
A. Obeying rules that do not exist
B. Judging ideas too quickly
C. Identifying the wrong problem
D. Getting the "bandits on the train."

71. An overall strategic approach in which the entrepreneur does more or less what others are
already doing refers to
A. imitative strategy.
B. innovative strategy.
C. incremental strategy.
D. status quo strategy.

72. This model has the entrepreneur assess whether the situation faced is one that is the same as
it has been traditionally or if it is changing.
A. Business process modeling
B. Opportunity identification process
C. Pilot test
D. Radical innovation strategy

B
73. Taking an idea and offering a way to do something slightly better than it is done presently
refers to
A. imitative strategy.
B. incremental strategy.
C. status quo strategy.
D. innovative strategy.

74. _____ means the extent to which the idea is viable and realistic, and the extent to which you
are aware of internal and external forces that could affect your business.
A. Flexibility
B. Consistency
C. Feasibility
D. Innovation

75. According to PSED, start-up entrepreneurs feel most confident about which of the following
aspects?
A. Complying with local/state/federal regulations
B. Obtaining start-up capital
C. Obtaining a bank's help
D. Attracting employees

76. Feasibility studies consist of careful investigation of all the following areas EXCEPT
A. product/service.
B. industry and market.
C. profitability.
D. idea generation.

77. What is the goal of a feasibility study?

A. To create additional value for customers through great products or services.
B. To get useful ideas out of creative employees that affect the business's bottom line.
C. To assess if an idea can be profitably brought to market.
D. To assess how well a preliminary run of a business works and what problems it might have.

C
78. The business idea component of the feasibility study includes which of the following
aspects?
A. Stage of development
B. Competition
C. Market penetration
D. You, your firm, and your fit

79. The product/service component of the feasibility study should include which of the following
aspects?
A. Stage of development
B. Competition
C. Market penetration
D. Cost forecast

80. The industry and market component of the feasibility study should include which of the
following components?
A. Sales revenue forecast
B. The competition
C. Writing a business plan
D. Pricing

81. The financial projections component of the feasibility study includes all of the following
EXCEPT
A. pricing.
B. operating expenses.
C. insurance requirements.
D. cost forecasts.

82. The future action plan component of the feasibility study includes which of the following
elements?
A. Profitability
B. The competition
C. Legal restrictions and rights
D. Writing a business plan

D
83. What refers to a preliminary run of a business, sales effort, program, or Web site with the
goal of assessing how well the overall approach works and what problems it might have?
A. Conversion rate
B. Pilot test
C. Incubation period
D. Commercialization

84. The measure of the number of visitors to your Web site who have actually made a purchase
from you is known as
A. eyeball rate.
B. frame rate.
C. conversion rate.
D. pilot testing.

85. _____ is at the heart of entrepreneurship, because every time people start a business or
become the owner of one, it is a new start and often a new experience for them.
A. Innovation
B. Leadership
C. Marketing
D. Teamwork

Scenario: Tastes of India

Born and raised in India, Rashmi has always been on top of her game with regard to Indian
cooking. As a matter of fact, cooking was her passion and she always enjoyed reading, learning,
and experimenting with different ethnic cuisines. Ever since Rashmi's family moved to the
United States, cousins, friends, and other people coming to their house for dinner gatherings
have always commented that Rashmi should start a catering business. Realizing that her
American friends may not be able to handle or like the Indian food that is too hot and spicy,
Rashmi would make changes to the recipes to suit the local taste. Having heard enough times,
Rashmi is seriously contemplating whether she should start a catering business: "Tastes of
India."
86. Which of the following factors can be attributed to Rashmi considering the catering business
idea?
A. A similar business
B. Serendipity
C. Work experience
D. Family and friends

87. In assessing the viability of the catering business idea, Rashmi should consider all of the
following questions EXCEPT
A. What regulations are supporting this idea?
B. How would you define the best initial set of customers?
C. What resources are needed to take the idea and sell it to the customer?
D. What is the market and its size?

88. Rashmi appears to be applying which element of the SCAMPER tool in her cooking?
A. Modify
B. Substitute
C. Rearrange
D. Eliminate

89. All of the following are pitfalls that Rashmi should be careful to avoid succumbing to
EXCEPT
A. judging ideas too quickly.
B. stopping with the first good idea.
C. obeying rules that do not exist.
D. getting the "bandits on the train."

90. In conducting the feasibility study for the "Tastes of India" idea, Rashmi should ensure a
careful investigation of all of the following areas EXCEPT
A. product/service.
B. cultural diversity management.
C. profitability.
D. industry and market.

B
Chapter 5

21. Working at your business 35 hours a week or less is called

A. franchising.
B. full-time self-employment.
C. aggrandizing.
D. part-time self-employment.

D
22. Which of the following does NOT hold true of part-time self-employment?
A. It is a minor portion of all current entrepreneurship.
B. There is tremendous volatility as individuals jump in and out of self-employment quickly and
frequently.
C. It accounts for around half of small businesses in the United States.
D. It is the way most people start in entrepreneurship.

23. Full-time approaches include all of the following EXCEPT

A. buying or inheriting existing businesses.
B. stand retailing.
C. franchising.
D. opening a new full-time business.

24. Part-time businesses are important for which of the following reasons?
A. They are important and necessary for our global competitiveness.
B. Majority of new inventions have come from part-time self-employed businesses.
C. Part-time self-employment is the way most people start in entrepreneurship.
D. Part-time businesses provide the cheap labor for large businesses and full-time entrepreneurs.

25. The frequency of business starts and stops is referred to as

A. volatility.
B. aggrandizing.
C. bootstrapping.
D. moonlighting.

26. Nowadays, the conventional wisdom is that if you are serious about starting a business, you
ought to start a business full time and prepare for it by
A. doing a business plan.
B. making bylaws.
C. doing a strategic plan.
D. creating an organizational chart.

A
27. Which of the following statements about a business plan is false?
A. A business plan enables you to look at every aspect of your business.
B. Business plans are important if you intend to ask others for expertise or financial investments.
C. Estimates suggest that a business plan may take anywhere from 10 to 20 hours or more if you
are new to business.
D. If you are new to business and need to gain basic experience, you might want to obtain other
types of experience before writing a business plan.

28. Under which of the following situations might it make better sense to undertake a part-time
business first?
A. You are buying an existing business
B. You want to gain basic experience
C. You are opening a franchise
D. There is too much competition

29. All of the following are situations in which it might make better sense to undertake a part-
time business EXCEPT
A. when you are new to business and need to gain basic experience.
B. when you lack resources to pursue a full-scale business.
C. when there is a narrow window of opportunity.
D. when there is enough time and resources to get the entire business going.

30. _____ is/are probably the ultimate resource, and starting a business can tax it heavily.
A. Family
B. Friends
C. Money
D. Time

D
31. In all of the following situations, it might make better sense to undertake a part-time business
EXCEPT when
A. there is a narrow window of opportunity.
B. you lack the resources for a full-scale business.
C. you want to gain basic experience.
D. you are buying an existing business.

32. In organizing your part-time small business start-up, which of the following is NOT a key
consideration?
A. Cost to start-up
B. Competition
C. Time to start-up
D. Permanence

33. Which of the following statements about the key considerations for part-time small business
start-ups is false?
A. You want a low cost of start-up, since you probably will not have a lot of money to invest.
B. The more time and energy you spend preparing for a small-scale part-time business, the
shorter it takes to make a profit.
C. In most cases, the cost to start-up and the time to market are closely related.
D. The fundamental idea of permanence is that customers want to know if the firm is likely to be
around for awhile, to provide customer service and future sales.

34. Which of the following U.S. industries had the most number of establishments in 2007?
A. Manufacturing
B. Wholesale
C. Construction
D. Professional services

D
35. All of the following are reasons for the large numbers of home-based businesses in the
United States EXCEPT
A. the idea that a customer knows where the entrepreneur lives can be a point in favor of trusting
in the potential permanence of the firm.
B. it is inexpensive, since you are already living somewhere.
C. they generally give customers the strongest sense of legitimacy.
D. you can get your business going where you live in a moment.

36. Government specifications for acceptable use of land and buildings in particular areas are
called
A. licensing laws.
B. public utility laws.
C. environmental laws.
D. zoning laws.

37. What is the greatest problem that home-based entrepreneurs face?

A. Zoning challenges
B. Gaining customers
C. Insurance problems
D. Delivering work

38. The limitations imposed on your property by your neighborhood group are known as
A. pacts.
B. covenants.
C. volatilities.
D. aggrandizements.

39. Permission from a government organization to act differently than the laws state is known as
A. a covenant.
B. volatility.
C. variance.
D. bootstrapping.

C
40. An Internet site designed to introduce and explain a business to others is known as a(n)
A. e-commerce Web site.
B. portal Web site.
C. advocacy Web site.
D. informational Web site.

41. Products like music and cell phones are examples of the kind of goods we buy as individuals.
This type of e-commerce is called
A. business-to-business (B2B).
B. business-to-consumer (B2C).
C. consumer-to-consumer (C2C).
D. business-to-Internet (B2I).

42. In _____ sales, one firm sells to another firm.

A. business-to-business (B2B).
B. business-to-consumer (B2C).
C. consumer-to-consumer (C2C).
D. business-to-Internet (B2I).

43. Identify the correct statement about B2B.

A. For most of us, the B2B market is visible.
B. An example of a B2B transaction would be an individual buying a cell phone.
C. It involves electronically-facilitated transactions between consumers through a third party.
D. B2B e-commerce is larger than B2C e-commerce.

44. Identify the correct statement about a hosting package.

A. It should include at least 1 terabyte of traffic a month.
B. It should give you at least five Web pages of space to tell your story.
C. It should include at least two e-mail accounts using your domain name.
D. It should include an online Web site editor so you can make changes to your site without
buying Web-authoring software.

D
45. A Web page in which entries are posted in reverse chronological order is a
A. blog.
B. tweet.
C. search engine.
D. push service.

46. Identify the correct statement about RSS feeds.

A. All Web sites push content out to customers by using an RSS feed.
B. An RSS feed sends whatever Web material you specify to subscribers to that feed.
C. RSS stands for "really simple sequence."
D. RSS feeds can be read only with special readers.

47. A listed, live connection to a different Web site, which in turn displays a similar link to the
first Web site is a(n)
A. sponsored link.
B. reciprocal link.
C. backlink.
D. incoming link.

48. Identify the correct statement about the eBay Web site.
A. The eBay method of auctioning means you pay a fee for posting your product and a sales fee
based on the final bid price when the item sells.
B. Most online transactions use a credit card or an online payment system like PayMate, which is
a division of eBay.
C. eBay does not allow buyers and sellers anonymity.
D. On eBay, you can list a single item for sale only by creating a Web site to support your effort.

49. The party and door-to-door model represents which of the following part-time business
approaches?
A. Stand retailing
B. Consignment
C. Home retail
D. Mail order

C
50. Which of the following is also called multilevel marketing?
A. Network marketing
B. Auctioning
C. Catalog sales
D. Online marketing

51. _____ means getting the customer to agree to buy.

A. Opening
B. Promoting
C. Auctioning
D. Closing

52. Identify the statement that does not relate to home retail.
A. Low cost of setting up
B. Ability to do the work away from your home and employer
C. Provides a high steady income
D. Minimized potential conflicts

53. Which of the following is NOT an advantage of home businesses?

A. Speed and ease of setting up.
B. Low cost of getting started.
C. Ability to do the work away from your home and employer.
D. Always working "on the road" thereby enhancing productivity.

54. All of the following are disadvantages of home retailing EXCEPT

A. high cost of getting started.
B. always working "on the road."
C. lacking a base from which you can organize and work.
D. having a highly variable income.

A
55. The fundamental success factor in door-to-door selling is
A. closing the sale.
B. having a location with enough foot traffic.
C. approaching a "high-rent" district.
D. having a perishable product for sale.

56. An approach to selling in which the salesperson recruits customers to become distributors of
the products or services to others is called
A. consignment shop.
B. network marketing.
C. auctioning.
D. licensing.

57. One of the most ancient forms of small business is

A. stand retailing.
B. consignment.
C. mail order.
D. licensing.

58. Which of the following represents an advantage of stand retailing?

A. Variable income
B. Minimum startup investment
C. Steady income
D. Strong consumer base

59. _____ are often among the most expensive locations in the mall in terms of rent per square
foot.
A. Large anchor stores
B. Medium-sized boutique stores
C. Carts and kiosks
D. Food court stores

C
60. All of the following relate to "stand retail" EXCEPT
A. they tend to be either semipermanent ones or movable ones.
B. they need to be built in places where there is less traffic.
C. they can be quickly established.
D. they have a problem of building customer base.

61. The key success factor for a stand is

A. having a location where there is enough foot or vehicle traffic.
B. having a variable income.
C. having nonperishable sale items.
D. sharing with other businesses to minimize the high rent.

62. Retail stores in which customers can come and buy products placed in the shops by a wide
variety of sellers are called
A. licensed outlets.
B. franchised kiosks.
C. consignment shops.
D. auctions.

63. Which of the following does NOT hold true of consignment shops?
A. It promotes the popular way which is to give your product to someone else to sell.
B. They are retail stores in which customers can come and buy products placed in the shops by a
wide variety of sellers.
C. The shop's owner handles the sale and gets a portion of the money from the sale in return.
D. Many consignment shops have a maximum selling price for items.

64. Which of the following represents an advantage of a consignment approach?

A. Full-time sale with only a part-time involvement from you
B. High potential for competing offers
C. Amount of time before payout
D. Sellers' fees

A
65. Which of the following pertains to consignment shops?
A. They permit full-time sales with full-time involvement from you
B. They are high-risk level undertakings
C. They have low profitability because of seller fees
D. They have limited flexibility

66. Which of the following represents a disadvantage of a consignment approach?

A. Availability of different consignment stores and auctions
B. Long amount of time before payouts
C. Full-time sales with only a part-time involvement from you
D. High setup costs

67. Research indicates that most service and retail firms typically start out as a
A. losing venture.
B. franchise.
C. hobby.
D. self-employment business.

68. The key device for managing time for part-time business individuals is
A. the to-do list.
B. auctioning.
C. hiring employees.
D. outsourcing.

69. The two key groups outside your business with whom you must deal with as part-time
business owners are
A. the state and federal governments.
B. the government and customers.
C. customers and employees.
D. employees and investors.

B
70. _____ refers to information provided to the government concerning the existence of, name
of, nature of, and contact information for your business.
A. Zoning
B. Franchising
C. Registration
D. Bootstrapping

71. _____ is the documented permission from the government to run your business.
A. Bootstrapping
B. Delegation
C. Licensing
D. Zoning

72. All of the following are challenges of being a part-time entrepreneur EXCEPT
A. delegation and outsourcing.
B. ethical challenges.
C. moving from part-time to full-time entrepreneur.
D. the ability to make money to sustain the business.

73. The assignment of work to others over whom you have power refers to
A. delegation.
B. outsourcing.
C. licensing.
D. zoning.

74. Delegation does NOT make sense in which of the following situations?
A. When you want your business to operate in two places at once.
B. When trust is low and employees lack skills.
C. When you want your business to operate when you are not present.
D. When others can do things better than you.

B
75. Contracting with people or companies outside your business to do work for your business
refers to
A. moonlighting.
B. bootstrapping.
C. outsourcing.
D. licensing.

76. Which of the following is the most outsourced item by small businesses?
A. Payroll
B. Financial advice and management
C. Advertising and marketing
D. Legal issues

77. Finding a low-cost or no-cost way to do something is called

A. moonlighting.
B. bootstrapping.
C. outsourcing.
D. licensing.

78. All of the following are the key ideas of bootstrapping EXCEPT
A. cutting your personal and business expenses.
B. seeing if you can get things which you need for free.
C. seeing if you can substitute a lower-cost alternative before you buy.
D. borrowing heavily from banks while keeping your money untouched.

79. Ownership of a portion of a business is called

A. equity.
B. debt.
C. leverage.
D. cash flow.

A
80. Working on your own part-time business after your regular job is called
A. moonlighting.
B. bootstrapping.
C. outsourcing.
D. licensing.

81. All of the following are major concerns of moonlighting EXCEPT

A. conflict of interest.
B. bootstrapping.
C. cannibalizing sales.
D. poisoning the well.

82. _____ means taking business away from your employer.

A. Bootstrapping
B. Licensing
C. Cannibalizing
D. Aggrandizing

83. _____ refers to creating a negative impression among your employers' customers.
A. Bootstrapping
B. Cannibalizing
C. Aggrandizing
D. Poisoning the well

84. Attempting to make yourself seem more accomplished than reality refers to
A. aggrandizing.
B. poisoning the well.
C. moonlighting.
D. cannibalizing.

A
85. The most typical form of aggrandizement is
A. implying that a firm is a full-time one when it is only part time.
B. creating a negative impression among your employers' customers.
C. working on your own part-time business after your regular job.
D. finding a low-cost or no-cost way to do something.

Scenario: "Light a Candle"

Working as an accountant in the local government agency, Elizabeth has always had a liking for
candles. She collected thousands of candles over the years - different shapes, sizes, occasions,
and colors. After talking with a few co-workers, Elizabeth decided to get a kiosk at the flea
market for four weeks before Christmas to sell her candles with her business name: "Light a
Candle."

86. Elizabeth can be described as a(n)

A. full-time self-employed.
B. franchisor.
C. absentee employee.
D. part-time self-employed.

87. "Light a Candle" can be described as

A. stand retailing.
B. mail ordering.
C. home retailing.
D. consignment retailing.

88. Elizabeth should know that the challenge or disadvantage of her choice of business is the
A. difficulty in setting up.
B. cost of setting up.
C. variable income.
D. seller fees.

C
89. If Elizabeth starts to take days off from work to staff the kiosk at the flea market, she may be
facing
A. bootstrapping.
B. conflict of interests.
C. poisoning the well.
D. aggrandizing.

90. If Elizabeth wants to have a full-time sale with only part-time involvement, she should
consider
A. consignment stores.
B. home retailing.
C. bootstrapping.
D. stand retailing.

Chapter 6

21. Which of the following is NOT a path to full-time business ownership?

A. Franchising
B. Stand retailing
C. Starting a new business
D. Buying an existing business

B
22. A legal agreement that allows a business to be operated using the name and business
procedures of another firm is referred to as a
A. franchise.
B. license.
C. turnkey.
D. consignment.

23. A new business that is started from scratch is called a

A. buyout.
B. franchise.
C. start-up.
D. buy-in.

24. Purchases of existing businesses may occur through _____ in which the business is bought
over a period of time with money earned from the business.
A. turnkey
B. cash purchases
C. earn-outs
D. leveraged buyouts

25. _____ franchise is one in which every part of setting up the business is handled by
professionals.
A. Turnkey
B. Product or trade name
C. Single unit
D. Multi unit

26. Which of the following is an advantage of a start-up?

A. It begins with a clean slate
B. It has initial name recognition
C. It is easy to establish and provide positive cash flow
D. It has easy access to revolving credit

A
27. Which of the following is a disadvantage of a start-up?
A. It begins with a clean slate
B. Absence of "legacy" locations, buildings, and equipment
C. Absence of initial name recognition
D. Providing new products or services

28. All of the following are advantages of a start-up EXCEPT

A. the use of the most up-to-date technologies.
B. the access to revolving credit line.
C. it can be kept small deliberately to limit the magnitude of possible losses.
D. it has a clean slate.

29. All of the following are disadvantages of a start-up EXCEPT

A. absence of initial name recognition.
B. access to revolving credit line.
C. difficulty in financing.
D. it starts with a clean slate.

30. _____ refers to something the business owns that has economic value or is expected to have
economic value in the future.
A. Asset
B. Revolving credit
C. Cash flow
D. Synergy

31. A(n) _____ credit is a credit agreement that allows the borrower to pay all or part of the
balance at any time; as the loan balance is paid off, it becomes available to be borrowed again.
A. revolving
B. installment
C. social
D. nonrevolving credit

A
32. Often the only competitive advantage for a "me-too" start-up is the
A. finance.
B. location.
C. marketing.
D. subsidy.

33. The specific concept that leads to a start-up business usually comes from the _____ of the
person starting the business.
A. credentials
B. interests
C. education
D. experience

34. Research into the indicators of successful start-ups shows that one of the best predictors of
success is
A. the level of experience of the founders.
B. suggestions from friends and associates.
C. random events.
D. specific education courses.

35. Doing all of the following things has been shown to be the most effective route to success
EXCEPT
A. starting a business in a business incubator.
B. securing outside investment.
C. taking part in a mentoring program.
D. starting with one founder.

36. A _____ is an organization that provides financial, technical, and managerial help to start-up
businesses.
A. business incubator
B. trade association
C. venture capital firm
D. consultancy

A
37. Which of the following statements about business incubators is false?
A. Incubator participants have individual office services, such as telephone answering, and
production and copying of documents.
B. They provide access to angel investors, public grants for seed money, and technology support.
C. They are created to strengthen the local economy by helping create jobs through the
establishment of successful small businesses.
D. They aid in the commercialization of new technologies, the revitalization of distressed
neighborhoods, and the creation of wealth.

38. In _____, executive volunteers contribute their time and energy in assisting start-up and
struggling small businesses as a public service.
A. mentoring programs
B. trade associations
C. business incubators
D. franchising

39. The _____ phase is usually the most difficult time you will have in business.
A. start-up
B. work
C. growth
D. completion

40. When a small business start-up secures outside investment, one thing it accomplishes is that
A. the business is critically examined by outsiders.
B. it brings the synergy from multiple founders.
C. the business produces a product or service for which there is a proven demand.
D. the founders take part in the mentoring program.

A
41. A combination in which the whole is greater than the sum of its component parts refers to
A. revolving credit.
B. synergy.
C. microinventory.
D. spin-off.

42. Having multiple founders at a start-up is a key success indicator for all of the following
EXCEPT
A. providing a forum for examining ideas.
B. evaluating information.
C. dividing up the business risks and rewards.
D. making good business decisions.

43. The amount by which sales prices exceed product costs refers to
A. high margins.
B. synergy.
C. spin-off.
D. asset.

44. The single greatest hurdle to a successful start-up is

A. obtaining and maintaining mentoring relationships.
B. obtaining and maintaining sufficient cash.
C. hiring and retaining qualified employees.
D. procuring enough inventory for sale.

45. You can go about obtaining committed customers prior to start-up via all of the following
ways EXCEPT
A. starting a spin-off from your employer's business.
B. competing with your employer.
C. subcontracting services to your employer.
D. getting your employer's business into an incubator.

D
46. A business that is created by separating parts of an operating business into a separate entity is
called a
A. synergy.
B. franchise.
C. spin-off.
D. turnkey.

47. All of the following holds true of creating spin-offs in businesses EXCEPT
A. it is a regular business practice that is done by big businesses at the initial stages of business
development.
B. they are created to get rid of "noncore" activities.
C. it is a business that is created by separating part of an operating business into a separate entity.
D. some of them are created when the parent lacks either the interest or the resources to pursue
the opportunity.

48. In which way will working with a partner reduce the risk of a start-up?
A. Banks prefer partnered start-ups.
B. Federal government provides subsidies to partnering situations.
C. Partners may provide capital, equipment, or advice.
D. Partners eliminate the need to hire other employees.

49. Which of the following statements about home-based businesses is true?

A. Having a business based at home increases the cash flow requirements of a start-up business.
B. From around 1960 to 1980, home-based businesses largely fell out of favor.
C. Because of the proximity of the business to the living area, no time is spent commuting
between home and office.
D. The U.S. Small Business Administration estimates that 93 percent of all businesses are home-
based, putting the number at around 15 million firms.

C
50. Which of the following is an advantage of buying an existing business?
A. It is easy to find an appropriate existing business for sale given the technology today.
B. Purchasing a business often requires less cash outlay than for creating a start-up.
C. Existing managers and employees embrace change due to continuing operations that provide
job security.
D. New technology needs are eliminated.

51. Which of the following is a disadvantage of purchasing an existing business?

A. Established customers leaving due to change.
B. Existing business processes being difficult to change.
C. Purchasing a business being significantly more expensive than a start-up.
D. Existing managers and employees resisting change.

52. Which of the following is an excellent way to find businesses for sale?
A. Yellow pages
B. Local community center
C. Networking
D. Universities

53. The process of investigating a business to determine its value is called

A. synergy.
B. spin-off.
C. due diligence.
D. heuristics.

54. Identify the statement that is not a part of the steps which make up the process of due
diligence.
A. Conducting extensive interviews with the sellers of the business.
B. Making a personal examination of the site (or sites) of the business.
C. Interviewing customers and suppliers of the business.
D. Developing a brief business plan for the acquisition.

D
55. This is not a reason for obtaining a set of financial statements when a business is acquired.
A. The seller usually has to gather financial information and incurs added cost and time in
providing them.
B. As a business person you are most likely familiar with financial statements and can extract
useful information from them.
C. Financial statements are accepted as representative of the business by bankers and investors.
D. Financial statements are considered to be indicators of future business results.

56. Which of the following steps is NOT a part of due diligence?

A. Leveraging the contributions of the partner to provide faster growth.
B. Studying the financial reports and other records of the business.
C. Developing a detailed business plan for the acquisition.
D. Conducting extensive interviews with the sellers of the business.

57. Which of the following terms means "let the buyer beware"?
A. Caveat lector
B. Spin-off
C. Caveat emptor
D. Synergy

58. Which of the following is a primary goal of due diligence?

A. Finding any wrongdoing
B. Paying the top dollar for the business
C. Fulfilling all requirements for state regulations
D. Establishing yourself as a competitive threat

59. Financial statements, in performing due diligence, should include all of the following
EXCEPT a(n)
A. balance sheet.
B. mission statement analysis.
C. income statement.
D. statement of cash flows.

B
60. Patents and trade secrets are examples of
A. ESOPs.
B. heuristics.
C. franchising.
D. intangible assets.

61. _____ are the cash flows that have been reduced in value because they are to be received in
the future.
A. Book value cash flows
B. Replacement value cash flows
C. Free cash flows
D. Discounted cash flows

62. _____ analysis is based on the concept that the longer you have to wait to receive money, the
less valuable it is right now.
A. Discounted cash flow
B. Replacement value cash flow
C. Free cash flow
D. Book value cash flow

63. The process of determining the net present value of an investment opportunity requires all of
the following EXCEPT
A. estimating the cash that must be invested.
B. estimating the cash that will be returned.
C. estimating the periods in the future in which cash inflows will occur.
D. estimating the cost of capital to the seller.

D
64. Which of the following statements about asset valuation methods is false?
A. Estimates do not consider the value of an ongoing firm over the value of its identifiable
assets.
B. They are based on the assumption that a business is worth the value of its assets minus the
value of any liabilities.
C. It is very difficult and time consuming to separately identify and estimate the values of all the
assets of a business.
D. The application of asset valuation methods to business valuation is similar to having an
annuity.

65. The difference between original acquisition cost and the amount of accumulated depreciation
is called the
A. replacement value.
B. book value.
C. earnings multiple.
D. discounted cash flow.

66. All of the following are major problems with using book value EXCEPT
A. the original cost of an asset might bear no relation to its current value.
B. depreciation is an arbitrary, but nonsystematic, method of transferring asset value to expense.
C. internally developed assets, such as patents, trademarks, and trade secrets do not have book
value.
D. Depreciation makes no attempt to measure actual loss of value of an asset.

67. The amount for which an asset would sell, less the costs of selling the asset is called
A. book value.
B. replacement value.
C. net realizable value.
D. earnings multiple.

C
68. _____ is an estimate of what an identical asset would cost to be acquired and readied for
service.
A. Earnings multiple
B. Book value
C. Replacement value
D. Net realizable value

69. _____ of other firms in the same industry are commonly used to estimate the value of a
business. One major problem with this method is that no two firms are exactly alike.
A. Synergies
B. Comparable sales
C. Spin-offs
D. Industry heuristics

70. The ratio of the value of a firm to its annual earnings is called
A. unappropriated profit.
B. accumulated earnings.
C. retained earnings.
D. the earnings multiple.

71. _____ are rules of thumb that are commonly used to estimate firm value in relation to some
easily observable characteristic of the business.
A. Synergies
B. Spin-offs
C. Book values
D. Heuristics

72. The price at which a buyer is indifferent about buying or not buying the business is called
A. spin-off.
B. the point of indifference.
C. caveat emptor.
D. ESOP.

B
73. The purchase of substantially less than 100 percent of a business is called a
A. takeover.
B. buy-in.
C. spin-off.
D. buyout.

74. Seizing of control of a business by purchasing its stock to be able to select the board of
directors refers to
A. buy-in.
B. takeover.
C. merger.
D. heuristics.

75. The primary advantage to a buyout is

A. hands-off approach.
B. significantly less cost.
C. simplicity.
D. ESOP.

76. _____ are the only way a sole proprietorship may be purchased.
A. Buy-ins
B. Takeovers
C. Key resource acquisitions
D. Buyouts

77. Identify the statement that is not essential for an agreement to constitute a franchise.
A. The agreement does not require the franchisee to pay a fee for the right to enter into the
business.
B. The agreement grants the franchisee use of a brand name, trademark, service mark, logo, or
other commercial symbol which designates the franchisee as an affiliate of the franchisor.
C. The agreement provides that the franchisee may engage in business using a marketing plan or
system provided by the franchisor or proposed by the franchisee.
D. The agreement provides the franchisee with a legal right to engage in the business of offering,
selling, or distributing goods or services.

A
78. Which of the following statements determines the value of a franchise?
A. By the rights granted.
B. By the conditions and standards set.
C. By the operating permissions granted.
D. By the value of assets acquired.

79. This is an agreement that provides only the rights to use the franchisor's trade name and/or
trademarks.
A. Product distribution franchising
B. Trade name franchising
C. Conversion franchising
D. Business format franchising

80. Which of the following observations holds true of product distribution franchising?
A. It provides the franchisee with specific brand named products, which are resold by the
franchisee in a specified territory.
B. It provides an organization through which independent businesses may combine resources.
C. It is an agreement that provides only the rights to use the franchisor's trade name and/or
trademarks.
D. It is an agreement that provides a complete business format.

81. _____ provides an organization through which independent businesses may combine
resources.
A. Product distribution franchising
B. Trade name franchising
C. Conversion franchising
D. Business format franchising

82. Which of the following are forms of franchising?

A. Trade name, product distribution, and business format.
B. Product, service, and mix-format.
C. Regional, local, and global.
D. Sole proprietorship, partnership, and corporation.

A
83. Which of the following statements about family businesses succession is true?
A. Turning over management authority is not easy for most founders.
B. Fewer than 10 percent of family-owned businesses are successfully transferred to a second
generation.
C. It is easy for the heir of the founder to assume authority.
D. Fewer than 5 percent family-owned businesses succeed long enough to be inherited by the
third.

84. To avoid having the diversity of values, goals, and motivators from becoming the source of
such intrafamily strife, you and the other family business members should respect one another's
differences by all of the following ways EXCEPT
A. being certain that all family members know and accept that they are not forced to enter the
management of the business if they don't want to.
B. providing each member of the family business with the opportunity to obtain education and
experience outside the business.
C. allowing each family member who does wish to enter the business to find out and do those
functions and activities that he or she does best.
D. assuming that the leadership of the business must come from within the family.

85. Which of the following statements about the professional management of small businesses is
false?
A. If a business grows large enough, no matter how experienced a business owner is, eventually
the demands of managing will become too great to be handled alone.
B. As small businesses grow, the business starts to decline.
C. As small businesses grow, professional managers are hired to share the management load.
D. In terms of small business, professional management is an issue of education, titles, and
credentials.

Scenario: Tavanna Tucker

Having owned several part-time businesses all her life, Tavanna, at 45, is considering a full-time
business ownership. She is very confused about what approach to take in her business pursuit.
She has come to you for advice, so now it is your turn in the "hot seat."
86. Given that Tavanna has no inheritance possibility, all of the following are other options you
could offer her for full-time business EXCEPT
A. buying a business.
B. franchising.
C. consignment business.
D. starting a new business.

87. Which of the following would you offer Tavanna as an advantage for starting a new
business?
A. Initial name recognition
B. Clean slate
C. "Legacy" locations, buildings, and equipment
D. Accessibility to experienced managers and workers

88. Based on what you have learned from this class, which of the following should Tavanna
NOT do to increase her chance of start-up success?
A. Getting a mentor
B. Securing outside investment
C. Building trust in her "story"
D. Starting her business without any other founders to avoid conflict

89. If Tavanna were to buy an existing business, which of the following disadvantages should
you point out?
A. Difficulty in determining the worth of the business.
B. Possibility of established customers leaving due to change.
C. Difficulty in changing existing business processes.
D. Buying a business being more expensive than starting one.

A
90. Tavanna brought with her a franchise business packet. She likes the idea but is unsure what
might be its disadvantage?
A. It is probably expensive and not profitable.
B. You give up control of marketing and operations.
C. You compete with the franchise company itself.
D. You receive no training and management support.

Chapter 7

21. _____ is the idea and actions that explain how a firm will make its profits.
A. Strategy
B. Objective
C. Mission
D. Goal

A
22. Most small businesses are more _____ than _____.
A. cost-directed; profit-directed
B. imitative; innovative
C. customer-driven; employee-driven
D. innovative; imitative

23. The first step of the small business strategy planning process
A. involves performing a SWOT.
B. involves reviewing and confirming the prestrategy decisions that define your firm and your
goal for it.
C. is where you consider your customers and the benefits you want to offer them.
D. is to study the dynamics and trends of your industry.

24. The second step of the small business strategy planning process is considering with _____
A. customers; benefits.
B. competitive advantage; value chain analysis.
C. prestrategy; VRIO analysis.
D. benefits; industry analysis.

25. The tool appropriate for the third step of the small business strategy process to study the
dynamics and trends of your industry is the
A. value chain analysis.
B. SWOT analysis.
C. VRIO analysis.
D. industry analysis.

26. The fourth step of the small business strategy planning process
A. is where you consider your customers and the benefits you want to offer them.
B. aims to refine your firm's capabilities in order to maintain a competitive advantage.
C. involves determining the best strategic direction and strategy for the firm.
D. is to study the dynamics and trends of your industry.

C
27. Which of the following statements about supply shortages is true?
A. Supply shortages occur when a new product is in demand
B. The target audience is the mass market
C. This is a long-term market
D. The key benefits are lower costs and scale savings

28. Which of the following is a key benefit of customer contracting?

A. Delivery
B. Personalization
C. Organizational practices
D. Technology

29. Second sourcing

A. occurs when business firms leave a market.
B. occurs because many big businesses have policies that provide for set-asides for purchases
from small businesses.
C. offers the advantage of being globally based.
D. at its best provides a competitive pressure to keep both suppliers providing the best service
and prices.

30. When does market relinquishment occur?

A. When there are rule changes by the government
B. When business firms leave a market
C. When a customer is willing to sign a contract with a small business to ensure a product
D. When a new product is in demand

31. _____ occurs because government agencies, government-sponsored commercial contracts,

and many big businesses have policies that provide for quotas for purchases from small
businesses.
A. Second sourcing
B. Favored purchasing
C. Market relinquishment
D. Customer contracting

B
32. An opportunity that makes it possible for a new business to gain a foothold in a market refers
to
A. parallel competition.
B. incremental innovation.
C. entry wedge.
D. altruism.

33. Which of the following, according to Vesper, is NOT an entry wedge specific to small
businesses pursuing an imitation strategy?
A. Customer contracting
B. Market relinquishment
C. Government rules
D. Product differentiation

34. What is the key benefit of rule changes by the government?

A. Place
B. Delivery
C. Quality
D. Technology

35. _____ is the general name for the line of products or services being sold.
A. Strategy
B. Competitive advantage
C. Market
D. Industry

36. Which are the two major classification systems that code industries?
A. NAICS and SIC
B. SCALE and SCOPE
C. SWOT and VRIO
D. SIC and SWOT

A
37. Which of the following statements about NAICS and SIC codes is true?
A. SIC covers more industries
B. NAICS covers more of the newer types of industries
C. SIC codes have six digits
D. NAICS codes have four digits

38. An overall strategic approach in which the entrepreneur does more or less what others are
already doing is called a(n)
A. cost-leadership strategy.
B. imitative strategy.
C. grand strategy.
D. innovative strategy.

39. An overall strategic approach in which a firm seeks to do something that is very different
from that of what others in the industry are doing is called a(n)
A. cost-leadership strategy.
B. imitative strategy.
C. grand strategy.
D. innovative strategy.

40. The key benefit of an imitation strategy comes from the

A. customers.
B. employees.
C. competition.
D. government agencies.

41. Which of the following is an advantage of using an innovative strategy?

A. There is much opportunity to sell the business.
B. You can make your business precisely fit your own ideas and preferences.
C. There is the possibility to buy existing businesses.
D. The owner spends very little time in creating the processes.

B
42. Imitation minus one degree of similarity would be the business equivalent of
A. incremental innovation.
B. cloning.
C. pure innovation.
D. industry analysis.

43. An imitation business that competes locally with others in the same industry is called
A. pure innovation.
B. entry wedge.
C. parallel competition.
D. incremental innovation.

44. An overall strategic approach in which a firm patterns itself on other firms, with the
exception of one or two key areas is called
A. pure innovation.
B. differentiation focus.
C. pure imitation.
D. incremental innovation.

45. The process of creating new products or services is called

A. parallel competition.
B. incremental innovation.
C. pure innovation.
D. pure imitation.

46. A(n) _____ is the business term for the population of customers for your products or
services.
A. market
B. industry
C. strategy
D. SIC

A
47. There are two market decisions you need to make early in the process of going into business:
A. NAICS and SIC.
B. scale and scope.
C. make or buy.
D. imitation and innovation.

48. _____ refers to the size of the market whereas _____ refers to its geographic range.
A. Scope; scale
B. Mass; niche
C. Scale; scope
D. Niche; mass

49. A customer group that involves large portions of the population is called a
A. niche market.
B. scope of market.
C. parallel competition.
D. mass market.

50. A _____ is a narrowly defined segment of the population that is likely to share interests or
concerns.
A. niche market
B. mass market
C. degree of similarity
D. parallel competition

51. Identify the incorrect observation concerning niche markets.

A. Most industries have both mass and niche markets.
B. In this approach, you try to target customers only in the niche.
C. They are specific and broad.
D. It comprises of a segment of the population that is likely to share interests or concerns.

C
52. What types of customers are likely to generate more potential customers than any other
type?
A. Loyal customers
B. Local customers
C. Passionate customers
D. Corporate customers

53. Which of the following statements about value benefits is false?

A. They display characteristics related to the nature of the product or service itself.
B. Things like quality, fashion, and reputation are elements that give a product value in the eyes
of the customer.
C. They are important because they are almost always what lead to higher prices and higher
profits.
D. They refer to the ways by which a firm can keep costs low for the customer.

54. Cost benefits

A. are important because they always lead to higher profits.
B. imply what the customer senses in the service.
C. display characteristics related to the nature of the service itself.
D. refer to the ways by which a firm can keep costs low for the customer.

55. Value benefits can include all of the following EXCEPT

A. quality.
B. style.
C. delivery.
D. learning.

56. Cost benefits can come from all of the following EXCEPT
A. credit.
B. scale savings.
C. learning.
D. organizational practices.

A
57. This type of value benefit involved can come from the products or services that you offer, or
from your own firm's reputation.
A. Brand
B. Style
C. Personalization
D. Place

58. If your product helps the community, a group, the environment, or the world, what type of
value benefit is it?
A. Assurance
B. Personalization
C. Altruism
D. Quality

59. Buying in volume usually produces savings. Identify the type of cost benefit involved.
A. Scope savings
B. Lower costs
C. Scale savings
D. Learning

60. As a firm gets more experience, it can often work with fewer mistakes and greater
efficiencies, thereby lowering costs. What type of cost benefit is it?
A. Service
B. Scope savings
C. Learning
D. Organizational practices

61. Changes in competitors, sales and profits in an industry over time is called
A. industry dynamics.
B. retrenchment.
C. a shake-out.
D. a transformational competency.

A
62. Which of the following represent the five stages of industry life cycle?
A. Introduction, growth, maturity, decline, and death.
B. Introduction, pioneers, early adopters, decline, and death.
C. Pioneers, growth, early adopters, decline, and death.
D. Pioneers, early adaptors, late adopters, early majority, and death.

63. An industry life cycle stage in which customer purchases increase at a dramatic rate is the
A. decline stage.
B. growth stage.
C. boom.
D. shake-out.

64. A _____ type of life cycle growth stage is marked by a very rapid increase in sales in a
relatively short time.
A. decline stage
B. growth stage
C. boom
D. shake-out

65. A type of life cycle stage following a boom in which there is a rapid decrease in the number
of firms in an industry is the
A. shake-out.
B. growth stage.
C. maturity stage.
D. decline stage.

66. This is the third stage in the industry life cycle which is marked by a stabilization of
demand.
A. Growth stage
B. Maturity stage
C. Introduction stage
D. Decline stage

B
67. An organizational life cycle stage in which established firms must find new approaches to
improve the business and its chances for survival is called
A. retrenchment.
B. maturity.
C. growth.
D. introduction.

68. What represents the amount of money the owners take out of the firm annually and on which
they pay taxes?
A. Profit before taxes
B. Gross profit
C. Net profit
D. Rate of profit

69. Which of the following refers to funds left over after deducting the cost of goods sold?
A. Profit before taxes
B. Gross profit
C. Net profit
D. Rate of profit

70. A research process that provides the entrepreneur with key information about the industry,
such as its current situation and trends is called
A. SWOT analysis.
B. VRIO analysis.
C. value chain analysis.
D. industry analysis.

71. The amount of money left after operating expenses are deducted for the business refers to
A. net profit.
B. gross profit.
C. operating profit.
D. earnings before tax.

A
72. Which of the following is NOT a key type of information needed to perform an industry
analysis?
A. How profits are made
B. Regulatory oversight agency requirement
C. Target market competitor concentration
D. SIC/NAICS number and description

73. All of the following are classic strategies for businesses of all types EXCEPT
A. differentiation.
B. cost.
C. integration.
D. focus.

74. A type of generic strategy aimed at clarifying how one product is unlike another in a mass
market refers to _____ strategy.
A. differentiation
B. cost
C. integration
D. focus

75. A generic strategy aimed at mass markets in which a firm offers a combination of cost
benefits that appeal to the customers is called _____ strategy.
A. differentiation
B. integration
C. cost
D. focus

76. _____ strategies target a portion of the market called a segment.

A. Differentiation
B. Integration
C. Cost
D. Focus

D
77. Which of the following is NOT one of the supra-strategies identified by Shepherd and
Shanley?
A. Craftsmanship
B. Tightly manage centralization
C. Elite
D. Super-support

78. In SWOT, strengths are

A. chances to make greater sales or profits in the environment.
B. characteristics of the business that give it an advantage over others in the industry.
C. elements in the environment that could cause trouble for the business.
D. characteristics that place the firm at a disadvantage relative to others.

79. A group discussion in which criticism is suspended in order to generate the maximum
number of ideas is
A. mind mapping.
B. a focus strategy.
C. brainstorming.
D. a boom.

80. The strategic direction option, at the end of a SWOT analysis, where opportunities match
strength is
A. flaunt.
B. fight.
C. flee.
D. fix.

81. At the end of a SWOT analysis, the strategic direction option, where strengths are matched
against threats, is
A. flaunt.
B. fight.
C. flee.
D. fix.

B
82. Which of the following refers to the particular way a firm implements customer benefits that
keeps the firm ahead of other firms in the market?
A. Industry analysis
B. Competitive advantage
C. Resource distribution
D. Value chain

83. Capabilities, organizational processes, information, or knowledge of a firm that is not clearly
evident refers to
A. tangible resources.
B. competitive advantages.
C. intangible resources.
D. core competencies.

84. The abilities of a firm to make its product or service in a way that enhances value or
efficiency compared to other firms refers to
A. transformational competencies.
B. organizational altruism.
C. value chain analysis.
D. combinational competencies.

85. A resource characteristic which enhances value through offering uniqueness to the buyer is
A. a combinational competency.
B. a transformational competency.
C. a rare resource.
D. difficult to imitate.

Scenario: Healthy Wash

Following the health trend, Amy Amorouso and her two friends have decided to open a
laundromat with a workout facility. The concept of each of these exists separately and also there
are laundromats with bars or game rooms that already exist. This would be a different variation.
The main focus will be the laundromat with a small space allowed for a workout area, with a few
machines to test the idea.
86. The first thing that Amy and her friends need to do to pursue their strategy is to perform
A. an industry analysis.
B. a SWOT analysis.
C. a VRIO analysis.
D. a value chain analysis.

87. Identify the two market decisions that Amy and her friends need to make.
A. Imitation and innovation
B. Local or global
C. Mass or niche
D. Scale and scope

88. Using the degree of similarity, Amy's concept of laundromat with a workout space can be
described as
A. parallel competition.
B. incremental innovation.
C. cloning.
D. mass differentiation.

89. When performing a SWOT analysis, where Amy's business threats meet her business
weaknesses, what should her strategy option be?
A. Fix
B. Fight
C. Flee
D. Flaunt

90. In performing a SWOT analysis, if Amy's business opportunities meet her business threats,
what should her strategy option be?
A. Fire-up
B. Fight
C. Flaunt
D. Fix

Chapter 8
21. A document designed to detail the major characteristics of a firm is called a(n)
A. mission statement.
B. marketing plan.
C. executive summary.
D. business plan.

D
22. The extent to which a small business is taken for granted, accepted, or treated as viable by
organizations or people outside the small business is referred to as
A. tagline.
B. external legitimacy.
C. test marketing.
D. internal understanding.

23. Which of the following is NOT a business plan concern of family and friend investors?
A. Competitive advantage
B. Amounts and schedules for returns
C. Funds use
D. Stability of firm

24. Which of the following represents a business plan concern of silent partners/angel investors?
A. Competitive advantage
B. Growth rate
C. Asset/collateral base
D. Benefit

25. _____ represents a business plan concern of joint venture partners.

A. Amounts and schedules of returns
B. Cash flow and cash cycle
C. Intellectual property protection
D. Stability of firm

26. Which of the following is NOT a business plan concern of bankers?

A. Cash flow and cash cycle
B. Asset/collateral base
C. Long-term prospects
D. Monitoring compliance

D
27. All of the following are business plan concerns of potential customers EXCEPT
A. amounts and schedules for returns.
B. responsiveness to customers.
C. benefits.
D. competitive advantage.

28. Which of the following is a business plan concern of key employees in a business?
A. Intellectual property protection
B. Stability of firm
C. Monitoring compliance
D. Asset/collateral base

29. There are two circumstances under which creating a business plan is absolutely necessary:
(1) _____ and (2) _____.
A. when outsiders expect it; for internal understanding
B. for government requirement; for investor demands
C. for stakeholders; for stockholders
D. when family is involved; for friends' information

30. The extent to which employees, investors, and family members involve in the business, know
the business's purpose and operation, is called
A. external legitimacy.
B. test marketing.
C. internal understanding.
D. angel investing.

31. Which of the following statements about business plans is false?

A. If you are seeking a banker, investor, or partner, a business plan is absolutely essential.
B. If you are trying to run your business in an ambitious way, a business plan is vitally
important.
C. Typically, the higher-performing firms in any industry tend to be those who engage in
planning.
D. Having a business plan guarantees higher profits.

D
32. The business planning presentation types include all of the following EXCEPT
A. mission.
B. annual objectives.
C. elevator pitch.
D. executive summaries.

33. The length of a vision statement should be

A. 20-50 words.
B. 60-100 words.
C. 5-10 words.
D. 250-500 words.

34. Which of the following is perhaps a firm's most important single idea held by the owner and
employees?
A. Vision statement
B. Executive summary
C. Mission statement
D. Elevator pitch

35. The length of an executive summary should be

A. 20-50 words.
B. 60-100 words.
C. 5-10 words.
D. 250-500 words.

36. A tagline that expresses the fundamental idea or goal of the firm is called its
A. vision statement.
B. executive summary.
C. mission statement.
D. elevator pitch.

A
37. All of the following concern taglines EXCEPT
A. they are a good way to present vision statements, as they are brief and memorable.
B. they talk in terms of what will make a difference for the customer or the industry.
C. it expresses the fundamental idea or goal of the firm.
D. it can serve as the company's vision statement.

38. A memorable catchphrase that captures the key idea of a business, its service, product, or
customer is called a(n)
A. mission statement.
B. tagline.
C. executive summary.
D. business plan.

39. The _____ describes the firm's goals and competitive advantages.
A. vision statement
B. executive summary
C. mission statement
D. elevator pitch

40. All of the following observations hold true of mission statements EXCEPT
A. they are an action-oriented description of your business.
B. they rarely discuss profits, but often mention the entry wedge that follows from the firm's
strategy.
C. they might include the major competitive advantages of the firm, and its position in the
industry.
D. they are best when they are simple, short, and direct.

41. A 30-second action-oriented description of a business designed to sell the idea of the
business to another is called a(n)
A. vision statement.
B. mission statement.
C. executive summary.
D. elevator pitch.

D
42. Which of the following statements about an elevator pitch is true?
A. It is shorter than a vision statement or tagline.
B. It consistently leads to specific businesses.
C. The idea of the pitch is that you are alone with a prospective customer for the length of an
elevator ride.
D. The pitch ends with where the business is headed.

43. While writing the elevator pitch, including something about your product or service that
people would remember and take to heart relates to the
A. hook of the plan.
B. purpose of the plan.
C. delivery of the plan.
D. position of the plan.

44. Which of the following is NOT a success factor of an effective elevator pitch?
A. Hook
B. Time
C. What
D. Delivery

45. A one- to two-page overview of the business, its business model, market, expectations, and
immediate goals represents a(n)
A. executive summary.
B. vision statement.
C. mission statement.
D. elevator pitch.

46. Which of the following is NOT a topic addressed in the executive summary?
A. Competitive advantages
B. Product
C. Mission
D. Finances

C
47. Which of the following statements about executive summaries is true?
A. Typically, they remain the least popular item to send people who ask about your business.
B. The order for the topics in an executive summary is fixed.
C. They do not give as much information about the business as the vision or mission statements
do.
D. They form the basis for additional discussion when someone asks for more detail.

48. Identify the correct statement about the 5-M Model.

A. It is typical to have multiple measures, and they are typically given in qualitative form.
B. Mission statements give the firm's major business goal, which can be stated quantitatively or
qualitatively, but always with a time period.
C. Methods typically involve identifying quantitatively stated strategic achievements which
would prove you have done what you set out to do as a business.
D. Mechanics are generally given as one-paragraph project descriptions.

49. The classic business plan contains _____ pages that include financials and appendixes.
A. 15
B. 25
C. 60
D. 40

50. A one-page document on a letterhead that introduces the business plan and owner and
indicates why the recipient is being asked to read the plan is called a(n)
A. executive summary.
B. cover letter.
C. appendix.
D. title page.

51. Where the type of business is well established, what is the appropriate size for a business
plan?
A. 10 pages
B. 20 pages
C. 25 pages
D. 40 pages

A
52. Which of the following is NOT a major component of a business plan?
A. Company
B. Markets
C. Organization
D. Regulations

53. In the first paragraph of the cover letter, you

A. explain your company in detail.
B. describe the current situation of your company.
C. introduce yourself.
D. thank the reader for their consideration.

54. In which paragraph of the cover letter do you thank the recipient for his/her consideration?
A. First
B. Second
C. Third
D. Fourth

55. A product or service that is kept as a trade secret or is protected legally using patents,
trademarks, copyright, or service mark is called a
A. tagline.
B. proprietary technology.
C. pioneering business.
D. test marketing.

56. The market section talks about your

A. employees.
B. stockholders.
C. customers.
D. family.

C
57. The market refers to the
A. total population of people or firms to whom you plan to sell.
B. geographic locations where you open business.
C. national boundaries where you operate.
D. local area where you recruit people for jobs.

58. A good marketing strategy focuses on all of the following ideas EXCEPT
A. the overall strategy your firm pursues in the market.
B. the sales plan.
C. the long-term competitive plan.
D. harvesting the business plan.

59. Which of the following is a supra-strategy?

A. Cost
B. Customization
C. Formula facilities
D. Differentiation

60. A "no-frills" strategy is an example of a

A. fragmented industry strategy.
B. generic strategy.
C. supra-strategy.
D. focus strategy.

61. _____ involves introducing your product to potential customers and taking orders for late
delivery.
A. R&D
B. Test marketing
C. Preselling
D. New entrant business

C
62. Which of the following refers to the part of a business that is focused on creating new
products or services and preparing new technologies, ideas, products or services for the firm's
market?
A. R&D
B. Test marketing
C. Preselling
D. New entrant business

63. Growth plans often talk about all of the following EXCEPT
A. longer-term partnerships to be sought.
B. new markets to be pursued.
C. ways to leverage the firm's assets.
D. the day-to-day specifics of how sales are achieved.

64. The legal form of business and the place where it is registered should be presented under
which section of the business plan?
A. Company
B. Market
C. Organization
D. Financials

65. Which of the following financial statements is NOT expected in the business plan?
A. Income statement
B. SEC filing statement
C. Balance sheet
D. Cash flow statement

66. For an existing business

A. income and cash flow are given monthly for the first year.
B. the tradition is to offer three years of data projections.
C. the financials offer two-year projections for the income, cash flow, and balance sheet.
D. the financials report the last five years of actual data.

A
67. What is the goal of appendixes?
A. To inform customers and partners about the firm and the product.
B. To establish an ongoing relationship with the listener.
C. To provide supporting information that helps detail the key selling points of your plan.
D. To sell customers and investors on the idea of the business and their need for it.

68. A firm whose product or service is new to the industries or is itself creating a new industry is
called
A. a new entrant business.
B. R&D.
C. test marketing.
D. a pioneering business.

69. When a firm sells its products in a limited area, for a limited time, it is called
A. an R&D venture.
B. a pioneering business.
C. test marketing.
D. a new entrant business.

70. A firm whose product or service is established elsewhere and is new to this market is called
A. an R&D venture.
B. a pioneering business.
C. test marketing.
D. a new entrant business.

71. Which of the following gives the basic overview of a firm and a detailed look at the
financials?
A. Screening plan
B. Operational plan
C. Marketing plan
D. Investing plan

A
72. Which of the following is incorrect of screening plans?
A. The idea behind it is to give a basic overview of the firm and a detailed look at the financials.
B. It usually consists of the cover letter, title page, executive summary, and financial sections of
the business plan.
C. Appendixes are included only when it is important to prove the viability of contracts.
D. It consists of company and organization sections.

73. Identify the business plan that typically consists of company and organization sections.
A. Idea plan
B. Informational plan
C. Operational plan
D. Invention plan

74. Which of the following business plans is also called a "mini-plan"?

A. Invention plan
B. Idea plan
C. Operational plan
D. Screening plan

75. Which of the following is NOT a special-purpose plan?

A. Screening plan
B. Key employer plan
C. Invention plan
D. Informational plan

76. A special form of informational plan posted on the Internet is the _____ Web site.
A. proof-of-concept
B. invention plan
C. operational plans
D. private placement memo

A
77. A key employee/partner plan is also referred to as all of the following EXCEPT
A. summary plan.
B. concept plan.
C. idea plan.
D. mini-plan.

78. These plans are designed to be used as working documents within a business.
A. Idea plans
B. Informational plans
C. Operational plans
D. Invention plans

79. All of the following pertain to a private placement memorandum EXCEPT

A. it is the official version of a business plan offered to potential investors.
B. it is a legal document, and should be drafted by a lawyer.
C. it is used to send your business plan to professional funding sources.
D. it builds on a business plan, using information about the company, products and services,
strategy and operations, and competition.

80. Which of the following is a business plan that provides information to potential licensees?
A. Screening plan
B. Business plan
C. Invention plan
D. Informational plan

81. Which of the following is a business plan designed to be used internally for management
purposes?
A. Screening plan
B. Informational plan
C. Invention plan
D. Operational plan

D
82. Identify the specialized legal form of business plan crafted by lawyers for the purpose of
soliciting formal investments.
A. Concept plan
B. Private placement memorandum
C. Proof-of-concept plan
D. Mini-plan

83. Which of the following risks is NOT a common threat to business?

A. Understated numbers
B. Uncertain sales
C. Overlooked competition
D. Inadequate cushion

84. The _____ is the percentage of people who buy out of the total population of people you
approach.
A. base rate
B. hit rate
C. tagline rate
D. proof-of-concept rate

85. All of the following are key things an influential person looks for in your business plan
presentation EXCEPT
A. your passion for the business.
B. your expertise about the business and the plan.
C. how many others are already working with you.
D. how easy it would be to work with you.

C
 Scenario: Connie's Corner Café
Having done the culinary classes at the local college, Connie has decided to explore the idea of
opening her own business, "Connie's Corner Café". She has found the ideal location next to the
college. However, it appears that Connie will have to get some outside investors or bankers
involved for the financial backing to get this venture off the ground. When she talked to her local
bank manager, Mr. Johnson, he immediately asked for Connie's business plan. Connie knew she
was in trouble because she didn't even know what a business plan looked like.

86. Which of the following would represent Mr. Johnson's interest in Connie's business plan?
A. Cash flow and cash cycle
B. Growth rate
C. Competitive advantage
D. Amounts and schedules for returns

87. If Connie gets her family and friends involved as investors, which of the following would be
their concern or interest?
A. Cash flow and cash cycle
B. Growth rate
C. Competitive advantage
D. Amounts and schedules for returns

88. Connie shops are established businesses and so Connie's business plans could/should be
_____ pages of text.
A. 40
B. 10
C. 20
D. 25
89. Connie needs to know that all of the following are key components of a business plan she
should include EXCEPT
A. the market.
B. the organization.
C. the regulatory limitations.
D. the financials.

90. Connie should be aware of which of the following risks that may cause Mr. Johnson to
evaluate her plan negatively?
A. Most likely the numbers
B. Experiencing deficit
C. High hit rate for preselling
D. Adequate or high payback

Chapter 9

21. A product can include all of the following EXCEPT

A. goods.
B. ideas.
C. people.
D. price.

D
22. An item's capability of being touched, seen, tasted, or felt is called
A. tangibility.
B. inseparability.
C. heterogeneity.
D. perishability.

23. Goods are _____, while services are _____.

A. heterogeneous; homogeneous
B. tangible; intangible
C. inseparable; separable
D. perishable; not perishable

24. Leasing a car is an example of a

A. service-dominated product.
B. good-dominated product.
C. pure service.
D. hybrid good and service combination.

25. Which of the following is INCORRECT about services?

A. Services are inseparable from consumption
B. Services are tangible
C. Services are heterogeneous
D. Services are perishable

26. A quality of a service in which the service being done cannot be disconnected from the
provider of the service is called
A. perishability.
B. tangibility.
C. inseparability.
D. heterogeneity.

C
27. A quality of a service in which each time it is provided it will be slightly different from the
previous time refers to
A. perishability.
B. tangibility.
C. inseparability.
D. heterogeneity.

28. If a service is not used when offered, it cannot be saved for a later use, thereby describing its
A. perishability.
B. tangibility.
C. inseparability.
D. heterogeneity.

29. Which of the following includes the entire bundle of products and services that you offer?
A. Total product
B. Augmented product
C. Hybrid product
D. Core product

30. The very basic description of what a product is refers to

A. the total product.
B. an augmented product.
C. the hybrid product.
D. the core product.

31. Identify the product that has features which differentiate it from the competition but is still
closely related to the core product.
A. Total product
B. Core product
C. Augmented product
D. Me-too product

C
32. The group of people on which a marketer focuses promotion and sales efforts is called a
A. me-too group.
B. target market.
C. maturity group.
D. breakeven market.

33. Which of the following is NOT the best option when naming your company?
A. Catchy name
B. Easy to spell and pronounce
C. Same as your product name or your name
D. Descriptive of your business

34. Which of the following is the first stage of the new product development process?
A. Idea screening
B. Commercialization
C. Idea evaluation
D. Idea generation

35. Products essentially similar to something already on the market are called
A. parallel competition products.
B. prototypes.
C. test market products.
D. me-too products.

36. In the new product development process, what stage comes after idea generation?
A. Idea screening
B. Commercialization
C. Idea evaluation
D. Product development

A
37. Idea screening
A. is the process of specifying the details of each idea's technological feasibility, its cost, how it
can be marketed, and its market potential.
B. is the process of selecting the most promising ideas to be further evaluated for feasibility.
C. involves the first versions of products called prototypes which are used in further consumer
testing.
D. is the process of making the new product available to consumers.

38. This is an exhaustive process of specifying the details of each idea's technological feasibility,
its cost, how it can be marketed, and its market potential.
A. Idea screening
B. Product development
C. Idea evaluation
D. Commercialization

39. The first versions of products in formal development are called

A. test markets.
B. prototypes.
C. total products.
D. hybrid products.

40. Which of the following statements about prototypes is true?

A. If you are not in business, or if you are in a very different business, prototyping is not very
difficult.
B. If a rapid prototyping model can be developed, the molds for manufacturing can be made, but
expensively, by modern manufacturers.
C. Test marketing involves selling the prototype in a simulated market environment only.
D. The Internet makes it easier to find companies willing to bid on and build prototypes.

D
41. Which of the following statements about prototypes is false?
A. Once the prototype is developed and tested, the product is ready for test marketing.
B. Small businesses, for financial reasons, primarily choose smaller local markets and conduct
fewer tests than their larger counterparts.
C. Standard test marketing introduces the product and the marketing strategy in the simulated
environment.
D. If you are not in business or are in a very different business, test marketing services are very
difficult.

42. Which of the following is the final stage of the new product development process?
A. Idea screening
B. Feasibility study
C. Commercialization
D. Product development

43. _____ is the process of making the new product available to consumers.
A. Commercialization
B. Test marketing
C. Breakeven
D. Pricing psychology

44. Standard product life cycle has four stages:

A. introduction, growth, maturity, and decline.
B. core, growth, total, and decline.
C. introduction, core, merge, and decline.
D. introduction, growth, merge, and decline.

45. Which of the following statements about the introduction stage of the product life cycle is
true?
A. The risks from competition in the introduction stage are generally high.
B. From a marketing standpoint, the more innovative the product, the slower the sales.
C. The best sales method is to focus on the absolute advantage your product has over the
competition.
D. All products survive the introduction phase of the product life cycle.

B
46. During the _____ stage of product life cycle, acceptance of the product increases rapidly and
sales and profits grow at higher rates than at any other part of the product life cycle.
A. maturity
B. introduction
C. growth
D. decline

47. Identify the incorrect statement about the growth stage of the product life cycle.
A. Prices tend to drop as production becomes more efficient and competition increases.
B. During this stage, advertising and promotion are much more critical than in the introduction
stage.
C. From a marketing standpoint, consumers are aware of your product and know how it will
make their lives better.
D. This stage is when you try to get into all the markets you can nationally or internationally.

48. What is the challenge a small business faces in the maturity stage?
A. Keeping sales and profits at a fairly high level.
B. Educating customers about your product.
C. Keeping up with production and ensuring good distribution.
D. Convincing intermediaries about why your product is preferable.

49. Which of the following statements about the maturity phase of the product life cycle is false?
A. Manufacturers find ways to cut costs to keep market share.
B. Since there are few new users for the product, most gains in market share are made by stealing
customers from competitors.
C. A product can stay in the maturity stage for only a short period of time.
D. As weaker competitors start to leave the market, you will have opportunities to take their
"leftover" customers.

C
50. At which stage of the product life cycle do promotions such as coupons, rebates, and
multipacks become an important marketing tool?
A. Growth
B. Decline
C. Introduction
D. Maturity

51. Identify the correct statement about the decline phase of the product life cycle.
A. Advertising and promotion expenses are usually nearly ratified at this point.
B. Many products go into decline, only to be resurrected in the future as styles come back to old
standards.
C. Companies upgrade their product lines in order to cut costs.
D. Companies market to less profitable segments to squeeze as much profit out of the final stage
as possible.

52. All of the following influence the prices you set for your products EXCEPT
A. costs.
B. customer.
C. competition.
D. employees.

53. Of all the marketing variables available, which is the easiest to change?
A. Price
B. Product
C. Promotion
D. Placement

54. The optimum price is primarily a function of all of the following EXCEPT
A. demand for the product or service.
B. value delivered by the customer.
C. prices set by competing firms.
D. your business strategy and product placement.

B
55. _____ is the amount of profit, usually stated as a percentage of the total price.
A. Elasticity
B. Breakeven
C. Margin
D. Markup

56. _____ products have lots of substitutes or are not necessities.

A. Elastic
B. Hybrid
C. Inelastic
D. Augmented

57. Which of the following is an example of an elastic product?

A. Candy bar
B. Antibiotics
C. Heating oil
D. Drinking water

58. Which of the following is an example of an inelastic product?

A. Luxury goods
B. Hamburgers
C. Gasoline
D. Coffee

59. A product for which there are few substitutes and for which a change in price makes very
little difference in quantity purchased is called a(n)
A. hybrid product.
B. total product.
C. elastic product.
D. inelastic product.

D
60. A consumer's mental image of what a product price should be refers to
A. breakeven price.
B. internal reference price.
C. fixed cost price.
D. external reference price.

61. _____ prices may come from looking at the competitive ads, researching the Internet, visiting
several stores, or asking friends.
A. Breakeven
B. Internal reference
C. Fixed cost
D. External reference

62. Consumers' internal reference price may be based on

A. looking at competitive ads.
B. their understanding of how much it would cost to make it.
C. researching on the Internet.
D. visiting several stores.

63. Increasing market share

A. usually means pricing toward the high end of the competition in order to take market share
from the competition.
B. becomes more popular as a product reaches the decline phase of the product life cycle.
C. should not be an objective for a small business.
D. is a much better option for the small firm than maximizing profits.

64. _____ is the end price to your customer that might be four times from what you got.
A. Skimming
B. Price escalation
C. Premium pricing
D. Partitioned pricing

B
65. _____ is charging the highest price the market will bear.
A. Skimming
B. Psychological price
C. Breakeven
D. Return pricing

66. What pricing is used for non-status symbol types of products?

A. Prestige pricing
B. Odd-even pricing
C. Premium pricing
D. Captive pricing

67. Generally, _____ pricing is for an item considered a status symbol, whereas, _____ pricing is
used for non-status symbol types of products.
A. skimming; total
B. prestige; premium
C. return; skimming
D. premium; prestige

68. _____ pricing refers to setting the price for a base item and then charging extra for each
additional component.
A. Captive
B. Prestige
C. Partitioned
D. Premium

69. Which of the following refers to setting the price for an item relatively low and then charging
much higher prices for the expendables it uses?
A. Prestige pricing
B. Captive pricing
C. Partitioned pricing
D. Odd-even pricing

B
70. The practice of setting (usually) three price points: good, better and best quality refers to
which of the following?
A. Captive pricing
B. Partitioned pricing
C. Price lining
D. Breakeven point pricing

71. Identify the term for an attempt to appeal to several different markets.
A. Prestige pricing
B. Captive pricing
C. Price lining
D. Random discounting

72. _____ discounting refers to sales that happen on some regular cycle.
A. Off-peak
B. Bundling
C. Random
D. Periodic

73. A back-to-school sale is an example of

A. periodic discounting.
B. random discounting.
C. price skimming.
D. off-peak pricing.

74. Senior citizens' discounts are an example of

A. limit pricing.
B. price discrimination.
C. penetration pricing.
D. price signaling.

B
75. At or near industry average price is called
A. captive pricing.
B. bait pricing.
C. the going rate.
D. price signaling.

76. Selling a name brand at or near cost in order to attract traffic to a retailer is termed
A. bait pricing.
B. loss leaders.
C. price signaling.
D. customary pricing.

77. What is an extremely low penetration price that discourages competitors from entering a
market called?
A. Everyday low price
B. Going rate
C. Price signaling
D. Limit pricing

78. The term for charging the absolute highest possible price due to inelastic demand is
A. price skimming.
B. premium pricing.
C. professional pricing.
D. penetration pricing.

79. Advertising an inexpensive product and placing it near better, more expensive models is
called
A. reference pricing.
B. captive pricing.
C. bait pricing.
D. limit pricing.

C
80. "Buy one large pizza and get a regular one free," offer to long-time customers is an example
of
A. partitioned pricing.
B. loyalty programs.
C. referral discounts.
D. coupons.

81. Charging lower prices at certain times to encourage customers to come during slack periods
refers to
A. off-peak pricing.
B. bundling.
C. random discounting.
D. partitioned pricing.

82. Rebates are a great tool for small businesses because

A. the redemption rate is extremely high.
B. they create loyalty programs.
C. the redemption rate is extremely low.
D. they generate referral businesses.

83. Identify the term used for combining two or more products in one unit and pricing it less than
if the units were sold separately.
A. Factoring
B. Coupons
C. Bundling
D. Loyalty programs

84. What is the term used for combining more than one unit of the same product and pricing it
lower than if each unit were sold separately?
A. Multiple packs
B. Coupons
C. Factoring
D. Loyalty programs

A
85. These are especially good for getting customers to return to your business.
A. Multiple packs
B. Coupons
C. Bundling
D. Loyalty programs

86. Which of the following are discounts given to customers who introduce friends to the
business?
A. Coupons
B. Referral discounts
C. Periodic discounts
D. Rebates

Scenario: Tinker Toys, Inc.

Tammy is a student at a local university majoring in psychology. She has always been fascinated
by toys. So she entered the business area that was her comfort zone - toys. Having done the
business plan for Tinker Toys and established the business officially, Tammy is exploring the toy
product ideas and its pricing.

87. Having generated several toy ideas, the next step Tammy needs to pursue in the new product
development process is
A. product development.
B. idea evaluation.
C. idea screening.
D. commercialization.

88. The first versions of the toy products that Tammy develops in the formal development are
called
A. hybrids.
B. test markets.
C. total products.
D. prototypes.

D
89. Once Tammy has introduced her toys in the market, during which stage of the product life
cycle would the acceptance of her products increase and sales and profits grow faster than at any
other time?
A. Growth
B. Maturity
C. Introduction
D. Decline

90. If Tammy were to charge the highest price the market would bear, it would be called
A. skimming.
B. return pricing.
C. psychological pricing.
D. partitioned pricing.

Chapter 10

21. Small business owners' unique selling points that will be used to differentiate their products
and/or services from those of the competition refers to their
A. press kits.
B. value proposition.
C. trendiness.
D. segmentation.

B
22. _____ is the process of dividing the market into smaller portions of people who have certain
common characteristics.
A. Value proposition
B. Market penetration
C. Segmentation
D. CRM

23. Your _____ is the segment(s) you select to concentrate your marketing efforts.
A. target market
B. CRM
C. customer vector
D. value proposition

24. Dividing the market into different segments using certain cities or neighborhoods refers to
_____ segmentation.
A. geographic
B. economic
C. demographic
D. cultural

25. Dividing the market into different segments using income, age, or religion refers to _____
segmentation.
A. geographic
B. economic
C. demographic
D. cultural

26. A clothing company that divides the market using characteristics of clothing that are
practical, stylish, for a particular sport, etc., refers to segmentation by the
A. demography.
B. economy.
C. trendiness.
D. benefits sought.

D
27. To develop a(n) _____, one should try to think of three to five key words that would describe
their business to anyone.
A. advertisement
B. succinct message
C. public relations piece
D. press kit

28. How much of each message conveyance you will use to sell your product as well as your
objective in using each one is known as the
A. promotional mix.
B. marketing mix.
C. AIDA.
D. CRM.

29. _____ is often used to support the corporate identity and value propositions that are
established through _____ efforts.
A. Personal selling; point of sale
B. Public relations; advertising
C. Advertising; personal selling
D. Advertising; public relations

30. Which of the following statements about advertising is false?

A. The key for effective advertising is reinforcing the name and what it stands for in the
consumer's mind.
B. For effective advertising, approaches which provide the highest level of certainty possible in
reaching the target market should be used.
C. It is a method where it is easy to discern feedback.
D. Advertising can be done in print ads in newspapers, magazines, and other print media.

C
31. Brochures and flyers
A. are standard blank papers typically imprinted with your company's name and contact
information.
B. are sales documents to be posted or handed out, typically printed on sheets of colored paper or
printed in color on white stock of paper.
C. will give more information about your firm and products than your business card.
D. provide potential customers an education in your product, including stories of customers'
whose problems were solved, an FAQ list, as well as a page on your products or services.

32. Which of the following statements about signs is false?

A. They are a form of advertising
B. They need to be large enough to be read by passing traffic
C. They should reflect your firm
D. Homemade signs indicate high quality and professionalism

33. Business stationery

A. puts your name and message in front of potential clients, existing clients, suppliers, and
others.
B. can be produced on your computer and printed with good results.
C. gives more information about your firm and products than brochures and flyers.
D. can be printed on nice paper and put into a pocket folder with a sticker with your firm's name
and address on it.

34. These can be produced for pennies in quantity.

A. Sales packets
B. Signs
C. Promotional novelties
D. Business cards

C
35. Which of the following provide potential customers an education in your product or service,
including stories of customers' whose problems were solved, an FAQ list, as well as a page on
your products or services, and a page on you and your firm?
A. Promotional novelties
B. Sales packets
C. Business cards
D. Brochures

36. _____ refer to terms included in the hidden portions of a Web page which are used by search
engines to describe your Web site and evaluate its focus and category placement.
A. Press kits
B. Keyword and description tags
C. Brochures
D. Flyers

37. When it comes to promoting a small business that is just starting out, spreading the news by
_____ is the fastest way to build a client base.
A. word-of-mouth
B. full-scale advertising
C. personal selling
D. point-of-sale

38. _____ is a form of communication that encourages the customer to take immediate action,
such as coupons, sales, or contests.
A. Buzz marketing
B. Sales promotion
C. Viral marketing
D. Public relations

B
39. Which of the following statements about buzz marketing is false?
A. It has aspects of network marketing in that you tell one person who tells another who tells still
another.
B. The phrase is most commonly used in reference to using electronic media to pass the message
along.
C. It is a sub-discipline of direct marketing.
D. In buzz marketing, if your product is relevant and appealing, it is likely to be picked up and
sent along via e-mail, blog, or a social networking site.

40. Name the electronic equivalent of word-of-mouth advertising, in which the advertiser's
message spreads quickly and widely via e-mail, Web site, blogs, and other online tools.
A. Referral marketing
B. Telephone marketing
C. Mobile marketing
D. Viral marketing

41. Personal selling

A. involves activities used to establish and promote a favorable opinion by the media.
B. allows you to only guess what future features clients may want to see.
C. includes issue recognition, trendiness, and visuals.
D. has the advantage that you can be flexible in your presentation.

42. Process of personal selling includes all of the following EXCEPT

A. presenting.
B. closing.
C. prospecting and evaluating.
D. deciding.

43. _____ means finding out what you can about the clients before approaching them.
A. Evaluation
B. Closing
C. Prospecting
D. Preparation

D
44. _____ means cleaning up your list to remove potential clients that are unable or unlikely to
buy your product.
A. CRM
B. Pre-qualifying
C. Cognitive dissonance
D. Closing

45. Closing the sale refers to

A. asking the prospect to buy your product.
B. being turned down, asking for referrals.
C. delaying the decision to buy for few days.
D. stimulating interest on part of prospects.

46. The trial close technique is described by which of the following?

A. "I'll just need your credit card for payment."
B. "This rate will end at the end of the day."
C. "Which credit card would you like to use to pay for that?"
D. Customer asks to think about it and you say "What are the chances you will buy later?"

47. "This rate will end at the end of the day" describes which of the following closing
techniques?
A. Trial
B. Urgency
C. Assumptive
D. Threatening

48. "I will just need your credit card for payment" represents which of the following closing
techniques?
A. Trial
B. Urgency
C. Assumptive
D. Threatening

C
49. Doubt that occurs after a purchase has been made is called
A. cognitive dissonance.
B. customer vector.
C. segmentation.
D. trendiness.

50. An inconsistency between experience and belief refers to

A. value proposition.
B. segmentation.
C. trendiness.
D. cognitive dissonance.

51. Identify the strategy whose goal is growth, based on selling existing customers a product or
service they have never bought before.
A. Market expansion
B. Product expansion
C. Market penetration
D. Diversification

52. Name the strategy whose goal is growth, based on selling in areas or to groups previously not
served by the business.
A. Market penetration
B. Product expansion
C. Diversification
D. Market expansion

53. _____ is a strategy whose goal is growth, based on adding new products or services to the
firm's existing collection of offerings.
A. Market penetration
B. Product expansion
C. Diversification
D. Market expansion

C
54. Which is the strategy whose goal is growth, based on selling more of the firm's product or
service to the existing customer base?
A. Market expansion
B. Product expansion
C. Market penetration
D. Diversification

55. What is the key to CRM?

A. Tracking sales by purchase basis
B. Follow-through and follow-up
C. The data on current or prospective customers
D. Press release and press kit

56. Which of the following data gives you the particulars on your customers?
A. Contact data
B. Performance data
C. Product data
D. Service data

57. _____ data gives you information on the date and type of contact, since in many sales
situations, it can take repeated contacts before a sale is made.
A. Channel
B. Performance
C. Intercommunication
D. Sales

58. Which of the following is a type of CRM report that segments by customer or customer
group on purchases or dates of purchase?
A. Customer vector
B. Sales report
C. Customer service
D. Interim report
A

59. If you track sales by purchase basis

A. you might figure how to better target ads or promotions to particular types of customers.
B. you might be able to tell which mailing lists produce the best returns.
C. you can tell which of your advertising efforts resulted in the most sales, so it makes it easier to
decide which marketing efforts to continue.
D. you could find a product which has low quality.

60. You might figure how to better target ads or promotions to particular types of customers
A. if you track sales by purchase basis.
B. if you look at customer source basis and purchase.
C. by tracking sales organized by product and customer satisfaction.
D. if you link sales and purchase basis to the type of customer.

61. Which of the following is perhaps the simplest and most important analysis of data?
A. Sales by purchase basis
B. Sales by customer
C. Customer source basis and purchase
D. Sales organized by product satisfaction

62. The proof of a CRM effort is seen in all of the following EXCEPT
A. higher levels of customer loyalty in existing customers.
B. higher levels of purchasing from your existing customers.
C. low levels of customer loyalty in new customers.
D. more tracked prospects making initial purchases from you.

63. Which of the following refers to doing what you said you would do?
A. Spin-off
B. Bottom line
C. Follow-up
D. Follow-through

D
64. This refers to the contacts you periodically make with customers in order to remind them of
your business, and your interest in their business.
A. Follow-up
B. Customer service
C. Follow-through
D. Board meetings

65. Which of the following Acts lets you contact people with whom you have done business by
asking customers' permission to e-mail them?
A. The Communications Act
B. The Do-Not-Call Implementation Act
C. The CAN-SPAM Act
D. The Junk Fax Prevention Act

66. What is the term for the activities used to establish and promote a favorable opinion by the
media?
A. Press relations
B. Cognitive dissonance
C. Press release
D. Public recognition

67. In the presentation component of personal selling, "A" in AIDA stands for
A. holding the prospects attention.
B. asking permission to present.
C. attending a personal selling presentation.
D. having an all or nothing option in the sale.

68. AIDA in the presentation component of personal selling includes all of the following
EXCEPT
A. getting prospect's attention.
B. stimulating interest.
C. deciding on product.
D. customer taking action.

C
69. A written announcement intended to draw news media attention to a specific event is called
A. a press kit.
B. a press release.
C. identification tags.
D. a cultural resonance.

70. The goal of _____ in AIDA is to get people to be potential clients.

A. action
B. desire
C. interest
D. attention

71. The five Ws and one H of the story should be presented in the _____ of the press release.
A. headline
B. closing paragraph
C. opening paragraph
D. middle of the body

72. A newsworthy item should have all of the following EXCEPT

A. public recognition.
B. public importance.
C. public interest.
D. public power.

73. _____ should include product or service brochures, business cards, product information, and
other materials that can provide background material for a reporter; they should include a letter
of introduction and may include a brief history of the firm and information about the owner and
other key managers.
A. Press kits
B. The promotional mix
C. Flyers
D. Business stationery

A
74. Identify the concept in public recognition which alludes to the extent to which the public is
familiar with the problem at hand.
A. Public importance
B. Currency
C. Issue recognition
D. Public recognition

75. A concept in public recognition which alludes to the fit of the topic to current fashion or
public interest refers to
A. currency.
B. trendiness.
C. cultural resonance.
D. mat release.

76. A concept in public importance which alludes to potential shifts in control or influence refers
to
A. currency.
B. power.
C. trendiness.
D. proximity.

77. Public recognition includes

A. power.
B. proximity.
C. a good story.
D. human interest.

78. Public interest includes all of the following EXCEPT

A. a good story.
B. human interest.
C. visuals.
D. power.

D
79. Which of the following is a concept in public importance that alludes to the degree to which
the issue is immediate in its impact?
A. Currency
B. Power
C. Proximity
D. Famous faces

80. A concept in public interest which alludes to a character to whom the public can relate refers
to
A. cultural resonance.
B. good story.
C. trendiness.
D. human interest.

81. A concept in public interest which alludes to events with a broad appeal within the market or
population refers to
A. cultural resonance.
B. good story.
C. trendiness.
D. human interest.

82. Which of the following refers to activities used to establish and promote a favorable opinion
by the public?
A. Public relations
B. Public recognition
C. Public importance
D. Public interest

83. Identify the term that helps in building goodwill and is a good way to get the word out about
your firm.
A. Publicity
B. Sponsorships
C. Donations
D. Power

B
84. Information about your company and its activities that is disseminated to the public in order
to get their good opinion is known as
A. a mat release.
B. a succinct message.
C. publicity.
D. public interest.

85. Monetary or other gifts to organizations or people who are in need are called
A. value propositions.
B. mat releases.
C. sponsorships.
D. donations.

86. A news release that is typeset and thus may be photographically reproduced for inclusion in a
newspaper is called a(n)
A. social media release.
B. product press release.
C. event release.
D. mat release.

Scenario: Howard Homes

Harry Howard, a successful real estate broker, has established his own real estate company in
western Pennsylvania. He gained his on-the-job experience working at a very large real estate
company where he had a whole staff supporting the brokers' work. Now on his own, with two
secretaries, Harry is building his dream of owning and growing his own business. He wants to
mainly focus on middle-to-upper-income homeowners and is exploring what type of promotional
material he needs to have.

87. Harry just received in mail several boxes of _____ which puts his name and message in front
of potential clients, existing clients, suppliers, and others.
A. brochures
B. sales packets
C. business stationery
D. flyers

C
88. If Harry wants to develop brochures for his company's services, he needs to know that they
A. are sales document to be posted or handed out, typically printed on sheets of colored paper or
printed in color on white stock of paper.
B. are standard blank papers typically imprinted with his company's name and contact
information.
C. can be run off rather inexpensively at many copy centers.
D. give less information about his firm and products than his business card.

89. Which of the following would be the fastest way for Harry to build his client base?
A. Word-of-mouth
B. Full-scale advertising
C. Personal selling
D. Point-of-sale

90. In developing a press release for his company, Harry needs to include the five Ws and one H
in the
A. headline.
B. closing paragraph.
C. opening paragraph.
D. middle of the body.

Chapter 11

21. For small business location issues, there are two basic "where" questions to be considered
A. Where are my customers? Where should I be?
B. Where are my customers? Where are my suppliers?
C. Where are the raw materials? Where are the finished products?
D. Where are the sales? Where are the profits?

A
22. The distribution channel of manufacturers to the consumer is referred to as
A. wholesaler marketing.
B. direct marketing.
C. middlemen sales.
D. agent-buyer relationship.

23. Which of the following is NOT a form of direct marketing?

A. Word-of-mouth
B. Telemarketing
C. Guerilla marketing
D. Wholesalers

24. _____ is usually the first technique an entrepreneur uses to get customers.
A. Internet
B. Guerilla marketing
C. Word-of-mouth
D. Telemarketing

25. One method of spreading information about one's business through the comments friends and
customers make to other potential customers is called
A. word-of-mouth.
B. guerilla marketing.
C. telemarketing.
D. direct sales.

26. Which of the following is NOT a method of direct selling?

A. Vending machine
B. Word-of-mouth
C. Leasing space at a craft fair
D. Industrial sales

B
27. Which of the following direct sales methods offer the flexibility of having your product
available around the clock and at convenient locations?
A. Leasing space at a craft fair
B. Farmers' markets
C. Vending machines
D. Door-to-door sales

28. Which of the following is NOT a form of direct mail?

A. Catalogs
B. E-mails
C. Faxes
D. Vending machines

29. Which of the following are more modern forms of direct mail?
A. Catalogs and e-mailing
B. Direct faxing and e-mailing
C. Sales letters and e-mailing
D. Postcards and direct faxing

30. What is perhaps the greatest challenge of the direct mail approach?
A. The need for adequate preparation before selling
B. The need for writing and photography skills
C. The need to find the right market for your offering
D. A way to get customers' attention

31. Which of the following statements about catalogs is true?

A. Typically, the number of catalogs you will have to order is 10,000 at a minimum.
B. Creating and disseminating a catalog online saves you the cost of printing and mailing.
C. Most full-time entrepreneurs typically try to get their products into existing catalogs.
D. Depending on the size and quality of the catalog, costs for print versions start at around $2
each.

B
32. A _____ is a set of goods or services that consists of only one or a few items.
A. customer-managed inventory
B. vendor-managed inventory
C. microinventory
D. just-in-time inventory

33. A _____ is having just enough product on your shelves to meet the immediate purchases; this
usually requires frequent shipment from your supplier.
A. macroinventory
B. in-process inventory
C. microinventory
D. just-in-time inventory

34. Which of the following is the least expensive form of direct mail?
A. Catalogs
B. Videos
C. Direct faxing
D. E-mail

35. Which of the following is the most expensive form of direct marketing?
A. E-mail
B. Telemarketing
C. Brochures
D. Leaflets

36. Which of the following is NOT a requirement of the national law related to e-mailing?
A. Do not in any way falsely misrepresent who you are.
B. For direct e-mailing, sender must use harvested e-mail addresses.
C. All emails should allow recipient the opportunity to "opt-out."
D. Do not in any way falsely misrepresent where the e-mail is from.

B
37. Contact via telephone for the express purpose of selling a product or service is called
A. direct response advertising.
B. guerilla marketing.
C. telemarketing.
D. multichannel marketing.

38. Telemarketing can either be _____ or _____.

A. in person; on the phone
B. by fax; e-mail
C. door-to-door; direct response advertising
D. inbound; outbound

39. In _____, you place an ad in a magazine, newspaper, radio, billboard, or television that
includes a phone number, e-mail, or snail-mail address, and wait for the orders to come in.
A. telemarketing
B. direct mail sales
C. guerilla marketing
D. direct response advertising

40. Which of the following is the cheapest form of direct response advertising?
A. Billboard
B. Radio, 30-second spot
C. Magazine newsweekly, 4-color page
D. Newspaper daily, 1/3 black and white page

41. Which form of direct response advertising allows for very specific targeting and offers an
appropriate place for direct response advertising for business-to-business selling?
A. Television
B. Radio
C. Newspaper
D. Magazines

D
42. Which of the following direct response advertising forms allows for specific geographic
segmentation?
A. Newspapers
B. Magazines
C. National television
D. Home shopping networks

43. What form of direct response advertising provides both geographic and demographic
segmentation, though the audience for this medium is generally highly distracted?
A. Television
B. Radio
C. Magazines
D. Newspapers

44. The use of creative and relatively inexpensive ways to reach your customers with techniques
such as door-knob hangers and flyers under windshield wipers is called
A. multichannel marketing.
B. guerilla marketing.
C. direct sales.
D. direct mail.

45. _____ is a form of direct response advertising that reaches local people but does not permit a
lot of details.
A. Radio
B. Billboard
C. Magazine
D. Newspaper

46. The use of several different channels to reach your customers, for example, a Web site, direct
mail, and traditional retailing is called
A. guerilla marketing.
B. Internet marketing.
C. multichannel marketing.
D. direct sales.

C
47. This form of marketing allows your customers to contact you in the way they feel the most
comfortable.
A. Guerilla marketing
B. Multichannel marketing
C. Internet marketing
D. Direct sales

48. With direct marketing, one option to consider when you are doing quantity shipping is
A. the retailer.
B. the U.S. Postal Service.
C. a fulfillment center.
D. the wholesaler.

49. A company that will warehouse your products and fill your customers' orders for you is
called
A. a retailer.
B. the U.S. Postal Service.
C. fulfillment center.
D. a wholesaler.

50. The end user of a product or service is called a(n)

A. consumer.
B. agent.
C. wholesaler.
D. retailer.

51. A middleman business which sells to consumers or end-users of a product is called a(n)
A. manufacturer.
B. agent.
C. wholesaler.
D. retailer.

D
52. A middleman business which buys and sells to businesses rather than consumers is called
a(n)
A. manufacturer.
B. agent.
C. wholesaler.
D. retailer.

53. Identify the term for any form that assists in getting your product to your end customer.
A. Electronic malls
B. Intermediaries
C. Born internationals
D. Traffic generators

54. A middleman business which represents a manufacturer's products or services to other

business-to-business middleman firms is called a(n)
A. retailer.
B. wholesaler.
C. agent.
D. supplier.

55. Who can afford to take a chance on unknown firms or products due to low overheads and
unlimited shelf space?
A. E-tailers
B. Wholesalers
C. Retailers
D. Fulfillment centers

56. One suggestion for finding out which distribution channel is correct for your product is to
A. start at the end and work your way up by asking each link from whom they buy.
B. ask the competitors.
C. explore what regulations are required from the small businesses.
D. ask the customers who do they prefer buying the products from.

A
57. A store that exists only on the Internet is called a(n)
A. wholesaler.
B. e-tailer.
C. agent.
D. electronic manufacturer.

58. A new firm that opens a Web site immediately, thus being exposed to customers around the
world is called
A. freight forwarders.
B. indirect exporters.
C. born internationals.
D. e-tailers.

59. Putting together an export strategy involves answering all of the following questions
EXCEPT
A. where should we go?
B. whom do we contact over there?
C. are we ready?
D. which employees do we send?

60. Exporting using middlemen such as agents or export management companies is referred to
as
A. indirect exporting.
B. freight forwarding.
C. e-tailers.
D. high credit risk exporting.

61. All of the following are examples of using middlemen for indirect exporting EXPECT
A. export management companies.
B. agents.
C. export trading companies.
D. fulfillment centers.

D
62. Firms specializing in arranging international shipments—packaging, transportation, and
paperwork are called
A. born internationals.
B. e-tailers.
C. direct exporters.
D. freight forwarders.

63. Which of the following can be exercised only when presented with specified shipping
documents?
A. Documentary drafts
B. Letter of credit
C. Airway bill
D. Bill of lading

64. A(n) _____ is a document issued by a bank that guarantees a buyer's payment for a specified
period of time upon compliance with specified terms.
A. documentary draft
B. letter of credit
C. import document
D. freight document

65. For many entrepreneurs, their hometown is their first choice for the location of their business
because of all of the following EXCEPT
A. convenience and a familiar setting.
B. elimination of a lot of possible family issues.
C. local government offering subsidized locations to local businesses.
D. their knowledge about the market or potential customers.

66. Restaurants and barbershops are examples of which of the following locations for services?
A. Client's location
B. Mutually accessible location
C. Your firm's location
D. Competitor's location

B
67. Identify this type of service in which face-to-face meetings with the client are infrequent.
A. Mutually accessible location
B. Remote location
C. Client's location
D. Competitor's location

68. When an existing firm with the correct manufacturing capabilities makes your product for
you, it is called
A. contract manufacturing.
B. sheltered workshops.
C. e-tailing.
D. freight forwarding.

69. These can be used to perform light manufacturing or assembly sort of business.
A. Contract manufacturing
B. E-tailing
C. Sheltered workshops
D. Freight forwarding

70. For high customer contact businesses, which of the following is NOT a critical site selection
consideration?
A. Traffic
B. Customer ease
C. Cost potential
D. Competition

71. Which of the following is a nonprofit organization or institution that provides business
services by using handicapped or rehabilitated workers?
A. Contract manufacturing
B. E-tailing
C. Sheltered workshops
D. Freight forwarding

C
72. Which of the following is an example of a high customer contact form of business?
A. Manufacturing businesses
B. Legal offices
C. Headquarters of client location-based services
D. Remote location services

73. Other businesses that bring customers to the area are called
A. traffic generators.
B. competitors.
C. nonprofit organizations.
D. local government agencies.

74. All of the following are examples of low customer contact businesses EXCEPT
A. industrial parks.
B. business incubators.
C. empowerment zones.
D. retail establishments.

75. Which of the following statements about HVAC is false?

A. It can be the most expensive type of repair.
B. For any type of equipment, you want the landlord to at least guarantee the first six months of
operation.
C. It is one of the types most likely to go wrong.
D. If the location has a central air system so everyone shares the same air conditioner and heating
equipment, it is the landlord's responsibility.

76. _____ are permanent changes made to the location to fit your business's needs.
A. Build-ins
B. Improvements to buildings
C. Leasehold improvements
D. Improvements to land

C
77. "Tenant improvement allowances" or "construction allowances" are rent dollars typically
A. $1 to $10 a square foot.
B. $5 to $25 a square foot.
C. $10 to $50 a square foot.
D. $15 to $75 a square foot.

78. _____ is a concession which covers the time while you prepare your location prior to
opening.
A. Rent-free use period
B. Leasehold improvement
C. Construction allowance
D. Tenant improvement allowance

79. Which of the following statements about handling an early termination is false?
A. The bailout clause lets you out of the lease if sales do not meet an agreed-to level.
B. If your business falters, you are obligated to continue paying your monthly rent and fees for
the duration of the lease.
C. In terms of a three-year lease, with a one-year cap you are obligated to pay one year's more
rent.
D. In terms of a three-year lease, if you close down after only six months, you are obligated to
pay 30 more months' rent.

80. In the _____ layout, material flows in on one side of the operation and continues to the other
end of the operation.
A. grid
B. production line
C. free-form
D. process

B
81. Which of the following formats is much more appropriate for low-volume, flexible
manufacturing?
A. Grid layout
B. Production line
C. Free-form layout
D. Process layout

82. Identify the layout by which most assembly manufacturing is done.

A. Production line
B. Process
C. Grid
D. Free-form

83. This form of layout has aisles running from the front of the store to the back like the typical
grocery.
A. Production line
B. Process
C. Grid
D. Free-form

84. What is the term used for the layout of a store that is laid out in sections with aisles that angle
or meander through the store?
A. Production line
B. Process
C. Grid
D. Free-form

85. Which of the following layouts is more typically found in upscale department stores?
A. Grid layout
B. Production line
C. Free-form layout
D. Process layout

C
86. Which of the following is a disadvantage of leasing?
A. It is costly and slow
B. You are usually limited in the renovations you can do
C. Any remodeling that needs to be done may overshadow any time or money savings
D. It is an option with a considerably high initial cash outlay

Scenario: Simulate Strategy

While teaching strategy at ABC University, Jessica developed an interactive strategy simulation
game to teach and reinforce the strategy concept to students in her class. She saw that students
were able to grasp the concepts much better playing the game, rather than from reading the book.
Jessica tinkered with the game for two years in her class to perfect it and remove the glitches.
Her thought was that if her students were learning more efficiently with this game, then could
other students at other universities benefit as well? The result was the launch of Simulate
Strategy, Inc.

87. Knowing the market of professors at other universities well, Jessica has decided to approach
them for her product sales. This method can be described as
A. direct marketing.
B. going international.
C. using middlemen.
D. wholesaling.

88. Given that Jessica has a very limited budget, which of the following forms of direct mail
might be least expensive?
A. Brochures
B. Sales letters
C. E-mailing
D. Post-cards
89. If Jessica places an advertisement in "Chronicle of Higher Education," a leading publication
for University professors about her product with her e-mail and contact information, it can be
described as
A. guerilla marketing.
B. telemarketing.
C. direct sales.
D. direct response advertising.

90. Some of Jessica's students suggested that she create a Web site for her product and company.
Being a new company immediately starting a Web site, her company can be called
A. freight forwarders.
B. born international.
C. a middleman.
D. an exporter.

Chapter 12

33. Examining the current situation includes all of the following EXCEPT
A. what your existing competition is doing.
B. how you define your product or service.
C. how will you solve employee grievances.
D. to whom will you sell.

34. Creating a(n) _____ plan is the first step in putting together your business plan.
A. marketing
B. operational
C. financial
D. human resource
35. _____ refers to systematic collection and interpretation of data to support future marketing
decisions.
A. Marketing plan
B. Marketing research
C. Socialization
D. Sales forecasting

36. _____ research is research gathered to answer a specific marketing question.

A. Primary
B. Post secondary
C. Secondary
D. Consumer

37. Ethan is a marketing research executive for Coca Cola. Recent sales figures suggest that the
sales for Coke have fallen drastically in Cincinnati, Iowa. The regional manager wants Ethan to
conduct a market research in Cincinnati. Which of the following research should Ethan use?
A. Post secondary
B. Secondary
C. Primary
D. Closed

38. _____ refers to information already collected for some other purpose than the current
problem.
A. Primary data
B. Open-ended research
C. Secondary data
D. Closed research

39. Which of the following is a problem with secondary data?

A. It may not be economical
B. It may not be timely
C. It may be too user-friendly
D. It may be competitive
40. The challenge in _____ is finding data.
A. primary research
B. secondary analysis
C. ethnographic research
D. focus group

41. Data gathered by simple observation seeing what customers do rather than asking them refers
to
A. focus group.
B. survey methodology.
C. ethnographic research.
D. secondary research.

42. Noel is a management student who needs to conduct primary data for his project on "Retail
Marketing." He goes to a local department store and observes customers. He makes a note of the
different products the customers choose, and the time they spend in making decisions in
choosing different products. Which of the following best explains this type of research?
A. Focus group
B. Survey
C. Secondary
D. Ethnographic

43. Which of the following is an informal approach and a good way to test your questions to
make sure your audience understands exactly what you are asking?
A. Ethnographic research
B. Survey
C. Focus group
D. Branching
44. A form of data gathering from a small group led by a moderator is called
A. focus group.
B. survey methodology.
C. ethnographic research.
D. secondary research.

45. A data collection method using a questionnaire is called

A. secondary research.
B. a survey.
C. a focus group.
D. ethnographic research.

46. Which of following is the most expensive survey method?

A. Mail
B. Phone
C. In-person
D. On line

47. This form of survey has the lowest return rate and does not allow for much flexibility.
A. Mail
B. Face To Face
C. Telephonic
D. Internet

48. Which of the following are the two major types of questions used in surveys?
A. Formal and informal
B. Primary and secondary
C. Open-ended and close-ended
D. Personal and professional
49. Identify the form of questions that gives you several predetermined groups from which to
choose.
A. Categorical questions
B. Scalar questions
C. Dichotomous questions
D. Open-ended questions

50. These questions provide data that are more difficult to tabulate and the answers can be
difficult to compare.
A. Categorical questions
B. Open-ended questions
C. Scalar questions
D. Dichotomous questions

51. Questions that have only two possible choices are called _____ questions.
A. open-ended
B. categorical
C. dichotomous
D. scalar

52. Jeff is a market research executive who has prepared questionnaires’ for his respondents. The
questionnaires allow respondents to answer in either a "Yes" or a "No." This questionnaire can
be categorized under which of the following question type?
A. Open-ended
B. Categorical
C. Scalar
D. Dichotomous

53. If you are asked a question: What is your ethnicity? White, African American, Hispanic,
Asian, other, it reflects a _____ question.
A. open-ended
B. categorical
C. dichotomous
D. scalar
54. Questions that allow respondents to express themselves as they choose are called _____
questions.
A. open-ended
B. categorical
C. dichotomous
D. scalar

55. With _____ questions, it is much easier to compare groups and statistically analyze.
A. informal
B. open-ended
C. close-ended
D. subjective

56. _____ questions can help you find new niches and perfect your product or service before you
introduce it.
A. Categorical
B. Dichotomous
C. Open-ended
D. Scalar

57. Which of these is not a close-ended question type?

A. Scalar
B. Dichotomous
C. Categorical
D. Subjective

58. Open-ended questions are best for all of these EXCEPT

A. gathering preliminary information.
B. when samples are small.
C. comparing groups and statistical analysis.
D. when there are data that is difficult to get any other way.
59. One of the most important pieces of the marketing plan that determines your profitability and
ultimately whether you will stay in business or not is
A. knowing what your sales will be.
B. regulations that affect your business.
C. estimating the human resource need.
D. having the succession plan in place.

60. A Web-based program that uses artificial intelligence technique to automate tasks such as
searches is called a(n)
A. e-tailer.
B. bot.
C. blogger.
D. tag identification.

61. The characteristic that separates one company from another in product, price, promotion
and/or distribution, is referred to as
A. differential advantage.
B. sales forecasting.
C. marketing research.
D. ethnographic research.

62. Which of the following is also known as competitive advantage?

A. Marketing strategy
B. Sales forecasting
C. Differential advantage
D. Marketing research

63. Which of these represent the first step of a marketing plan?

A. Examining the current situation
B. Discussing the target market
C. Creating a detailed marketing strategy and objectives
D. Addressing the 4 P's
64. Which of these is the final step of a marketing plan?
A. Examining the current situation
B. Discussing the target market
C. Creating a detailed marketing strategy and objectives
D. Addressing the 4 P's

65. A marketing plan examines all of these areas EXCEPT

A. target market.
B. current situation.
C. marketing strategy and objectives.
D. employee issues involving product creation.

66. The process of dividing the market into groups that have somewhat homogeneous needs for a
product or service is called
A. market segmentation.
B. sales forecasting.
C. marketing research.
D. ethnographic research.

67. When you divide the market you serve based on regions, such as, Northeast, Southeast, and
Midwest, it is called
A. personality segmentation.
B. benefit segmentation.
C. demographic segmentation.
D. geographic segmentation.

68. When you divide your total market based on age and income, it is called
A. personality segmentation.
B. benefit segmentation.
C. demographic segmentation.
D. geographic segmentation.
69. An automobile company has different categories of cars for different types of customers. The
have segmented it as: speed cars, safety cars, capacity cars etc. Customers can choose their cars
accordingly. Which of the following best explains this type of segmentation?
A. Demographic
B. Geographic
C. Personality
D. Benefit

70. Generally marketers choose one of these targeting strategies EXCEPT

A. undifferentiated.
B. concentrated.
C. differentiated.
D. cost-leadership.

71. A _____ is the population segment or segments that are likely to buy your product or
service.
A. trade area
B. target market
C. test market
D. national market

72. A(n) _____ strategy is useful when there is really no difference in the reasons why
consumers buy your products.
A. undifferentiated
B. concentrated
C. differentiated
D. demographic segmentation

73. Which of the following strategy is ideal while selling bottled water in a beach on a hot
summer day?
A. Benefit segmentation
B. Concentrated
C. Differentiated
D. Undifferentiated
74. A(n) _____ strategy is used when there is more than one market segment likely to need a
product or service.
A. undifferentiated
B. concentrated
C. differentiated
D. cost-leadership

75. Snackos is a company that manufactures snacks. They advertise their products with the catch
phrase "Snackos, snacks with nutritious value and more for your money". What kind of strategy
are they following?
A. Differentiated strategy
B. Concentrated strategy
C. Undifferentiated strategy
D. Cost leadership strategy

76. A(n) _____ strategy is used when a firm chooses one particular segment on which to focus
all its efforts.
A. undifferentiated
B. concentrated
C. differentiated
D. cost-leadership

77. Maya runs a business of home-based new born baby wear through the Internet called "First
Memories". She targets her business at all first time mothers around the globe. Identify the type
of marketing strategy involved.
A. Differentiated strategy
B. Concentrated strategy
C. Undifferentiated strategy
D. Cost leadership strategy
78. Which of these tools is useful in conducting a situation analysis?
A. SWOT analysis
B. Marketing research
C. Sales forecasting
D. Ethnographic research

79. The key component in your situation analysis is to consider your

A. employees.
B. suppliers.
C. distributors.
D. competitors.

80. In situation analysis, you need to consider those who provide the same product or service,
otherwise known as
A. promotional marketers.
B. direct competition.
C. your product distributors.
D. indirect competition.

81. Companies that provide alternates that are dissimilar to your product/service that consumers
might choose to meet a similar need are called
A. direct competition.
B. simulators.
C. indirect competition.
D. promotional marketers.

82. Identifying the weaknesses of your competition would result in the identification of _____
for your firm.
A. strengths
B. weaknesses
C. opportunities
D. threats
83. Which of these is NOT one of the 4Ps?
A. Product
B. Price
C. Place
D. Plan

84. An example or photo of your product or service is a great visual aid in helping you sell your
plan in your written market plan. This is an example of
A. defining your product.
B. defining your product price.
C. using a promotional tool for your product.
D. defining a distribution system for your product.

85. A firm is planning to introduce a new product in the market. Which of the following strategy
includes determining the ideal medium through which the customers should be educated?
A. Product
B. Placement
C. Pricing
D. Promotion

Scenario: Super Sports

Fred Fike has served as a guide for adventure sports such as kayaking and rock climbing, and is
an active climber and a professional bicycle racer. He has decided to venture into the business of
high-end bicycles under the banner Super Sports, Inc. Fred needs to explore the idea of location,
marketing, and financing. He has a pretty good idea of location, so he concentrates on marketing
issues.
86. Fred has received various different numbers from the local Chamber of Commerce and
Economic Development office on how big the potential market is. Which of these can verify the
size of the potential market for Fred?
A. Marketing research
B. Profit forecasting
C. Market segmentation
D. Location analysis

87. The numbers and data offered to Fred by the Chambers of Commerce and Department of
Economic Development are called
A. open-ended research.
B. primary data.
C. close-minded figures.
D. secondary data.

88. If Fred decides to conduct a survey to collect data, compare groups, and statistically analyze
data, which of these questions should he avoid?
A. Scalar
B. Dichotomous
C. Open-ended
D. Categorical

89. If Fred wants to find new niches and perfect his services before he opens Super Sports, he
should focus on which of these questions?
A. Scalar
B. Dichotomous
C. Open-ended
D. Categorical

90. In developing his marketing plan, Fred should know that _____ should be his first step.
A. conducting a situation analysis
B. identifying the target market
C. addressing the 4 Ps
D. detailing the marketing strategy and objectives

Chapter 13
21. Accounting is important to a small business for all of these reasons EXCEPT
A. banks, creditors, development agencies, and investors require it.
B. it provides easy-to-understand plans for business operations.
C. it makes it difficult for others to acquire your business.
D. it proves what your business did financially.
22. Which of these is used by managers for planning and controlling?
A. Managerial accounting
B. Tax accounting
C. Financial accounting
D. Market accounting

23. _____ is a formal, rule-based set of accounting principles and procedures intended for use by
outside owners, investors, banks, and regulators.
A. Managerial accounting
B. Tax accounting
C. Financial accounting
D. Market accounting

24. Which of these is NOT identified as a most basic accounting concept?

A. Business entity
B. Costs and expenses
C. Going concern
D. Buy and sell

25. Which of the following accounting concepts makes it possible to separate business
transactions from personal transactions?
A. Business entity
B. Costs and expenses
C. Going concern
D. Accounting equation

26. Which of these refers to the concept that a business is expected to continue in existence for
the foreseeable future?
A. Business entity
B. Costs and expenses
C. Going concern
D. Buy and sell
27. Which of these represent the accounting equation?
A. Liabilities = Assets + Owners' Equity
B. Assets = Liabilities + Owners' Equity
C. Assets = Liabilities - Owners' Equity
D. Owners' Equity = Assets + Liabilities

28. Going concern is the

A. legal obligation to give up things of value in the future.
B. accounting concept that implies that a business may continue in business even if it is sold to
other owners.
C. difference between assets and liabilities of a business.
D. value given up to obtain something that you want.

29. A(n) ______ is something you owe someone else.

A. asset
B. liability
C. owners' equity
D. cash flow

30. "_____" means that the value of the item can be realized, or must be paid as cash within one
year, while "_____" means that the asset will still be valuable more than one year in the future,
or that the business may take longer than one year to pay the amount owed.
A. Dated, current
B. Current, long-term
C. Current, dated
D. Long-term, current

31. The financial state of having more debt than assets means, you are
A. rich.
B. profitable.
C. bankrupt.
D. solvent.
32. What do you call a decrease in owners' equity caused by consuming your product or service?
A. Opportunity cost
B. Cost
C. Owners' equity
D. Expense

33. A(n) _____ is simply a record of transactions that are similar in nature.
A. report
B. description
C. account
D. narrative

34. The most commonly used small business accounting systems include all of these EXCEPT
A. Quickbooks.
B. Peachtree.
C. Great Plains.
D. TaxCut.

35. A regular and systematic reduction in income that transfers asset value to expense over time
is called
A. bankruptcy.
B. depreciation.
C. liquidity.
D. opportunity cost.

36. An accounting system should accomplish all of the following tasks EXCEPT
A. provide a simple, easy-to-understand user interface.
B. have an exhaustive context-sensitive help function.
C. enforce security measures to reduce the opportunity for employee misuse or fraud.
D. avoid the export of financial data.
37. Fixed asset accounting
A. ensures that payroll and employment taxes are kept current.
B. automatically calculates and accumulates depreciation.
C. records if your business keeps surplus cash invested in securities.
D. records if your business has made improvements to leased property or equipment.

38. Which of the following accounting functions allows a business to keep track of what it owes,
make timely payments in order to capture prompt pay discounts, and maintain a good credit
rating?
A. Credit card sales
B. Accounts receivable records
C. Accounts payable records
D. Payroll records

39. Accurate and timely _____ are essential for making decisions concerning the extension of
credit. They also help produce accurate billing of customers, and thus help to maintain good
customer relations.
A. payroll records
B. leasehold records
C. accounts payable records
D. accounts receivable records

40. Formal summaries of the content of an accounting system's records of transactions are called
A. operating activities.
B. investing activities.
C. financial statements.
D. variance analyses.

41. Which of these is NOT a common financial statement?

A. Statement of retained earnings
B. Statement of depreciation
C. Cash flow statement
D. Balance Sheet
42. The sum of all profits and losses, less all dividends paid since the beginning of the business is
called
A. liabilities.
B. retained earnings.
C. net income.
D. tax liability.

43. Which of these refers to the concept that information flows from the income statement
through the statement of retained earnings, and of owners' equity to the balance sheet?
A. Articulate
B. Going concern
C. Opportunity cost
D. Leveraging

44. Which statement lists revenues and expenses, and shows the amount of profit a business
makes for a specified period of time?
A. Balance sheet
B. Statement of retained earnings
C. Income statement
D. Cash flow statement

45. There are two formats for income statements, a(n)

A. single-step and multiple-step format.
B. revenue-only and revenue and expense format.
C. owners' equity and balance sheet format.
D. cash flow and retained earnings format.

46. Which income statement format is preferred by most owners and managers of small
businesses?
A. Single-step
B. Multiple-step
C. Revenue-only
D. Retained earnings
47. There are two difficulties that arise in understanding and interpreting the income statements.
One is the disagreements about what exactly should be reported as revenues and the other is
A. whether to report the revenues.
B. what should be considered as expenses.
C. disputes over when to recognize revenues.
D. the preferable tax rate to incorporate.

48. _____ is the most used item on the income statement.

A. Net income
B. Cost of sale
C. Revenue
D. Operating income

49. Lenders use operating income specifically

A. as a measure of how well management achieved sales.
B. as an indication of future sales.
C. as a measure of how much debt a business can support.
D. as an indication of a business's ability to control costs.

50. The _____ is also called the Statement of Financial Position.

A. balance sheet
B. income statement
C. cash flow statement
D. statement of retained earnings

51. Which of these is a statement of what a business owns, what it owes to others, and how much
value the owners have invested in it?
A. Income statement
B. Balance sheet
C. Cash flow statement
D. Statement of retained earnings
52. The information in the balance sheet is used to determine all of these EXCEPT
A. liquidity.
B. financial flexibility.
C. profitability.
D. financial strength.

53. _____ is a measure of how quickly a company can raise money through internal sources by
converting assets to cash.
A. Financial flexibility
B. Profitability
C. Financial strength
D. Liquidity

54. Which of the following ratios is used to estimate the liquidity of a firm?
A. Inventory turnover ratio
B. Total asset to total liabilities ratio
C. Current ratio
D. Quick ratio

55. The value of current assets divided by current liabilities is called

A. inventory turnover ratio.
B. current ratio.
C. total asset to total liabilities ratio.
D. quick ratio.

56. _____ is an indicator of the business's ability to manage cash flows so that the company has
the financial ability to respond appropriately if an unexpected opportunity or problem arises.
A. Liquidity
B. Financial flexibility
C. Financial strength
D. Profitability
57. The rule of thumb for evaluating current ratio is that the minimum acceptable ratio is
A. 3.0.
B. 2.0.
C. 1.0.
D. 4.0.

58. Which of these refers to the ability of a business to survive adverse financial events?
A. Liquidity
B. Financial flexibility
C. Financial strength
D. Profitability

59. Which of the following is more indicative of a business's financial strength?

A. Short-term investments
B. Prepaid expenses
C. Accounts payable
D. Large inventories

60. What do you call the acquisition cost of the asset that is listed in a balance sheet?
A. Historical value
B. Financial strength
C. Liquidity
D. Depreciation

61. Which of the following statements is true regarding the balance sheet?
A. It has a limited impact on financial ratios.
B. It contains an exhaustive list of a business's assets and liabilities.
C. The balance sheet contains exact figures.
D. All values listed in a balance sheet are historical values.
62. Activities involved in producing and selling goods and services are called _____ activities.
A. operating
B. investing
C. financing
D. marketing

63. _____ activities include the acquisition and disposal of property, plant, equipment, and
investment securities of other firms.
A. Operating
B. Investing
C. Financing
D. Marketing

64. Activities through which cash is obtained from and paid to lenders, owners, and investors are
called _____ activities.
A. operating
B. investing
C. financing
D. marketing

65. Which of the following simply reconciles the net increase or decrease with the beginning
cash balance and the ending cash balance?
A. Net effect of foreign exchange rates
B. Noncash investing and financing
C. Net change in cash balance
D. Noncash operating activities

66. The primary criteria for a small business's record keeping system are all of these EXCEPT
A. simplicity of use.
B. accuracy of detail.
C. timeliness of reports.
D. economical in cost.
67. The key in controlling receivables is to have them _____, by sorting them into groups of
those that are 30, 60, 90, and over 90 days past due.
A. recorded
B. cataloged
C. aged
D. classified

68. Identify the managerial accounting technique which looks at the fixed and variable costs of a
business to arrive at a number of unit sales to maximize profits.
A. Cost-volume-profit analysis
B. Marginal revenue costs analysis
C. Break even analysis
D. Cash flow analysis

69. Which of the following statements is true about fixed costs?

A. They can be assigned to a specific item sold or manufactured.
B. They are unaffected by changes in output.
C. Fixed cost per item increases as the number of units produced increases.
D. They include expendables.

70. Which among the following is a variable cost?

A. Lighting
B. Security
C. Shipping
D. Cleaning

71. _____ is the idea that it is cheaper (per item) to make many of an item than few.
A. Inventory turnover
B. Economy of scale
C. Breakeven point
D. Historical value
72. Breakeven point
A. is the point at which total costs equal gross revenue.
B. is the point at which fixed costs equal variable costs.
C. is the point at which total costs equal profit.
D. is the point at which variable costs equal gross revenue.

73. Estimated or hypothetical financial statements are called

A. pro forma statements.
B. assumed income statements.
C. tentative balance sheets.
D. annual report statements.

74. What becomes a standard against which performance can be measured, once it has been
established?
A. Budget
B. Liquidity
C. Balance sheet
D. Statement of cash flows

75. A financial plan for the future based on a single level of operations is called a(n)
A. balance sheet.
B. budget.
C. income statement.
D. statement of cash flows.

76. A comprehensive budget is otherwise known as the

A. master budget.
B. sales budget.
C. purchases budget.
D. universal budget.
77. The first step in preparing a master budget is to prepare a _____ budget.
A. production
B. direct materials
C. sales
D. direct labor

78. The _____ budget shows the number of units that are expected to be acquired during the
budget period.
A. cash receipts
B. labor
C. sales
D. purchases

79. The quantity of goods sold times the price expected to be paid for each product is the
calculation used for the
A. overhead budget.
B. sales budget.
C. purchases budget.
D. cost of goods sold budget.

80. _____ is an accounting method which assigns costs based on the different types of work a
business does in order to sell a particular product or service.
A. Differential revenues and expenses
B. Net present value analysis
C. Cost-volume-profit analysis
D. Activity-based cost estimates

81. The difference between an actual and budgeted revenue or cost is called
A. liquidity.
B. financial flexibility.
C. variance.
D. investing activities.
82. The process of determining the effect of price and quantity changes on revenues and
expenses refers to
A. accounting analysis.
B. variance analysis.
C. pro forma budgeting.
D. financial flexibility.

83. To make good decisions, we need all of these EXCEPT

A. good information.
B. efficient ways to condense information so it is understandable.
C. methods to help compare alternatives.
D. certainty situation.

84. _____ analysis is based on the concept that a dollar to be received right now has more utility
than does a dollar to be received at some time in the future.
A. Liquidity
B. Net present value
C. Financial strength
D. Budget

85. This methodology comprises estimating the changes in revenues and expenses from current
operating results that will occur if each alternative is taken.
A. Variance analysis
B. Net present value analysis
C. Accounting analysis
D. Differential revenues and expenses

Scenario: Barb's Bakery

Barb Bowman fell into the baking business. It used to be a hobby. She made and sold cakes and
cookies for birthdays and family events in the neighborhood and for friends' parties. Now,
having opened the bakery, the business has taken off and Barb is wondering what sort of records
she needs to keep.
86. Barb needs to know that accounting is important to her business because of all of these
EXCEPT
A. it provides easy to understand plans for business operations.
B. it shows how much her business is worth.
C. it is the bakery industry requirement.
D. she can't know what her business is doing without it.

87. Which of these most commonly used accounting systems may be useful for Barb to keep
records?
A. Peachtree
B. TaxCut
C. TurboTax
D. Checkpro

88. Barb will need all of these commonly used financial statements EXCEPT
A. income statement.
B. balance sheet.
C. cash flow statement.
D. depreciation statement.

89. When exploring the accounting system software, Barb should know that _____ lists revenues
and expenses and shows the amount of profit her business has made for a specified period of
time.
A. income statement
B. balance sheet
C. cash flow statement
D. depreciation statement

90. Which of these statements would describe what Barb's Bakery owns, what it owes to others,
and how much value Barb has invested in it?
A. Income statement
B. Balance sheet
C. Statement of retained earnings
D. Statement of owner's equity

Chapter 14
25. The small business owners in the NFIB Foundation poll reported that all of these were causes
of cash flow problems EXCEPT:
A. difficulty collecting money due from customers.
B. seasonal variations in sales.
C. unexpected decreases in sales.
D. unexpected increases in taxes.

26. Approximately 55 percent of small businesses that fail do so because of:

A. cash flow problems with an immediate impact.
B. lack of profitability.
C. missing the mark on product demand.
D. sour banking relationships.

27. The time that is required for a business to acquire resources, convert them into a product, sell
the product, and receive cash from the sale refers to:
A. seasonal sales.
B. cash-to-cash cycle.
C. hard-to-soft circle.
D. charge back cycle.
28. Amounts owed to vendors for merchandise or services purchased on credit is called:
A. receivables.
B. demand deposits.
C. payables.
D. charge back.

29. Amounts that are owed to a business for merchandise that was sold on credit refers to:
A. receivables.
B. demand deposits.
C. payables.
D. charge back.

30. Money in the end is a form of:

A. information.
B. paper.
C. plastic.
D. culture.

31. There are two purposes of money:

A. to buy and to accumulate.
B. to make exchanges and to keep track of wealth.
C. to buy and to sell.
D. to save and to accumulate.

32. The difference between revenue and expense is called:

A. sales.
B. interest.
C. profit.
D. overhead.
33. Money that is immediately available to be spent is called:
A. profit.
B. sales.
C. charge back.
D. cash.

34. Assets that may be quickly converted to cash is called:

A. cash equivalent.
B. inventory.
C. receivables.
D. payables.

35. Cash is composed of all of these forms of money that can be immediately used to make
payments EXCEPT:
A. currency.
B. receivables.
C. demand deposits.
D. traveler's checks.

36. The bills and coins printed by government to represent money refers to:
A. currency.
B. receivables.
C. demand deposits.
D. traveler's checks.

37. _____ make up most of the non currency cash.

A. Marketable securities
B. Demand deposits
C. Commercial papers
D. Receivables
38. Money held in checking and savings accounts are called:
A. demand deposits.
B. marketable securities.
C. commercial papers.
D. receivables.

39. _____ are made up of stocks and bonds for which there is an active auction market.
A. Demand deposits
B. Marketable securities
C. Commercial papers
D. Receivables

40. _____ are notes issued by credit-worthy corporations.

A. Demand deposits
B. Marketable securities
C. Commercial papers
D. Receivables

41. _____ must be paid in less than one year from the date of the financial statement on which it
is reported.
A. Commercial paper
B. Receivables
C. Marketable securities
D. Short-term debt

42. The two forms of short-term financing are short term debt and:
A. cash equivalent.
B. commercial paper.
C. marketable security.
D. demand deposit.
43. Cash can come from all of these sources for a small business EXCEPT:
A. cash flow from subsidy.
B. cash flow from operations.
C. cash flow from investing.
D. cash from financing.

44. The _____ is the name given to the sum of cash inflows and cash outflows recorded in the
firm's accounting records.
A. bank ledger balance
B. company book balance
C. clearing house
D. bank available balance

45. Which of the following is usually called the cash account?

A. Clearinghouse
B. Bank available balance
C. Bank ledger balance
D. Company book balance

46. The sum of deposits and withdrawals recorded in a bank's accounting records is called the:
A. bank ledger balance.
B. company book balance.
C. clearinghouse.
D. bank available balance.

47. The _____ is the actual cash value of the account.

A. bank ledger balance
B. company book balance
C. clearinghouse
D. bank available balance
48. Which of these refers to an entity that processes checks and electronic fund transfers for
banks and other financial organizations?
A. Credit unions
B. Thrifts
C. Clearinghouse
D. Trade unions

49. A negative balance in a depositor's bank account is referred to as:

A. overdraft.
B. float.
C. ledger balance.
D. reconciling.

50. Delays in the movement of money among depositors and banks is referred to as:
A. overdraft.
B. float.
C. ledger balance.
D. reconciling.

51. There are two primary causes of float:

A. book balance float and bank ledger float.
B. bank ledger balance and bank available balance.
C. reconciling float and charge back float.
D. availability float and processing float.

52. What is the term used for delays in delivering checks from the writer of the check to the
recipient's bank?
A. Availability float
B. Overdrafting
C. Processing float
D. Reconciling
53. Delays in transferring money among banks due to internal procedures is referred to as:
A. availability float.
B. overdrafting.
C. processing float.
D. reconciling.

54. Which of these refers to the accounting process that identifies the causes of all differences
between book and bank balances?
A. Overdrafting
B. Reconciling
C. Charge back
D. Liquidity

55. Information that the bank knows about your account that you do not know includes all of
these EXCEPT:
A. the amount of service charges taken from your account.
B. the amount of any direct payments made to your account by your customers.
C. the deposits you have made after bank closing.
D. the amount of any interest received or charged.

56. Accepting payments by credit card causes significant differences between the bank and book
balances due to all of the following reasons EXCEPT:
A. the service provider records the gross amount of each credit card sale.
B. the service provider takes up to three working days to actually make the deposit to your
account.
C. the credit card service provider deposits to your account the sale amount less the credit card
service fee.
D. credit card clearing services also will reduce the amount deposited in the event of fraud.

57. A reduction in the bank account of a merchant by a credit card company refers to:
A. reconciling.
B. liquidity.
C. overdrafting.
D. charge back.
58. For small businesses, the key budget is the _____ budget.
A. cash
B. retained earnings
C. sales
D. marketing

59. The _____ is a schedule of the amounts and timing of the receipt of cash into a business.
A. cost of goods sold budget
B. cash receipts budget
C. sales budget
D. payables budget

60. The basis to being able to control a business's money is to understand and be able to predict
the patterns of cash flows. This is possible by preparing a:
A. cash disbursements budget.
B. comprehensive budget.
C. cash receipts budget.
D. cash budget.

61. Identify the budget that is a schedule of the amounts and timings of payments of cash out of a
business.
A. Cash disbursements budget
B. Comprehensive budget
C. Cash receipts budget
D. Cash budget

62. These are also referred to as master budgets.

A. Cash disbursements budget
B. Cash receipts budget
C. Comprehensive budget
D. Cash budget
63. Which of these is NOT a technique to increase cash inflows?
A. Taking deposits and progress payments.
B. Foregoing receivables.
C. Asking for your money.
D. Taking on noncore paying projects.

64. Cash payments received before product is completed or delivered is called:

A. noncore payments.
B. payables.
C. deposits and progress payments.
D. discounted payments.

65. When a business offers you a discount of 2 percent if you pay the bill in full within 7 days, it
is called:
A. noncore payments.
B. progress payments.
C. receivables discount.
D. discount for prompt payments.

66. Revenue-producing tasks and activities related to, but not part of the primary strategy of a
business is called:
A. noncore projects.
B. discontinued tasks.
C. factoring receivables.
D. off-the-books strategy.

67. _____ is a method of borrowing against receivables.

A. Factoring
B. Noncore project
C. Discounted payment
D. Reconciling
68. To factor your receivables your _____ must have good credit ratings.
A. suppliers
B. business
C. customers
D. agents

69. Every business that maintains inventory has an optimal level that minimizes the total cost of
all of the following EXCEPT:
A. frequent purchases.
B. carrying inventory.
C. processing orders.
D. losing sales due to being out of stock.

70. All of the following provides savings in cash outflows EXCEPT:

A. trade discounts.
B. taking on noncore paying projects.
C. barter.
D. use of temporary agencies.

71. Percentage discounts from gross invoice amounts provided to encourage prompt payment is
referred to as:
A. core discount.
B. trade discount.
C. non cash incentives.
D. consignment.

72. The most common noncash incentive(s) is/are:

A. autonomy.
B. stock options.
C. added vacation days.
D. compensating time off.
73. The practice of accepting goods for resale, without taking ownership of them and without
being responsible to pay prior to their being sold is called:
A. bartering.
B. consignment.
C. noncash incentive.
D. reconciling.

74. In _____ you may trade similar items without creating a taxable transaction.
A. bartering
B. consignment
C. noncash incentives
D. cash-to-cash cycle

75. The practice of trading goods and services without the use of money is called:
A. bartering.
B. consignment.
C. noncash incentive.
D. reconciling.

76. Using methods to appear to be paying bills on time, when in fact payment is being delayed or
avoided is called:
A. gaming the payment process.
B. growth trap.
C. charge back.
D. cash-to-cash cycle.

77. Which of the following is the term used for a financial crisis that is caused by a business
growing faster that it can be financed?
A. Cash-to-cash cycle
B. Gaming the payment process
C. Charge back
D. Growth trap
78. Which of these is the number one strategy employed by small businesses for handling money
shortages?
A. Borrowing
B. Using personal money
C. Adjusting scheduled purchases
D. Laying off employees

79. Which of these is NOT a strategy employed by small businesses for handling money
shortages?
A. Selling receivables
B. Adjusting scheduled payments
C. Filing for bankruptcy
D. Selling investments

Scenario: Tammy's Craft Corner

Working at a local university, Tammy's favorite hobby included anything related to crafts. She
could spend hours pouring over the craft books to actually working on and talking to people
about craft projects. Tammy was great at what she did and liked to do, but lacked the money
management skills. So when Tammy opened her business "Tammy's Craft Corner". Her son, a
business major, decided to step in and help mom with managing the money side of the business.

80. Tammy needs to know that the time that is required for her to acquire resources, convert
them into craft products, sell the products, and receive cash from the sale is called:
A. accounts payable cycle.
B. reconciling.
C. demand deposits timeframe.
D. cash-to-cash cycle.
81. The amount owed to vendors from whom Tammy purchased the craft merchandise on credit
is called:
A. payables.
B. demand deposits.
C. receivables.
D. inventory.

82. Tammy insists that cash for her business can come from all of these sources. Her Son should
point out that _____ is not one of the sources for Tammy's cash needs.
A. cash flow from operations
B. cash from financing
C. cash flow from subsidies
D. cash flow from investing

83. As Tammy always ended up writing more checks than the money she had in her checking
account, her son recommended that she establish with her bank to _____ her account so that her
checks could be paid.
A. partial close
B. overdraft
C. demand deposit
D. float

84. Which of these techniques is not one that Tammy can use to increase her cash inflows?
A. Taking deposits and progress payments.
B. Asking for her money from customers.
C. Taking on noncore paying projects.
D. Offering discounts for deferred payments.

Chapter 16

21. _____ is money that is owed to your business by your customers.

A. Inventory
B. Accounts receivable
C. Factor receivables
D. Accounts payable
22. Which of these represents the current practice for small businesses to provide credit?
A. Providing credit by accepting bank-issued credit cards.
B. Providing no credit.
C. Providing direct credit to customers to build loyalty.
D. Providing credit only when approved and backed by government agencies.

23. Which of these is true about providing credit?

A. It usually results in lower sales revenues.
B. It accelerates the receipt of cash.
C. It reduces the cost of selling.
D. It forces all the customers to pay.

24. All of these are negative effects of extending credit to customers EXCEPT:
A. it delays the receipt of cash.
B. it creates a borrowing situation for the owners of the business providing credit.
C. some customers with credit will not pay.
D. it increases the cost of selling.

25. Which of these is NOT a recommended policy for managing accounts receivable?
A. Maintaining constant "aging" of customers to quickly identify the ones who may become
delinquent.
B. Using your bank as a lock box for the receipt of payments.
C. Enforcing significant late fees and interest on past due accounts.
D. Discontinuing credit sales to customers who become significantly late in paying.

26. Selling the right to collect accounts receivable to an entity outside your business is called:
A. pledging receivable.
B. factoring.
C. EOQ.
D. JIT inventory.
27. What is the difference between the gross amount of the receivables and the amount that is
ultimately collected?
A. Factor's profit margin
B. Lock box
C. Profit maximization
D. Commission

28. Giving a third party legal rights to debts owed your business in order to provide assurance
that borrowed money will be repaid refers to:
A. pledging receivable.
B. factoring.
C. EOQ.
D. JIT inventory.

29. Pledging receivables will get you about _____ of the amount that can be collected, where as,
factoring can get you _____ percent of the amount due.
A. one-fourth; 90-95
B. one-fifth; 40-45
C. one-half; 75-80
D. three-fourth; 20-25

30. Which of these is the largest current asset that most manufacturing, wholesale, and retail
firms have?
A. Cash
B. Property, plant, and equipment
C. Accounts receivable
D. Inventory

31. Products that are held for sale to customers are called:
A. inventory.
B. layaways.
C. accounts receivable.
D. equipments.
32. (p. 511) Which of the following is a statistical technique that determines the quantity of
inventory that a business must hold to minimize total inventory cost?
A. JIT
B. EOQ
C. Reorder point
D. Microinventory

The total cost of keeping inventory is the sum of: the cost to buy the inventory; the cost to store,
protect, and maintain inventory; and the cost of making an order to purchase inventory.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1
33. (p. 511) EOQ helps you think in terms of
A. buying and selling.
B. ordering costs and carrying costs.
C. borrowing cost and kiting costs.
D. ordering cost and lost sales.

If you consider both these and purchase price, you get the economic order quantity (EOQ)—the
quantity at which the total cost of inventory is minimized.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1

34. (p. 512) Which of these also refers to reorder point?

A. Microinventory
B. JIT
C. Optimum stocking level
D. EOQ

The optimum stocking level is the amount of inventory that results in the minimum cost.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1
35. (p. 512) The _____ is the amount of inventory that results in the minimum cost, considering
the cost of lost sales resulting from running out of stock, the number of units sold per day, and
the number of days required to receive inventory.
A. microinventory
B. periodic inventory
C. EOQ
D. optimum stocking level

The optimum stocking level is also called reorder point.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1
36. (p. 513) JIT inventory system attempts to reduce inventory levels to the absolute minimum
by all of the following EXCEPT:
A. accepting inventory only as it is sold.
B. assembling product in the absolute minimum time possible.
C. keeping safety stock in case sales might be greater than forecast.
D. shipping product to the customer immediately upon completion.

The ultimate extension of pull-through processing is just-in-time inventory management.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-1

37. (p. 512) In practice, managers of small businesses tend to use which of these when it comes
to inventory?
A. Heuristic
B. EOQ
C. Statistical analysis
D. JIT analysis

A heuristic is a rule of thumb.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1
38. (p. 513) The practice of acquiring inventory only in response to a completed sale is called
a(n):
A. economic order quantity.
B. pull-through system.
C. periodic inventory.
D. perpetual inventory.

Once a customer sale is made, an order is placed to either obtain or produce the product. Each
stage of the production process operates in response to this order, ultimately reaching back to the
acquisition of the raw materials from which the product is made.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1

39. (p. 513) The practice of purchasing and accepting delivery of inventory only after it has been
sold to the final customer is called a(n) _____ inventory system.
A. EOQ
B. periodic
C. JIT
D. perpetual

The ultimate extension of pull-through processing is just-in-time inventory management.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1
40. (p. 513) All of these are primary inventories of manufacturing EXCEPT
A. raw material.
B. work in process.
C. finished goods.
D. presold goods.

The primary inventories are three: raw materials; work in progress; and finished goods.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1

41. (p. 513) The purchase of inventory, very typical with Internet firms, only after a sale is made
is called:
A. microinventory.
B. periodic inventory.
C. perpetual inventory.
D. point-of-sale system.

This practice is the ultimate just-in-time process.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1
42. (p. 513) The process of physically counting business assets on a set schedule is called:
A. microinventory.
B. periodic inventory.
C. point-of-sale system.
D. perpetual inventory.

The time between counts is usually one business year, although periodic inventories may be
conducted twice per year, quarterly, monthly, or as often as your business needs require.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1
43. (p. 513) For periodic inventory, the time between counts is usually:
A. one quarter.
B. six months.
C. one business year.
D. 30 days.

The time between counts is usually one business year, although periodic inventories may be
conducted twice per year, quarterly, monthly, or as often as your business needs require.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1

44. (p. 513-514) A system of recording the receipt and sale of each item as it occurs is called:
A. microinventory.
B. periodic inventory.
C. point-of-sale system.
D. perpetual inventory.

A perpetual inventory system maintains a constant record of the amounts and value of inventory
that has been sold and the amounts and value of inventory on hand.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1
45. (p. 514) _____ is one method used to reduce the cost of perpetual inventory system.
A. Bar coding
B. Periodic inventory
C. Microinventory
D. JIT

Bar codes are computer readable tags that are unique to each item of inventory. The most
common bar codes are called UPCs or universal product codes.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-1
46. (p. 514) _____ comprises both hardware and software to integrate inventory management
directly into your accounting system.
A. Microinventory
B. Point-of-sale system
C. Periodic inventory
D. Perpetual inventory

In these systems, every sale is immediately recorded in the accounting system. Revenue is
increased and inventory is decreased simultaneously.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-1

47. (p. 515) Capital assets are otherwise known as:

A. operating assets.
B. inventory.
C. intangible assets.
D. current assets.

There are two fundamental kinds of assets in a business—short-term, which includes inventory
and accounts receivable, and operating or capital assets.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-2
48. (p. 516) This method defines utility as being the net cash inflows that the asset will produce.
A. Future cash flow valuation
B. Investment cash flow valuation
C. Financing cash flow valuation
D. Discounted cash flow valuation

The value of the asset is the sum of these cash flows discounted for time and cost of capital.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2
49. (p. 515) Assets that are expected to provide economic benefits for periods of time greater
than one year are called:
A. accounts receivable.
B. short-term investments.
C. capital assets.
D. cash and cash equivalent assets.

Transportation, manufacturing, automobile repair, mining, ranching, and farming businesses all
require the use of substantial capital assets in the form of land, buildings, and machinery.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-2

50. (p. 516) Which of these is NOT an accounting method to value capital assets?
A. Disposal value
B. Book value
C. Replacement value
D. Inflation value

The four accounting methods to value capital assets are (1) book value, (2) disposal value, (3)
replacement value, and (4) fair market value.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2
51. (p. 516) _____ is an accounting term that describes the difference between the original
acquisition cost of capital assets and the amount of depreciation expense that has been
recognized for them.
A. Book value
B. Disposal value
C. Fair market value
D. Replacement value

This is true for two reasons: (1) Purchase price is not an indicator of the current value of any
asset, and (2) depreciation is not, nor is it intended to be, any measure of the consumption
through use of an asset's value.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2

52. (p. 527) _____ is a method of estimating asset value by calculating the net amount that you
would realize were you to sell the asset in an "arm's-length" transaction.
A. Book value
B. Disposal value
C. Fair market value
D. Replacement value

This is accomplished by subtracting from the estimated sale price the estimated costs of selling,
disassembly, shipping, indeed, all costs necessary to dispose of the asset. Disposal value is the
residual of many estimates.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2
53. (p. 516) What is an arbitrary, but regular and systematic method used to take an asset value
as an expense for the purpose of calculating net income or loss?
A. Book value
B. Depreciation
C. Arm's length transaction
D. Disposal value

Depreciation is based on three assumptions: (1) that the asset has a fixed, determinable period of
utility, (2) that the asset has a fixed, determinable value that will exist when the depreciation
process is complete, and (3) that the value of the asset will decline in a continuous and
predictable manner over the period of utility.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-2

54. (p. 516) The price at which goods and services are bought and sold between willing sellers
and buyers in an arm's-length transaction is called:
A. book value.
B. disposal value.
C. fair market value.
D. replacement value.

In contrast to disposal value, fair market value is assigned from the point of view of the buyer,
and thus includes the selling price and all costs to install, test, and prepare the asset for
productive use.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2
55. (p. 516) Depreciation is based on all of the following assumptions EXCEPT
A. that the asset has a fixed, determinable period of utility.
B. that the asset has a fixed, determinable value that will exist when the depreciation process is
complete.
C. that the value of the asset will decline in a continuous and predictable manner over the period
of utility.
D. that it is the cost incurred to replace one asset with an identical asset.

Depreciation is an arbitrary, but regular and systematic, method used to take asset value as an
expense for the purpose of calculating net income or loss.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-2

56. (p. 516) _____ is the fixed and determinable value of an asset that will exist when the
depreciation process is complete.
A. Useful life
B. Salvage value
C. Book value
D. Disposal value

Depreciation is an arbitrary, but regular and systematic, method used to take asset value as an
expense for the purpose of calculating net income or loss.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-2
57. (p. 516) The primary advantage of replacement value is:
A. accuracy.
B. high cost.
C. low taxes.
D. low cost.

The disadvantage is that the price of a new asset is often much greater than the price of an
essentially identical asset already in your business.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2

58. (p. 516) Identify the term used for an asset with a fixed determinable period of utility.
A. Useful life
B. Salvage value
C. Book value
D. Disposal value

Depreciation is based on three assumptions: (1) that the asset has a fixed, determinable period of
utility, (2) that the asset has a fixed, determinable value that will exist when the depreciation
process is complete, and (3) that the value of the asset will decline in a continuous and
predictable manner over the period of utility.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2
59. (p. 516) Which of the following is not generally considered to be very useful for any purpose
other than accounting and income taxes?
A. Replacement value
B. Salvage value
C. Book value
D. Disposal value

Book value is an accounting term that describes the difference between the original acquisition
cost of capital assets and the amount of depreciation expense that has been recognized for them.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-1

60. (p. 516) Laws, regulations, and the requirements of GAAP require that _____ value be used
for financial reporting and income tax purposes.
A. book
B. fair market
C. replacement
D. disposal

Book value is generally considered to be not very useful for any purpose other than accounting
and income taxes, each of which, through law, regulation, and practice, require its use.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-2
61. (p. 516-517) If you are offering assets as collateral, lenders are most interested in _____
value.
A. book
B. fair market
C. replacement
D. disposal

If you are considering an investment opportunity, disposal value provides an estimate of the
timing and amounts of cash flows that can be used for net present value and internal rate of
return calculations. If you are offering your business for sale, as the seller of a business you
would view disposal value as a "lower limit" for the selling price because it approximates the
amount that would be realized were the business to be liquidated.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Hard
Learning Objective: 16-2

62. (p. 517) Potential buyers and investors are most interested in _____ value of your assets.
A. book
B. fair market
C. replacement
D. disposal

Replacement value sets an "upper level" for the value of your business assets as an
approximation of the cost that would be incurred to equip a start-up business.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Hard
Learning Objective: 16-2
63. (p. 518) A general term for real estate, but that can also be applied as a legal term for
anything owned or possessed is called:
A. property.
B. plant.
C. equipment.
D. inventory.

If your business is wholesale or retail merchandising, the issues of property, plant, and
equipment (PPE) are most likely of relatively minor importance to your success.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-3

64. (p. 518) What is the cost incurred in financing, insuring, taxing, or tracking an asset?
A. Cost of owning
B. Whole of life costs
C. Cost of operating
D. Cost of disposition

All capital assets cause you to incur four costs over time: (1) the cost of acquiring the asset, (2)
the cost of owning the asset, (3) the cost of operating the asset, and (4) the cost of disposing of
the asset.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-3
65. (p. 518) A general term for the facilities of a business is called:
A. property.
B. plant.
C. equipment.
D. inventory.

If your business is wholesale or retail merchandising, the issues of property, plant, and
equipment (PPE) are most likely of relatively minor importance to your success.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-3

66. (p. 518) The sum of all costs of capital assets including acquisition, ownership, operation,
and disposal refers to:
A. cost of operation.
B. cost of owning.
C. whole of life cost.
D. replacement cost.

All capital assets cause you to incur four costs over time: (1) the cost of acquiring the asset, (2)
the cost of owning the asset, (3) the cost of operating the asset, and (4) the cost of disposing of
the asset.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-3
67. (p. 518) The direct cost incurred in using an asset for the purpose for which it was intended is
called:
A. cost of disposition.
B. cost of owning.
C. whole of life cost.
D. cost of operating.

Costs of operating the asset include the energy the asset consumes, maintenance, loss of
economic value resulting from wear and obsolescence, and any necessary training of operators.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-3

68. (p. 518) Cost incurred in the activities necessary to get rid of an asset is called:
A. whole of life costs.
B. cost of disposition.
C. cost of owning.
D. cost of operation.

Such costs include meeting environmental regulations, disassembly, advertising, commissions,

shipping, insurance, and fees.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 16-3
69. (p. 519) _____ refers to the process of deciding among various investment opportunities to
create a specific spending plan.
A. ROI
B. Payback period
C. Capital budgeting
D. Return on asset

The goal of capital budgeting is to improve the quality of decisions about how to best use the
scarce resources of the business.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-4

70. (p. 519) The two most commonly used financial ratios for comparing investment alternatives
are:
A. current and quick ratios.
B. return on sales and return on investment.
C. operating profit margin and net profit margin.
D. payback period and ROI.

There are also two more complex approaches called net present value (NPV) and internal rate of
return (IRR).

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-4
71. (p. 520) The amount of time it takes a business to earn back the funds it paid out to obtain a
capital asset is called:
A. return on sales.
B. net profit margin.
C. ROI.
D. payback period.

The main advantage of using the payback period is its simplicity.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-4

72. (p. 520) A capital budgeting equation used to measure the relationship between initial
investment and the profits that are expected to be received from making the investment is called:
A. ROI.
B. return on sales.
C. current ratio.
D. NPV.

ROI is calculated as follows: ROI = (average annual profits)/(average investment)

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-4
73. (p. 520) The primary disadvantage of the payback period is that:
A. it disregards the time value of money.
B. it is highly complex.
C. it does not allow the comparisons of alternatives.
D. it incorporates all cash flows that occur after the payback period.

The main advantage of using the payback period is its simplicity.

AACSB: Reflective Thinking

Bloom's: Comprehension
Difficulty: Hard
Learning Objective: 16-4
74. (p. 522) Renting capital assets provides all of these advantages EXCEPT:
A. it requires little or no cash investment.
B. it does not require extensive paperwork.
C. it protects you from unexpected repairs.
D. it usually results in higher sales revenues due to repeat business.

In contrast to renting, purchasing often requires that your business be able to pay cash of 20
percent or more of the purchase price in order to be able to borrow funds to finance your
purchase.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-5

75. (p. 522) All of the following are the disadvantages to rental EXCEPT:
A. it requires that you make regular payments.
B. the number of dollars paid in rent usually exceeds the number of dollars you would spend to
own the asset.
C. by renting capital equipment you incur ongoing costs if business conditions change.
D. you do not have an ownership position.

Renting capital equipment provides an easy method to avoid ongoing costs if business conditions
change.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-5
76. (p. 522) A lease in which at the end of the lease period the asset becomes the property of the
lessee, possibly with an additional payment is called a(n):
A. operating lease.
B. short-term lease.
C. reverse lease.
D. capital lease.

The test to determine if a lease is a capital lease, rather than an operating lease, is the existence
of provisions for title of the asset to pass to the lessee at a price less than the asset's fair market
value.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 16-5

77. (p. 522-523) Which of the following is not a benefit of leasing?

A. You can usually obtain a very low down payment.
B. The process of negotiating and closing a lease is usually less complicated and expensive than
making a purchase and obtaining borrowed funds.
C. It is usually much easier for you to replace leased assets than it is to replace assets you own.
D. Leased assets have less number of restrictions on how they may be used, maintained, and
disposed of.

Because actual ownership of the asset remains with the lessor until the provisions of the lease
contract are fulfilled, the owner is not faced with the expensive and time consuming process of
repossession.

AACSB: Reflective Thinking

Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-5
78. (p. 523) The primary disadvantage of leasing is that:
A. it usually costs more than would purchasing.
B. assets tend to have more breakdowns.
C. it requires extensive paperwork than would purchasing.
D. it generates fewer dollars in revenue sales.

A secondary disadvantage is that leased assets are usually subject to numerous restrictions on
how they may be used, maintained, and disposed of.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-5

79. (p. 523) Under this type of arrangement, a small business may buy only that share that it can
reasonably use during the course of business.
A. Partnership
B. Fractional ownership
C. Joint Ventures
D. Limited company

Through fractional ownership, many small businesses now have access to business jets by having
purchased as little as one-sixteenth of the ownership rights.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-5
80. (p. 525) Operational control depends on all of the following types of feedback EXCEPT:
A. informational feedback.
B. corrective feedback.
C. interpretive feedback.
D. reinforcing feedback.

A business that has multiple systems requires complicated feedback. Information must be
communicated among all managers and employees who are part of the system.

AACSB: Reflective Thinking

Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 16-6

Scenario: A-One Garage Doors

Having worked in the door installation industry for about six years, Harry has started his own
company called "A-One Garage Doors". The company assembles, installs, provides services and
repairs for both residential and industrial garage doors. Like any other business when it comes to
residential accounts Harry's conditions are cash but for industrial accounts he thinks he should
offer credit. Furthermore, he is contemplating what level of inventory he should keep to meet the
demand.

81. (p. 508) Harry needs to know that when it comes to providing credit, this is true.
A. It reduces the cost of selling.
B. It forces all customers to pay.
C. It usually results in lower sales revenues.
D. It accelerates the receipt of cash.

Providing credit reduces the cost of selling, because it is much less expensive to obtain repeat
business than it is to get new customers.

AACSB: Reflective Thinking

Bloom's: Application
Difficulty: Medium
Learning Objective: 16-1
82. (p. 508) Harry should be made aware that all of these are negative effects of extending credit
to his customers EXCEPT:
A. he may end up borrowing money to fill the gap.
B. sometimes customers who use credit will not pay.
C. it delays the receipt of cash.
D. it increases the cost of selling.

Providing credit reduces the cost of selling, because it is much less expensive to obtain repeat
business than it is to get new customers.

AACSB: Reflective Thinking

Bloom's: Application
Difficulty: Medium
Learning Objective: 16-1

83. (p. 511) If Harry were to use EOQ, it would help him in terms of:
A. borrowing cost and buying cost.
B. lost sales cost and shelf-life cost.
C. ordering cost and carrying cost.
D. buying and selling.

If you consider both these and purchase price, you get the economic order quantity (EOQ)—the
quantity at which the total cost of inventory is minimized.

AACSB: Reflective Thinking

Bloom's: Application
Difficulty: Medium
Learning Objective: 16-1
84. (p. 513) If Harry adopts the practice of purchasing and accepting delivery of inventory only
after it has been sold to the final customer, it would be referred to as a(n) _____ inventory
system.
A. point-of-sale
B. JIT
C. EOQ
D. periodic

Just-in-time inventory is the practice of purchasing and accepting delivery of inventory only after
it has been sold to the final customer.

AACSB: Analytic
Bloom's: Application
Difficulty: Medium
Learning Objective: 16-1
85. (p. 514) If Harry adopts a perpetual inventory system, _____ is one method that can be used
to reduce the cost.
A. periodic inventory
B. JIT
C. microinventory
D. bar coding

Bar coding is one method used to reduce the cost of perpetual inventory systems.

AACSB: Analytic
Bloom's: Application
Difficulty: Medium
Learning Objective: 16-1
Chapter 19
21. (p. 608) Adding employees
A. decreases the amount of work that can be done.
B. reduces the legal requirements faced by an employer.
C. increases the demands on the owner.
D. increases the business's profitability.

Adding employees increases the demands on the owner. Now sales need to be made to cover the
employee's wages or salary, and, when adding employees, the owner and business become
responsible for the safety and well being of the employee, as well as face legal requirements as
an employer.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1
22. (p. 608) Compensation, training time, employee tax, and accounting costs are some of the
additional expenses involved in adding
A. part-time employees.
B. full-time employees.
C. contract employees.
D. temporary employees.

There are many additional expenses to having a full-time employee on staff as opposed to a part-
time employee. The cost of adding an employee includes compensation, training time, and
employee tax and accounting costs. Presumably, such costs are outweighed by greater
productivity.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

23. (p. 608) The match between the needs, expectations, and culture of the small business with
the expectations and the skills of the individual employees is called
A. employee referral.
B. employee fit.
C. job description.
D. job analysis.

Before making a full-time offer, let an applicant work part time for a while to see how well she
or he fits in with the organization and the work.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1
24. (p. 609) _____ refers to the trial period in which an employee has temporary status before a
formal offer to work full time is presented.
A. Test period
B. Probationary period
C. Employee referral period
D. Psychological contract period

Typically, a probationary period lasts 90 days.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

25. (p. 609) When you hire employees, typically, a probationary period lasts
A. 180 days.
B. 90 days.
C. 30 days.
D. 1 year.

The probationary period is a trial period in which an employee has temporary status before a
formal offer to work full time is presented.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-1
26. (p. 610) Which among the following federal employment laws requires the payment of same
wages to males and females for work requiring equal skill, effort, and responsibility in similar
working conditions?
A. Fair Labor Standards Act
B. Immigration Reform and Control Act of 1986
C. Worker Adjustment and Retraining Notification Act
D. Executive Order No. 11246

The Fair Labor Standards Act requires payment to most hourly employees of minimum wage and
time and a half for overtime hours. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

27. (p. 610) Which among the following federal employment laws prohibits discrimination with
respect to any condition of employment based on race, color, sex, religion, or national origin,
except where religion, sex, or national origin is a bona fide occupational qualification which is
reasonably necessary to the conduct of a particular business?
A. Fair Labor Standards Act
B. Title VII of the Civil Rights Act of 1964
C. Worker Adjustment and Retraining Notification Act
D. Executive Order No. 11246

Title VII of the Civil Rights Act of 1964 includes a prohibition on harassment, including sexual
harassment. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1
28. (p. 610) The Immigration Reform and Control Act of 1986
A. requires payment of same wages to males and females.
B. prohibits hiring of unauthorized aliens.
C. includes a prohibition on harassment.
D. governs confidentiality of medical information.

The Immigration Reform and Control Act of 1986 prohibits hiring of unauthorized aliens and
employment discrimination based on national origin or citizenship status. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

29. (p. 610) The_____ requires employers to complete I-9 forms for each employee.
A. Fair Labor Standards Act
B. Title VII of the Civil Rights Act of 1964
C. Worker Adjustment and Retraining Notification Act
D. Immigration Reform and Control Act of 1986

The Immigration Reform and Control Act of 1986 prohibits hiring of unauthorized aliens and
prohibits employment discrimination based on national origin or citizenship status. Refer Table
19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1
30. (p. 610) The Age Discrimination in Employment Act prohibits employment discrimination
against individuals who are _____ years old and older.
A. 30
B. 40
C. 50
D. 60

The Age Discrimination in Employment Act prohibits employment discrimination against

individuals who are 40 years old and older. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

31. (p. 610) The Americans with Disabilities Act

A. requires that make employers make reasonable accommodation for limitations of qualified
applicant or employee unless to do so creates undue hardship.
B. prohibits discrimination with respect to any condition of employment based on race, color,
sex, religion, or national origin.
C. prohibits employment discrimination based on national origin or citizenship status.
D. prohibits employers from using polygraph results as basis for employment action.

The Americans with Disabilities Act requires that employers have nondiscriminatory application
procedures, qualification standards, selection criteria, terms and conditions of employment. Refer
Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1
32. (p. 610) The Family and Medical Leave Act requires employers to give employees up to
_____weeks leave, paid or unpaid, without loss of position, seniority, or benefits, for a
qualifying condition or event.
A. 4
B. 6
C. 8
D. 12

The Family and Medical Leave Act requires is applicable to employers with 50 or more
employees (within a 75-mile radius) each working day for 20 weeks in the current or preceding
calendar year. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

33. (p. 610) Which among the following federal employment laws requires employers to give 60
days advance notice prior to a plant shutdown or layoff of 50 or more employees?
A. Executive Order No. 11246
B. Title VII of the Civil Rights Act of 1964
C. Worker Adjustment and Retraining Notification Act
D. Immigration Reform and Control Act of 1986

The Worker Adjustment and Retraining Notification Act is applicable to employers with 100 or
more employees. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1
34. (p. 610) Which among the following federal employment laws requires employers to
implement an affirmative action plan for hiring and promoting females and minorities?
A. Executive Order No. 11246
B. Title VII of the Civil Rights Act of 1964
C. Worker Adjustment and Retraining Notification Act
D. Immigration Reform and Control Act of 1986

Executive Order No. 11246 is applicable to employers with 50 or more employees and contracts
or subcontracts of $50,000 plus. Refer Table 19.1

AACSB: Ethical/Legal Responsibilities

Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-1

35. (p. 612) Which among the following is a method that has traditionally been used by
businesses to hire employees?
A. Employee referral
B. Internet recruitment
C. Help wanted ads
D. Career service offices

To attract and hire new talent into a medium to large growing organization, help wanted ads in
regional newspapers or the use of an employment service have been traditional methods. For
small business owners, these methods tend to be expensive and have a long turnaround time.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-2
36. (p. 612) A relatively low-cost, although time-intensive method of recruiting that can include
colleagues, business professionals, vendors, alumni, and advisory board members is referred to
as
A. internal job postings.
B. internet recruiting.
C. networking.
D. outsourcing.

Networking offers many benefits such as receiving a credible critique of a potential candidate's
work experience and personal character.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-2

37. (p. 612) _____ allows you to search a resume database or post a job description on the web.
A. Networking
B. Employee referral
C. Internet recruiting
D. Outsourcing

The main contribution of a recruiting Web site has been to speed up hiring and vastly increase
the accuracy of the job-search process.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-2
38. (p. 612) _____ is an underused, low-cost method which rewards your employees for
recommending potential candidates that would be a great fit.
A. Networking
B. Employee referral
C. Internet recruiting
D. Outsourcing

Even for small businesses, to work successfully, referrals should be handled formally with
guidelines.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-2

39. (p. 612) A small business owner who knows exactly what he or she wants can use filters to
search vast numbers of résumés with pinpoint accuracy using this.
A. Employee referrals
B. Internet recruiting
C. Networking
D. Outsourcing

Internet recruiting allows you to search a résumé database or post a job description to the Web.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-2
40. (p. 612) These should be handled formally with guidelines such as following-up on leads
within 24 hours even by small businesses.
A. Employee referrals
B. Internet recruiting
C. Networking
D. Outsourcing

Employee referral is an underused, low-cost method which rewards your employees for
recommending potential candidates that would be a great fit.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-2

41. (p. 612) These encourage companies to post openings to their job bank to recruit at both the
undergraduate and the graduate levels.
A. Professional groups
B. Company Web sites
C. Internet recruiting
D. Career service offices

This service is commonly offered at no cost to companies and allows businesses to set up an
account to manage résumé selection.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-2
42. (p. 612) _____ are jobs in businesses offered to students, arranged through universities.
A. Assignments
B. Careers
C. Internships
D. Referrals

Some internships are paid by the employer, some are not.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-2

43. (p. 613) Which of these refers to contracting with others outside your firm to do work that
would otherwise be done within your firm?
A. Networking
B. Employee referrals
C. Internet recruiting
D. Outsourcing

Outsourcing may be the answer for a small business that is not ready to hire employees, but has a
growing need to meet workload demand.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-2
44. (p. 613) Independent contractors who provide specialized business services or support from a
distance, through different methods of communication are known as
A. virtual employees.
B. temporary employees.
C. job share employees.
D. leased employees.

Virtual employees provide specialized business services or support from a distance, through the
Internet, telephone, fax, or another method of communication.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-2

45. (p. 613) Which among the following statements is true regarding virtual employees in small
businesses?
A. In the small business, virtual employees are not hired as full-time employees.
B. Small business owners who work with virtual employees have to deal with taxes,
unemployment insurance, sick leave, vacation pay, and benefits.
C. Small business owners are required to provide additional office space for their virtual
employees.
D. Small business owners are responsible for the development and supervision of their virtual
employees.

Small business owners who work with a virtual employee have the distinct advantage of not
having to deal with taxes, unemployment insurance, sick leave, vacation pay, or benefits. Rather
than having to provide additional office space and be responsible for the development and
supervision of an employee, they can enjoy the support and assistance of a professional without
the headaches of hiring and managing employees. Refer Small Business Insight - Go Virtual.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-2
46. (p. 613) In order to manage and foster productivity among virtual employees, small business
owners
A. should regularly communicate with them via e-mail.
B. should attempt to micromanage them.
C. should consistently review status reports with them.
D. should hire students as interns.

E-mail is too easy to misinterpret or misunderstand. Micromanagement is nearly impossible with

a remote staff. It is better to hire virtual employees who have experience with being self-
motivated and disciplined. Refer Small Business Insight - Go Virtual.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-2

47. (p. 614) Consider these alternative methods to hire an employee at no cost if your budget
does not allow for a paid employee EXCEPT
A. volunteers.
B. barter.
C. virtual employees.
D. internships.

The three alternative methods to hire employees at no cost are volunteers, internships, and barter
of products and services. See The Thoughtful Entrepreneur - Low-Cost and No-Cost Employees.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-2
48. (p. 614) Which of these defines and discusses all the essential knowledge, skills, and abilities
that are needed to fill a position?
A. Job analysis
B. Job prospects
C. On-the-job training
D. Job description

A job analysis can help identify the essential knowledge, skills, and abilities that are needed to
create a job description.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-3

49. (p. 616) Which of these is the last step in crafting a job description?
A. Job overviews
B. Special requirements
C. Credentials and experiences
D. Duties and responsibilities

Mentioning the special requirements of a job is the last step in crafting a job description.
Anything information that may not have been covered up until this point should go here. Refer
Skill Module 19.1

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3
50. (p. 616) Which of these is the first step in crafting a job description?
A. Job overview
B. Duties and responsibilities
C. Job title
D. Credentials and experience

The job title can be two-three words long. Beneath the title, you want to include important
information related to the job such as the status and to whom the employee reports. Refer Skill
Module 19.1

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3

51. (p. 616) Which of the following steps in writing a job description specifies the basic qualities
that an employee should possess to perform the job?
A. Give a job overview
B. Define the duties and responsibilities
C. Knowledge, skills, and abilities
D. Special requirements

Knowledge, skills, and abilities are the basic qualities that an employee should possess to
perform the job. Refer Skill Module 19.1

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3
52. (p. 616) The level of education required to perform a particular job would be mentioned
under which section of the job description?
A. Special requirements
B. Define the duties and responsibilities
C. Knowledge, skills, and abilities
D. Credentials and experience

Credentials and experience lists the level of educational and professional experience the person
should have. Refer Skill Module 19.1

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3

53. (p. 617) When recruiting, once a job description is prepared, the next step is to
A. develop questions for interviewing.
B. create a job analysis.
C. prepare a training module for employees.
D. create a Web site.

Create specific questions that you will ask of all candidates that will clearly and behaviorally
demonstrate that they have the necessary knowledge, skills, and abilities to do the job.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3
54. (p. 617) In evaluating potential employees, a small business owner
A. should hire a moderately qualified person in case filling the position is an urgent requirement.
B. should ensure that only a single interviewer meets with a candidate in order to avoid
conflicting evaluations.
C. should design interview questions such that "yes" or "no" answers are not applicable.
D. should accept the candidate's word that he or she possesses a certain skill or knowledge base.

Questions designed such that "yes" or "no" answers are not applicable allow an interviewer to
observe how the candidate analyzes situations, how rationally or logically the situation is
presented, and whether or not the person is being truthful.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3

55. (p. 619) There are two broad types of training:

A. on-the-job and off-the-job methods.
B. free and paid methods.
C. online and offline methods.
D. in-house and outsourced methods.

Individual circumstances and the where, what, and who of your training program determine
whether on-the-job or off-the-job methods should be used.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-4
56. (p. 619) _____ training is delivered to employees while they perform their regular jobs.
A. Online
B. On-the-job
C. Paid
D. Off-the-job

With on-the-job training, employees can learn without losing time.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-4

57. (p. 619) Which among the following is an on-the-job training method?
A. Lectures
B. Case studies
C. Coaching
D. Role playing

Lectures, case studies, and role playing are off-the-job training methods.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-4
58. (p. 620) Which of these is an off-the-job training method?
A. Orientations
B. Apprenticeships
C. Case studies
D. Coaching

Orientations, apprenticeships, and coaching are off-the-job training methods.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-4
59. (p. 620) In designing on-the-job instruction that gives an employee a method to complete a
certain task in a job, it is important to
A. use a bulleted list when the order in which tasks are to be performed is important.
B. put notes, warnings, and prerequisite conditions after the list item to which they refer.
C. present any necessary background information after the instructions.
D. use a level of detail that is appropriate to the employees' skill level.

In designing on-the-job instruction that gives an employee a method to complete a certain task in
a job, it is important to use a bulleted list when the order in which tasks are to be performed is
not important, put notes, warnings, and prerequisite conditions before the list item to which they
refer, and present any necessary background information before the instructions. Refer Skill
Module 19.2

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-4

60. (p. 620) Which of these is a suggested guideline for training?

A. It should be provided only at the initial stage of employment.
B. Employees should practice what they have learned on their own time.
C. Have employees sign long-term contracts so they do not leave after receiving training.
D. Think of it as an investment.

Training should be an ongoing process. Owners may argue that employees will take the
knowledge and leave for a higher-paying job at another firm. While this may happen, small
business owners can help prevent it. Once your employees are trained, give them opportunities to
use their new skills.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-4
61. (p. 621) These beliefs are based on the perception that promises have been made in exchange
for certain employee obligations such as giving of their energy, time, and technical skills.
A. Open-book policy
B. Work facilitation
C. Psychological contract
D. Autonomy

Small business owners often implicitly or explicitly communicate conflicting terms when
making psychological contracts with employees.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5

62. (p. 621) According to Jill Kickul's research, which of these factors is most important to
employees?
A. Autonomy and growth
B. Benefits
C. Rewards and opportunities
D. Job security

According to Jill Kickul's research, salary rewards, bonuses, and perks were not as important to
employees as autonomy and personal growth; job security and responsibility were less important
than benefits.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5
63. (p. 621) Which of these factors was least important to employees, according to Jill Kickul's
research?
A. Work facilitation
B. Benefits
C. Rewards and opportunities
D. Autonomy and growth

In order of most important to least important to employees, the factors are: autonomy and
personal growth, rewards/opportunities, job security/responsibilities, benefits, and facilitating
work.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5

64. (p. 621) Which of these refer to employees' beliefs about the promises between the employee
and the firm?
A. Open-book policy
B. Autonomy
C. Work facilitation
D. Psychological contract

Psychological contract refers to employees' beliefs about the promises between the employee and
the firm. These beliefs are based on the perception that promises have been made in exchange for
certain employee obligations such as giving of their energy, time, and technical skills.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5
65. (p. 621) _____ refers to the concept that key employees should be able to see and understand
a firm's financials, that they should have a part in moving the numbers in the right direction, and
that they should have a direct stake in the strategy and success of the firm.
A. Open-book policy
B. Autonomy
C. Work facilitation
D. Psychological contract

Entrepreneurs need to make job offers and manage based on an open-book policy.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5

66. (p. 621) Which of the following is a psychological contract item that comes under the factor
of job security and work responsibilities?
A. Challenging and interesting work
B. Freedom to be creative
C. Career guidance and mentoring
D. Well-defined job responsibilities

Challenging and interesting work, freedom to be creative, and career guidance and mentoring are
psychological contract items that come under the factor of autonomy and growth. Refer Table
19.3

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5
67. (p. 621) Meaningful work is a psychological contract item described under which factor by
Jill Kickul?
A. Job security and work responsibilities
B. Work facilitation
C. Rewards and opportunities
D. Autonomy and growth

Autonomy and growth is most important to employees according to research by Jill Kickul.
Refer Table 19.3

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5

68. (p. 621) Which of the following psychological contract item comes under benefits?
A. Job security
B. Tuition reimbursement
C. Adequate equipment to perform job
D. Increasing responsibilities

Psychological contract items under benefits include health care benefits, vacation benefits,
retirement benefits, and tuition reimbursements. Refer Table 19.3

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5
69. (p. 621) Which among the following is a psychological contract term related to work
facilitation?
A. Career guidance and training.
B. Continual professional training.
C. A reasonable workload.
D. Adequate equipment to perform the job.

Career guidance and training are related to autonomy and growth while continual professional
training is related to rewards and opportunities. A reasonable work load is related to job security
and work responsibilities. Refer Table 19.3

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5

70. (p. 621) Sharing ideas, working toward a common goal, analyzing one another's work, and
communicating cross functionally are related to
A. training.
B. teamwork.
C. recognition.
D. work facilitation.

Fostering a sense of teamwork allows people to interact with one another on a professional level.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5
71. (p. 621) Job training is a psychological contract item described under which factor category
by Jill Kickul?
A. Job security and work responsibilities
B. Work facilitation
C. Rewards and opportunities
D. Autonomy and growth

Providing learning opportunities at every level of the organization through on-the-job training or
professional training will increase your employees' capabilities, allow them to expand their job
responsibility, and help to increase job satisfaction.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5

72. (p. 622) _____ means letting employees make on-the-spot decisions for the companies' best
interest. It requires giving employees permission to act, the knowledge to act, and the skill to
act.
A. Recognition
B. Training
C. Empowerment
D. Teamwork

Empowerment increases employees' personal feelings of responsibility and their commitment to

the company.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5
73. (p. 622) There are two parts to a formal performance appraisal:
A. the self-appraisal and the review by the supervisor.
B. the internal review and the external review.
C. the review of past accomplishments and the setting of future objectives.
D. the performance review and the pay review.

The performance review and the pay review should be held at different times of the year.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-5

74. (p. 623) A(n) _____ should be filled out and returned to you before the scheduled
performance review so that you can learn the employees' goals, interests, and self-evaluation
when you are crafting your comments.
A. appraisal form
B. application form
C. enrollment form
D. online form

Increasingly, small entrepreneurial companies are implementing formal performance appraisals.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-5
75. (p. 623) One of the first steps in developing a compensation plan is
A. to determine your organization's salary philosophy.
B. to develop a job description.
C. to create job analysis.
D. to pay an above-market salary to create loyalty.

Determining an organization's salary philosophy involves identifying whether the organization

believes in raising the level of base salaries or appreciates the flexibility of variable pay.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-6

76. (p. 623) After determining an organization's compensation philosophy, the next step in
developing a compensation plan is
A. to develop a job description.
B. to find comparison factors for salary.
C. to establish a total reward system.
D. to structure the compensation plan.

The next step is to find comparison factors for salary. Research the salary range for similar
positions and job descriptions. Determine whether the business is competitive with organizations
of similar size, sales, and markets.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-6
77. (p. 624) This is the amount needed for a person to meet the basic necessities of life from a
single job.
A. Fair wage
B. Employee benefits
C. Living wage
D. Benefit plans

Living wage refers to the amount needed for a person (or family of a particular size) to meet the
basic necessities of life from a single job.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-6

78. (p. 625) All of the following are examples of long term incentives to employees that help
retain valuable team members EXCEPT
A. profit-sharing plans.
B. stock options.
C. stock grants.
D. employee bonuses.

Employee bonuses are usually paid in a single lump at the end of the year.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-6
79. (p. 626) Identify the term that refers to the privileges, services or even tangible items given to
employees as part of the overall compensation and benefits package.
A. Bonuses
B. Long-term incentives
C. Perks
D. Health insurance

Perks is a great way to provide short-term boosts in motivation.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-6

80. (p. 626) 401(k) plans are relatively _____ to administer and are _____ expensive than
traditional pension plans.
A. difficult; more
B. easy; less
C. complex; less
D. easy; more

401(k) plans have become popular because they are relatively easy to administer and are less
expensive than traditional pension plans. Many employees like these plans because they maintain
some control over the amount of their contribution and how the money is invested.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-6
81. (p. 626) Making no distinction between sick, vacation, and personal days and allowing
employees a set number of days off each year to be used at their discretion
A. prevents employees from abusing sick days.
B. causes employees to lie more often when they need to take the day off.
C. increases absenteeism in the workplace.
D. reduces workplace satisfaction.

Some employers make no distinction between sick, vacation, and personal days and allow
employees a set number of days off each year to be used at their discretion. This prevents
employees from abusing sick days and keeps employees from feeling that they need to lie when a
child is ill or a personal emergency arises.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-6

82. (p. 626) The rule of thumb is that perks like these should take no more than _____of the
annual personnel budget.
A. 3 percent
B. 5 percent
C. 7 percent
D. 10 percent

Good perks do not have to cost a lot; in fact, some perks can be powerful, even if free.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-6
83. (p. 627) Which among the following are the three key components of entrepreneurial
leadership?
A. Inspiration, vision, and innovation.
B. Innovation, opportunities, and operations.
C. Innovation, operation, and inspiration.
D. Operations, vision, and opportunities.

Innovation is the idea that we look to the leader of a small business as its key visionary.
Operation refers to the ability to manage the business as it grows. Inspiration stems from the
expectation that the entrepreneur should be the business's biggest booster and champion.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-6

84. (p. 628) Identify the management philosophy of selecting and promoting people based on
family ties.
A. Nepotism
B. Capitalism
C. Meritocracy
D. Democracy

Nepotism's advantages are involving people you know and hopefully trust in your business,
being able to involve the person more completely in the business, and having loyalty and support
from your worker and their family in return.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-7
85. (p. 628) Which of the following is a management philosophy of selecting and promoting
people based solely on their being the most capable person for the job?
A. Nepotism
B. Capitalism
C. Meritocracy
D. Democracy

When a family member is also the most capable person for the job, the two philosophies of
nepotism and meritocracy live in harmony.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-7

86. (p. 629) To treat family and nonfamily as similarly as possible, it is important to
A. have separate personnel policies for family and nonfamily members.
B. create career ladders for nonfamily members.
C. provide favorable treatment to nonfamily members.
D. guarantee the possibility of employee ownership.

To treat family and nonfamily as similarly as possible, it becomes especially important to create
career ladders for nonfamily members. These may not lead to ownership, but can lead to
increased skills, responsibilities, and income. Having career ladders for all employees is a way to
help minimize the differences, and show how important every employees' contribution is seen to
be.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-7
87. (p. 630) The term associated with objectively evaluating how well someone is doing their job
is called
A. line of appeal.
B. job metrics.
C. transparent procedures.
D. job basics.

The job metric should be clear enough for employees to be certain that they did the job well or
poorly.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-7

88. (p. 631) Which of these is NOT a suggested fair personnel policy guideline across family and
non-family members?
A. Hiring the best possible candidate for the position.
B. Having clear performance expectations.
C. Having clearly differentiated personnel policies for family and non-family members.
D. Having clearly defined boundaries for each role.

Family and non-family members should be treated the same.

AACSB: Analytic
Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-7
89. (p. 631) _____ means having a way for the person who has failed to meet a metric, or made a
mistake, or is facing firing to have their side of the story heard.
A. Job basics
B. Transparent procedures
C. Lines of communication
D. Line of appeal

In small businesses having an appeal process can be tough since the owner might be the
disciplinarian. In such cases, having a trusted employee (or even an entrepreneur outside the
business who knows the business and people and is trusted by the owner) serve as the go-
between can help.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-7

Scenario: Handy Hardware

Uncle Bob has been running the Handy Hardware Store for a few years now. As the business
grew, he had been thinking about getting help. So far he had run the business by himself but now
he feels that it might be time to bring other people onboard to help.

90. (p. 609) Uncle Bob can hire an individual with a probationary period. This probationary
period typically lasts
A. 30 days.
B. one year.
C. six weeks.
D. 90 days.

Probationary period is a trial period in which an employee has temporary status before a formal
offer to work full time is presented.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 19-1
91. (p. 614) To really understand what he wants the person hired to do, Uncle Bob needs to
develop a _____ which defines and discusses all the essential knowledge, skills, and abilities that
are needed to fill the position.
A. job description
B. job analysis
C. job prospect
D. job training

A job description needs to define and discuss all the essential knowledge, skills, and abilities that
are needed to fill a position. In addition, it should describe what kind of personality, experience,
and education a person who performs the job should have.

AACSB: Reflective Thinking

Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 19-3

92. (p. 616) Which of these is the first step Uncle Bob needs to start with, in crafting a job
description?
A. Duties and responsibilities
B. Job training
C. Job overview
D. Job title

The job title can be two-three words long. Beneath the title, you want to include important
information related to the job such as the status and to whom the employee reports.

AACSB: Analytic
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 19-3