Business Essentials, 9e (Ebert/Griffin) Chapter 3 Entrepreneurship, New Ventures, and Business Ownership (QUESTIONS AND CORRECT ANSWERS)
Business Essentials, 9e (Ebert/Griffin)
Chapter 3 Entrepreneurship, New Ventures, and Business Ownership
1) The Small Business Administration is the government agency charged with owning small businesses.
2) Small businesses produce more patents per employee than large patenting firms.
3) Most businesses in the United States are large businesses with more than 500 employees.
4) Major innovations are most likely to come from large corporations.
5) Manufacturing is overwhelmingly handled by big business.
6) People who assume the risk of business ownership with a primary goal of growth and expansion are called entrepreneurs.
7) Most successful entrepreneurs have a strong desire to be their own bosses.
8) A business plan demonstrates how an entrepreneur's business strategy will be implemented.
9) Franchisees may be obligated to contribute a percentage of sales to parent corporations.
10) Loans are the most important sources of money for new businesses.
11) Lending institutions are more likely to help finance the purchase of an existing business rather than the start-up of a business from scratch.
12) A group of small investors who invest money in companies in return for partial ownership is known as a small-business development company.
13) Small-business investment companies (SBICs) may be sponsored by the federal government.
14) The least common type of partnership is the general partnership.
15) A limited liability corporation is a hybrid of a publicly held corporation and a partnership.
16) Many new businesses are started by people who have left big corporations.
17) The failure rate among small businesses has been increasing in recent years.
18) Neglect is a major factor that contributes to small business failure.
19) Low start-up costs and tax benefits are advantages of sole proprietorships.
20) By law, each general partner is liable for all debts incurred in the name of the partnership.
21) Corporations generate sales revenues proportionate to their number.
22) Corporations enjoy significant tax benefits when compared to sole proprietorships or partnerships.
23) An S corporation has stock that is widely held and available for sale to the general public.
24) The board of directors of a corporation reports to the officers of the corporation.
25) The Small Business Administration (SBA) may consider a business with many employees to be small as long as it has low annual revenues.
26) Entrepreneurs often enjoy working for large organizations.
27) A good rule of thumb for individuals starting a new business is to not rely on personal resources.
28) Most venture capital companies do not lend money.
29) The number of minority-owned businesses has decreased in recent years.
30) Many entrepreneurs are finding new opportunities in foreign markets.
31) The Internal Revenue Service taxes partners as individuals.
32) General partnerships generate a substantial percentage of total sales revenue in the United States.
33) The Small Business Development Center program consolidates information from various disciplines and institutions for use by new and existing businesses.
34) Which entity is defined as independent and has little influence on its market?
B) joint venture
C) small business
E) government agency
35) Entrepreneurs often have more than one goal for starting a business and becoming self-employed. Which of the following reasons is the LEAST common goal of entrepreneurs?
A) to seek independence and be their own boss
B) to earn a comfortable living for a period of time
C) to grow and expand a current business
D) to meet community or social obligations
E) to provide for their financial needs
36) What is the name of the document in which an entrepreneur summarizes his or her business strategy for a proposed new venture?
A) success chart
B) director's guideline
C) financial blueprint
D) business plan
E) balance sheet
37) What is the most significant disadvantage of owning a franchise?
A) start-up costs
B) operational guidelines
C) difficulty obtaining loans
D) double taxation
38) Which of the following is the most significant disadvantage of starting a business from scratch?
A) having few employees
B) inability to franchise
C) having competition
D) coming up with new ideas
E) the risk of failure
39) What is the most important source of money for new business start-ups?
B) the SBA
C) personal resources
D) government grants
E) venture capital
40) Who constitutes the membership of SCORE?
A) retired executives
B) venture capitalists
C) company officers
D) commercial lenders
E) successful entrepreneurs
41) Which of the following represents the fastest-growing segment of minority business ownership?
A) African Americans
D) Pacific Islanders
42) Which of the following types of businesses is most common in the United States?
A) sole proprietorships
B) general partnerships
E) limited partnerships
43) What percent of a business is the least amount that a master partner will retain?
A) 10 percent
B) 25 percent
C) 50 percent
D) 75 percent
E) 80 percent
44) In which business sector are cooperatives still important?
C) public utilities
E) health care
45) Which form of business ownership generates the most sales in the United States?
A) sole proprietorship
B) general partnership
E) limited partnership
46) Which type of business is legally considered a separate entity from its owners and is liable for its own debts?
A) sole proprietorship
C) limited partnership
E) general partnership
47) Who are the owners of a corporation?
A) board of directors
B) financial officers
D) top managers
48) What are shares in a business that the business sells called?
49) Suppose BrightLights Online Video purchases another company, QuikFlix. What is this an example of?
50) The U.S. Department of Commerce considers a business "small" if it has fewer than how many employees?
51) Which of the following industry groups is the fastest growing segment of small business enterprise?
52) Which of the following types of venue is favored by small-business retailers?
B) catalog showroom
C) specialty shop
D) department store
E) studio workroom
53) What does a start-up company need in order to estimate the required size of a plant, store, or office, to decide how much inventory to carry, and to determine how many employees to hire?
A) sales forecast
B) tax estimate
C) business objective
D) stock options
E) funding source
54) What are specific locations of Ramada, McDonald's, and Subway examples of?
A) government entities
B) university sponsored businesses
D) networking businesses
55) Which of the following is the most significant disadvantage of franchising?
A) high start-up costs
B) risk of failure
C) difficulty in obtaining financing
D) lengthy contracts
E) high cost of operation
56) What is the major drawback of accepting venture capital?
A) sharing company control
B) having to pay high interest rates
C) limiting expansion
D) facing a short repayment period
E) having to write a proposal
57) Which of the following are groups of small investors seeking to make profits on companies with rapid growth potential?
A) community banks
B) venture capital companies
C) equity managers
D) government securities dealers
E) stock brokers
58) Which of the following is federally licensed to borrow money from the Small Business Administration to invest in or lend to small businesses?
59) Which of the following helps entrepreneurs gain skills that are essential for running a business?
60) Which of the following is the most significant recent trend in small-business start-ups?
A) entrepreneurs who cross over from big business
B) increased opportunities for minorities
C) increased opportunities for women
D) emergence of e-commerce
E) global economic downturn
61) According to SBA estimates, what percent of all new businesses can expect to survive for at least four years?
A) 14 percent
B) 24 percent
C) 44 percent
D) 64 percent
E) 84 percent
62) Which of the following factors most contributes to small business failure?
A) managerial incompetence or inexperience
B) bad product design
C) legal problems
D) time spent raising capital
E) personnel issues
63) A new business should have enough capital to operate at least how many months without earning a profit?
64) Which of the following legal forms of business is owned and usually operated by a person who is responsible for its debts?
C) general partnership
D) sole proprietorship
E) limited partnership
65) What is a major drawback of sole proprietorships?
A) limited funding
B) work flexibility
C) low start-up costs
D) unlimited liability
E) structured hours
66) When can a sole proprietorship legally be dissolved?
A) sales exceed $1 million
B) the partners reorganize the firm's structure
C) earnings are less than $500,000
D) the owner donates profits
E) the owner dies
67) What resources does a sole proprietorship primarily depend on?
A) the corporation
B) foreign investors
C) capital markets
D) those of the owner
E) a committed clientele
68) What type of business has two or more owners who share in the operation of the firm and are financially responsible for its debts?
69) What is the most common type of partnership?
A) limited partnership
B) corporate partnership
C) general partnership
D) sole partnership
E) cooperative partnership
70) Who invests all of the funds needed for a business but plays no role in its management?
A) silent partner
B) sole proprietor
C) general partner
71) What is the most important advantage of general partnerships?
A) the unlimited liability of the partnership
B) the ability to grow with the addition of new talent and money
C) the ease of implementing an effective control system
D) the increased role of luck
E) the need for minority partners
72) What do both sole proprietorships and partnerships lack?
B) legal standing
D) shared vision
E) adaptable processes
73) Which of the following is a partner who actively manages a firm and has unlimited liability for its debts?
A) limited partner
B) general partner
C) stockholding partner
D) public partner
E) silent partner
74) What percent of all businesses in the United States are corporations?
A) 15 percent
B) 20 percent
C) 50 percent
D) 75 percent
E) 85 percent
75) What type of company has stock that is widely held and available for sale to the general public?
A) private corporation
B) public corporation
C) general partnership
D) limited liability corporation
E) professional corporation
76) What type of corporations are those comprised of doctors, lawyers, or accountants most likely to be?
C) subchapter S
77) Two businesses, Rio Books and Devereaux Holdings, collaborate to create and run a new bookselling business. What is this action called?
B) vertical merger
C) joint venture
D) strategic alliance
E) institutional investment
78) Which of the following occurs when two firms combine to create a new company?
79) Why is it difficult to compare relative job growth for different-sized businesses?
A) Sourcing up-to-date employment figures is difficult.
B) Many small businesses experience rapid unreported growth.
C) Spheres of influence overlap between the small and big business sectors.
D) Staff size of small businesses tends to change faster than staff size of big businesses.
E) It is hard to determine the cutoff point at which a small business becomes a large business.
80) Why do attitudes about entrepreneurship vary internationally?
A) Decision making in big business can overlook local customs.
B) Attitudes towards risk-taking in business are culturally determined.
C) Consumer attitudes are influenced by economic cycles.
D) Foreign-owned companies can be unresponsive to local markets.
E) International business is creating a global village.
81) Olivia has found a viable business, a small furniture store, she is interested in purchasing. She has learned that the store is supplied by reliable vendors and has a steady stream of local and online buyers. What should be Olivia's next step at this point?
A) Analyze the furniture store's past financial statements.
B) Start negotiating a purchase price with the current owner.
C) Approach a banking institution about financing her purchase.
D) Consult a marketing agency about ways to reach more customers.
E) Search for vendors that can provide similar products at lower costs.
82) Viola wants to be a business owner, and is contemplating whether to start her own business or open a franchise.
Which of the following, if true, would be a compelling reason for Viola to open a franchise rather than start a new business?
A) The franchiser requires $3,000 in start-up costs and a 5 percent monthly royalty fee.
B) The franchiser tightly controls and monitors the service protocol.
C) The franchisee is responsible for developing all marketing materials.
D) The company has only recently become a franchise.
E) There are several other franchises with the same company in the area.
83) Approximately what percent of all U.S. businesses employ 20 or fewer people?
A) 86 percent
B) 66 percent
C) 46 percent
D) 26 percent
E) 16 percent
84) Each year, between 600,000 and 650,000 new businesses are launched in the United States. Approximately how many businesses fail each year?
A) 50,000 to 100,000
B) 100,000 to 250,000
C) 250,000 to 500,000
D) 500,000 to 700,000
E) 700,000 to 1 million
Explanation: D) For example, in 2009, 627,200 new firms started and another 595,600 closed down.
85) By what percent has the number of African American-owned businesses increased over the past five-year period?
A) 18 percent
B) 28 percent
C) 48 percent
D) 68 percent
E) 78 percent
86) Which figures reflect the current size and the growth in Hispanic-owned businesses for the last five years?
A) 2.25 million and 31 percent
B) 2.75 million and 41 percent
C) 3.15 million and 71 percent
D) 3.55 million and 81 percent
E) 4.25 million and 85 percent
87) What is the main reason why women start new businesses?
A) need to earn more money
B) preference for working alone
C) opportunities for family members
D) control in organizing their time
E) desire to employ other women
88) What is the most effective way for an entrepreneur to become a competent manager?
A) working alone
B) relying on luck
C) getting a college degree
D) being open to opportunities
E) working for a successful company first
89) Lucy has organized her craft shop as a sole proprietorship. Her sister has warned Lucy about the legal principle holding her responsible for paying off all of the debts of the business. What is the name of this principle?
A) unlimited liability
B) limited liability
D) unrestricted debt
90) Shirley is opening a flower shop and has decided to operate as a sole proprietorship. Which of the following is NOT an advantage Shirley will have in operating her business?
B) simplicity of operation
C) limited liability
D) low start-up costs
E) choice of location
91) Kent and Patrick have decided to start a landscaping business. One of the first things that they do is sign a document that describes the investments and responsibilities of the partners and makes provisions for the allocation of profits and dissolution of the business. What is the name of this document?
A) articles of incorporation
B) partnership charter
C) partnership agreement
D) corporate charter
E) financial proposal
92) Today, what percent of all businesses in the United States are registered as sole proprietors?
A) 94 percent
B) 72 percent
C) 54 percent
D) 28 percent
E) 10 percent
93) Why are lenders most willing to loan to corporations?
A) Continuity and legal status are assured.
B) Links with owners and founders are established.
C) Professional management teams can be changed.
D) Commitment to expansion is readily available.
E) Brand and marketing strategies can be diversified.
94) American Business Machines is organized as a corporation. Its income will be taxed at the corporate level and also on shareholder returns as dividends. What is this situation known as?
A) dual costs
B) double taxation
C) regulatory costs
D) double ownership
E) financial balancing
95) What is a small business?
96) What is an entrepreneur?
Answer: An entrepreneur is a business person who accepts both the risks and the opportunities involved in creating and operating a new business venture.
97) What is a merger?
98) What is a divestiture?
99) Why might an entrepreneur wish to purchase an existing business rather than start one from scratch?
100) What are the advantages and disadvantages for a franchisee?
101) Describe three disadvantages of operating a business as a sole proprietorship.
102) Discuss the advantages and disadvantages of partnerships.
103) Explain limited liability in a corporation.
104) Explain a tender offer.
105) A corporation must be managed on the principles of corporate governance. Explain what this is.
106) Explain the role of a corporation's board of directors.
107) How is the U.S. economy affected by small businesses?
108) Discuss four sources of financing for starting up a small business.
109) Discuss the advantages and disadvantages of corporations.
110) Describe the three distinct bodies of corporate governance that are specified in a corporation's bylaws.
111) Explain entrepreneurship and describe key entrepreneurial characteristics.
112) Describe the business plan and the start-up decisions made by small businesses. Identify sources of financial aid available to small businesses.
113) Explain sole proprietorships and partnerships. Discuss the advantages and disadvantages of each.
114) Describe corporations. List their advantages and disadvantages.
115) Explain the basic issues involved in managing a corporation.
116) Should the Miller brothers' farm be considered a small business?
117) Should the Miller brothers develop a business plan? Why or why not?
118) Assuming the farm is organized as a general partnership, what are the advantages?
119) Assuming the farm is organized as a general partnership, what are the disadvantages?
120) Assuming the farm is organized as a private corporation, what are the advantages?
121) Assuming the farm is organized as a private corporation, what are the disadvantages?
122) Assuming the farm is organized as an S corporation, what are the advantages?
123) Assuming the farm is organized as an S corporation, what are the disadvantages?
124) Assuming the farm is organized as a limited liability corporation, what are the advantages?
125) Assuming the farm is organized as a limited liability corporation, what are the disadvantages?
126) The Miller brothers are not sure how to organize their business. What are their options in terms of legal form?
127) Which form of business ownership would you recommend for the Miller brothers? Why?
128) Christina is trying to identify potential problems in order to avoid them or at least be better positioned to react if they cannot be avoided. In doing so, Christina should account for all of the following possibilities EXCEPT:
A) the possibility that years in the future scientists may give a new communicable disease a name that sounds similar to "Redenda"
B) the possibility that a significant number of her potential customers could be allergic to one or more of her ingredients
C) the possibility that seasonal variations in the availability of ingredients could affect the price of those ingredients
D) the possibility that advertising "fresh" ingredients may prevent Redenda Pizza from using less-expensive ingredients
E) the possibility that many customers are reluctant to try new pizza recipes
129) Answers to which of the following questions would be LEAST relevant to determining whether Christina has located a good opportunity in starting Redenda Pizza?
A) Are there other pizza restaurants in the immediate vicinity of the planned location?
B) Is the business of other pizza restaurants in the city growing?
C) Does the planned location of the restaurant have competitive rent?
D) Will Redenda Pizza offer unique ingredients in its food offerings?
E) Would Christina bring unique talents and ideas to a restaurant business?
130) Which of the following, if true, would strengthen the case that Christina has a good opportunity in opening a new pizza restaurant?
A) There are many existing pizza restaurants in Christina's city.
B) The pizza business in Christina's city has remained largely unchanged for many years.
C) Restaurant consumers in Christina's city mostly frequent Mexican restaurants.
D) Pizza restaurants require several experienced employees to be successful.
E) Pizza restaurants can be found in almost any town in the United States.
131) Which of the following, if true, would NOT strengthen the case that Christina has personal characteristics necessary for her new business to succeed?
A) She is willing to take risks.
B) She is motivated.
C) She works well with others.
D) She is a "big picture" thinker.
E) She follows directions carefully.
132) Which of the following BEST explains why flexibility is an important quality that Christina needs for success?
A) It takes a certain amount of money to start a business.
B) It often helps to have a business partner in a new business.
C) Starting a new business requires a great deal of planning.
D) Starting and running a new business involves many unpredictable factors.
E) An entrepreneur must be extremely competent in business skills.
133) Which of the following, if true, would strengthen the case for Short and Shearer buying an existing business?
A) Short and Shearer have a lot of ideas as to the kind of business they would like to own.
B) An existing business would have an existing customer base that Short and Shearer would inherit.
C) An existing business for sale might have difficulties that Short and Shearer would inherit.
D) Short and Shearer greatly value independence.
E) Existing small businesses are usually carrying debts.
134) Which of the following, if true, would weaken the case for Short and Shearer buying an existing business?
A) Short and Shearer could more easily obtain financing for the purchase.
B) Buying an existing business involves fewer legal hurdles than starting a new one.
C) Franchises have more potential for success than single-facility businesses.
D) Short and Shearer have limited funds to start with.
E) Existing businesses cost less to purchase than new ones.
135) Which of the following, if true, would strengthen the case for Short and Shearer's starting a new business of their own?
A) Starting a new business would put a lot of demands on their time.
B) Starting a new business involves more risk than purchasing an existing one.
C) Starting a new business would give them a lot of freedom and independence.
D) Starting a new business would mean hiring many new employees right away.
E) Starting a new business involves a lot of stress for the proprietors.
136) Which of the following, if true, would weaken the case for Short and Shearer's starting a new business?
A) Starting a new business allows an entrepreneur to determine their own working hours.
B) Starting a new business allows an entrepreneur to establish their own clientele.
C) Starting a new business allows an entrepreneur to use their own ideas.
D) Starting a new business gives a potential for a feeling of great accomplishment.
E) Starting a new business involves using an untested business model.
137) In order to help ensure success for their new business, which of the following questions would be LEAST helpful for Short and Shearer to periodically ask themselves?
A) How well does our firm's operation align with the business plan?
B) How many employees do we have?
C) How are we handling our finances?
D) How are our employees performing?
E) How much debt can we afford to carry?
138) Which of the following, if true, would strengthen the case for Nina running the business as a sole proprietorship?
A) Sam is experienced in dry-cleaning.
B) Sam has a wide base of existing customer contacts.
C) Sam is not willing to take on legal liability in the company.
D) Nina is relatively new to the dry-cleaning business.
E) Nina is not much of a "people person."
139) Which of the following, if true, would weaken the case for Nina running the business as a sole proprietorship?
A) Nina has a degree in accounting.
B) Nina's parents also ran a dry-cleaning business.
C) Nina had the initial idea to start the new business.
D) Sam is anxious to take on a lead role in the business.
E) Sam does not have any previous dry-cleaning experience.
140) Which of the following, if true, would strengthen the case for Sam and Nina owning the business in a partnership?
A) Sam and Nina have very different personalities.
B) Sam and Nina have the same skill sets.
C) Sam and Nina are both motivated and energetic.
D) Nina has good leadership qualities.
E) Sam has a strong marketing background.
141) Which of the following, if true, would weaken the case for Sam and Nina owning the business in a partnership?
A) Sam and Nina have different personalities.
B) Sam and Nina have known each other for many years.
C) Sam and Nina have conflicting ideas about what would make a dry-cleaning business succeed.
D) Nina is experienced in finance but not in equipment repair.
E) Sam is experienced in dry-cleaning but not skilled as an administrator.
142) Which of the following, if true about the owners' plan for the new business, would strengthen the case that it should be registered as an S corporation?
A) They want their shareholders to be personally liable for the corporation's debts.
B) They want to have an unlimited number of shareholders.
C) They do not want the company to have to pay a corporate income tax.
D) They do not want to have to meet any start-up requirements.
E) They don't want to have a board of directors.
143) Which of the following, if true about the owners' plan for the new business, would weaken the case that it should be registered as an S corporation?
A) They want the company to be able to change its procedures over time.
B) They want the company to be able to change its board membership if needed.
C) They want the company to grow as quickly as they can grow it.
D) They want the company to be able to issue multiple classes of stock.
E) They want to pay income taxes via the individual tax returns of the shareholders.
144) Which of the following, if true about the owners' plan for the new business, would strengthen the case that it should be registered as a limited liability corporation (LLC)?
A) They want the company to be able to issue stock and offer stock benefits to employees.
B) They want to form the company quickly and inexpensively.
C) They don't want owners to have to pay personal taxes on company profits.
D) They want the company's profits to be distributed however they choose.
E) They want to operate consistently in multiple states.
145) Which of the following, if true about the owners' plan for the new business, would weaken the case that it should be registered as an LLC?
A) They want the company to maintain its current membership.
B) They do not want to be liable for the company's debts.
C) They want the company's funding to come from shareholders.
D) They want to set the management details in advance.
E) They want the company to be registered both federally and with the state.