Introduction To Business, Test Bank, ch5

ch5
Student: ___________________________________________________________________________
1. One characteristic of successful entrepreneurs is that they are self-directed.

True False
2. People with a burning desire to realize, actualize and build their dreams into reality would likely make
successful entrepreneurs.
True False
3. Flash lighting means looking carefully at existing inventory to be sure it is all being used efficiently.
True False
4. Each entrepreneur has very unique characteristics that allow him or her to succeed in business so it is hard to
predict who will be a great entrepreneur.
True False
5. Many people take the risk of becoming an entrepreneur because of the independence it gives them.
True False
6. Entrepreneurship start-up costs have fallen.

True False
7. An LLC is a form of ownership that involves only one individual.

True False
8. The name given to a person who owns a sole proprietorship is a sole proprietor.
True False
9. One advantage of a sole proprietorship is that if you want to get out of business you simply stop.
True False
10. Unlimited liability refers to the responsibility of business owners for all of the debts of the business.
True False
11. A general partnership is a partnership with one or more partners who invest money in the business and who
have unlimited liability.
True False
12. A general partner is an owner who has unlimited liability and is active in managing the firm.
True False
13. Corporate governance refers to the processes, customs, policies, laws and institutions affecting the way in
which a corporation is directed, administered or controlled.
True False
14. The board of directors is the group ultimately responsible for the business.
True False
15. When you are a sole proprietor you are your own boss.
True False
16. Profits of a sole proprietorship are taxed as a corporation.

True False
17. A partnership of only limited liability partners will pay higher income taxes.
True False
18. Owners of stock in a C corporation are liable for the debts of the corporation beyond the money they
invested.
True False
19. The advantage of an S corporation is that it is taxed like a sole proprietorship.

True False
20. A company store is a retail outlet where employees can shop for everything they need.
True False
21. A franchisee is the person who owns the rights to the franchise.
True False
22. A cooperative is a business owned and controlled by the people who use it.
True False
23. One of the biggest advantages of owning a franchise is the marketing and management assistance the owner
is given.
True False
24. Franchisees have lower business failure rates than sole proprietors.
True False
25. An acquisition is the result of two firms forming one company.

True False
26. An acquisition is one company's purchase of the property and obligations of another company.
True False
27. A vertical merger is the joining of two firms involved in different stages of related businesses.
True False
28. A conglomerate merger unites firms in completely unrelated industries.
True False
29. A leveraged buyout is an attempt by employees, management or a group of investors to purchase an

organization primarily through borrowing.
True False
30. A management buyout occurs when employees of the company get together to purchase the business.
True False
31. A merger between a bicycle company and a company that produces bike wheels is an example of a
horizontal merger.
True False
32. An example of a horizontal merger is the merger of a bicycle company and a tricycle company.
True False
33. Taking a firm private involves the efforts of a group of stockholders or management to obtain all of the
firm's stock for themselves.
True False
34. A business plan is a detailed written statement that describes the nature of the business, the target market,
the advantages the business will have in relation to competition and the resources and qualifications of the
owner(s).
True False
35. Intrapreneuring is the process of continuing to innovate a small business.

True False
36. A venture capitalist will likely take a stake in the business in return for loaning the business money.
True False
37. An angel investor loans businesses his or her own money in return for a stake of the business.
True False
38. In business, a market is the place where businesspeople purchase inventory.

True False
39. Businesses usually fail due to over planning.

True False
40. One of the most important parts of a business plan is the detailed financial plan.
True False
41. SBA microloans are given based on the collateral of the borrower.
True False
42. A(n) __________ entrepreneur must believe in his or her own idea even when no one else does.
________________________________________
43. A(n) __________ entrepreneur must have a burning desire to realize, actualize and build your dream into
reality.
________________________________________
44. Many people decide to take the risk of becoming an entrepreneur for the following reasons: opportunity,
profit, independence and __________.
________________________________________
45. A(n) __________ is the easiest kind of business to start.

________________________________________
46. A sole proprietor has limited/unlimited (circle one) liability.

________________________________________
47. A(n) __________ is a partnership with one or more general partners and one or more limited partners.
________________________________________
48. A(n) __________ partnership is traded on the stock exchanges like a corporation, but it is taxed like a
partnership and thus avoids corporate income tax.
________________________________________
49. A(n) ___________ corporation is a state-chartered legal entity with the authority to act and have liability
separate from its owners.
________________________________________
50. The __________ corporation is created by the government and is taxed like a sole proprietorship and
partnership.
________________________________________
51. __________ occurs when the owners of the corporation are taxed twiceonce when the corporation itself
gets taxed and a second time when the dividends are taxed.
________________________________________
52. Because of __________ each general partner is liable for the debts of the firm, no matter who was
responsible for causing those debts.
________________________________________
53. Stores a chain owns are called __________.

________________________________________
54. A(n) __________ is owned and controlled by the people who use itproducers, consumers or workers with
similar needs, who pool their resources for mutual gain.
________________________________________
55. In franchising, there may be the problem of __________ of existing businesses, because too many stores
open up in a small area.
________________________________________
56. A(n) __________ is the result of two firms forming one company.
________________________________________
57. A(n) __________ is one company's purchase of the property and obligations of another company.
________________________________________
58. A(n) __________ merger is the joining of two firms involved in different stages of related businesses.
________________________________________
59. A(n) __________ merger joins two firms in the same industry and allows them to diversify or expand their
products.
________________________________________
60. A(n) __________ merger unites firms in completely unrelated industries.

________________________________________
61. A(n) __________ takeover refers to attempts by the bidder to acquire a firm against the interest of the
latter's management.
________________________________________
62. The primary purpose of a __________ merger is to diversify business operations and investments.
________________________________________
63. A management buyout is/is not (circle one) always a leveraged buyout.
________________________________________
64. A(n) __________ is a detailed written statement that describes the nature of the business, the target market,
the potential for customers, the advantages the business will have in relation to competition and the resources
and qualifications of the owner(s).
________________________________________
65. __________ is the process of continuing to innovate a small business.
________________________________________
66. A(n) __________ consists of people with unsatisfied wants and needs who have both the resources and the
willingness to buy.
________________________________________
67. The difference between a(n) __________ investor and a venture capitalist is that venture capitalists usually
invest other people's money, while __________ investors invest their own funds.
________________________________________
68. Employees of small companies are often more/less (circle one) satisfied with their jobs than are their
counterparts in big business.
________________________________________
69. Which of the following companies was started by an entrepreneur?

A. Dupont
B. Ford Motor Company
C. Amazon.com
D. All of the above
70. Which of the following is a common characteristic that all successful entrepreneurs have in common?
A. Follows directions extremely well
B. Pays close attention to what others think of their ideas
C. Has a burning desire build their dreams into reality
D. Can direct people to do the work so that they don't have to work extremely long hours
71. Which of the following is a reason that many people decide to take the risk of becoming an entrepreneur?
A. Opportunity
B. Independence
C. Challenge
D. All of the above
72. Which of the following drive much of the growth in African American entrepreneurship?
A. Women
B. The rising affluence of African Americans
C. African American culture
D. Men
73. Which of the following types of business is the easiest to start?

A. Sole proprietorship
B. Partnership
C. S corporation
D. C corporation
74. The responsibility of business owners for all of the debts of the business is known as
______________________.
A. Limited liability
B. Unlimited equity
C. Unlimited liability
D. Unlimited indebtedness
75. Which of the following types of partnerships limits the partners' risk of losing their personal assets to only
their own acts and omissions and to the acts and omissions of people under their supervision?
A. General partnership
B. Limited partnership
C. Master limited partnership
D. Limited liability partnership
76. __________ refers to the processes, customs, policies, laws and institutions affecting the way in which a
corporation is directed, administered or controlled.
A. Corporate administration
B. Corporate rule
C. Corporate governance
D. Corporate responsibility
77. A(n) __________ is the group ultimately responsible for the business.
A. Group of C-level officers
B. Board of directors
C. Angel board
D. Investment bank consortium
78. Which of the following forms of business ownership has unlimited liability?
C. Conventional corporation
D. S-Corporation
79. Which of the following is an advantage of a sole proprietorship?

A. It is easy to get out of business
B. You get to be your own boss
C. You retain all of the profit
D. All of the above are advantages
80. Which of the following is an advantage of a partnership?

A. Increased financial resources
B. Division of knowledge
C. Division of profits
D. Varying points of view about how and where to spend money
81. Which of the following is a way to start your own business?

A. Become a franchisee
B. Buy an existing business
C. Start a cooperative
D. All of the above are ways to start your own business
82. A(n) __________ is the person who buys a franchise.

A. Franchisee
B. Franchisor
C. F-level officer
D. Franchisement owner
83. A __________ is a business owned and controlled by the people who use it.
B. Corporation
C. Franchise
D. Cooperative
84. Which of the following statements about a franchise is most true?
A. One advantage is that the franchisor enjoys the benefits of being a sole proprietor
B. The failure rate of franchises is lower than for sole proprietorships
C. Franchising has low start-up costs
D. Franchisors share the profits
85. A __________ merger is the joining of two firms involved in different stages of related businesses.
A. Vertical
B. Horizontal
C. Diagonal
D. Conglomerate
86. A __________ merger joins two firms in the same industry and allows them to diversify or expand their
products.
A. Vertical
B. Horizontal
C. Diagonal
D. Conglomerate
87. A(n) __________ is one company's purchase of the property and obligations of another company.
A. Vertical merger
B. Horizontal merger
C. Diagonal acquisition
D. Acquisition
88. A __________ merger unites firms in completely unrelated industries.

A. Vertical
B. Horizontal
C. Diagonal
D. Conglomerate
89. Which of the following is a reason that a leveraged buyout might occur?
A. The employees in an organization feel that it is likely they will lose their jobs
B. The managers believe that corporate performance could be enhanced if they owned the company
C. The employees of a company get together to buy it
D. All of the above are reasons that a leveraged buyout might occur
90. The difference between a leveraged buyout and a management buyout is
A. A management buyout is done by managers only
B. Investors in a leveraged buyout borrow the money to invest
C. Investors in a management buyout always borrow the money to invest
D. There is no difference between the two terms
91. A __________ is a detailed written statement that describes the nature of the business, the target market, the
potential for customers, the advantages the business will have in relation to competition and the resources and
qualifications of the owner(s).
A. Profit and loss
B. Statement of cash flow
C. Business plan
D. Balance sheet
92. __________ is the process of continuing to innovate a small business.

A. Intrapreneuring
B. Extrapreneuring
C. Entrepreneuring
D. Continuous improvement
93. Jerrold Carrington advises that one of the most important parts of the business plan is the
_____________________.
A. Financial section
B. Explanation of the product/service
C. Executive summary
D. Description of the target market
94. The way to meet customers' needs is to offer _____________________.

A. Top quality
B. A fair price
C. Great service
D. All of the above
95. Which of the following statements about getting started in your own business is most accurate?
A. You will need to know your market
B. It is best to leave the set up of your accounting system to experts
C. To grow, you will need to learn how to delegate
D. All of the above statements are true
96. Explain the common characteristics that all successful entrepreneurs have in common.
97. List and define the three types of business ownership.
98. Explain the alternatives to starting a business from scratch.
99. Explain the three different types of mergers and give an example of each.
100. What are the five main areas of focus when starting a small business?
ch5 Key
1. (p. 139) One characteristic of successful entrepreneurs is that they are self-directed.
TRUE
Dias - Chapter 05 #1
Learning Goal: Explain the traits a successful entrepreneur possesses
Level of Learning: Knows basic terms and facts
2. (p. 139) People with a burning desire to realize, actualize and build their dreams into reality would likely make
successful entrepreneurs.
TRUE
3. (p. 141) Flash lighting means looking carefully at existing inventory to be sure it is all being used efficiently.
FALSE
4. (p. 139) Each entrepreneur has very unique characteristics that allow him or her to succeed in business so it is
hard to predict who will be a great entrepreneur.
FALSE
Level of Learning: Understands concepts and principles
Rationale: Whether it is your goal to become the next conglomerate or to keep your business small and personal, there are common characteristics that all successful
entrepreneurs have in common.
5. (p. 141) Many people take the risk of becoming an entrepreneur because of the independence it gives them.
TRUE
Rationale: Many entrepreneurs simply do not enjoy working for someone else. Some have found enjoyment and self-satisfaction in starting their own businesses where
they are independent.
6. (p. 142) Entrepreneurship start-up costs have fallen.

TRUE
Rationale: Start-up costs have fallen as computers and other technologies grow cheaper.
7. (p. 144) An LLC is a form of ownership that involves only one individual.
FALSE
Learning Goal: Discuss the types of business ownership and the advantages and disadvantages of each
8. (p. 144) The name given to a person who owns a sole proprietorship is a sole proprietor.
TRUE
9. (p. 144) One advantage of a sole proprietorship is that if you want to get out of business you simply stop.
TRUE
10. (p. 145) Unlimited liability refers to the responsibility of business owners for all of the debts of the business.
TRUE

11. (p. 146) A general partnership is a partnership with one or more partners who invest money in the business and
who have unlimited liability.
FALSE

12. (p. 146) A general partner is an owner who has unlimited liability and is active in managing the firm.
TRUE

13. (p. 148) Corporate governance refers to the processes, customs, policies, laws and institutions affecting the
way in which a corporation is directed, administered or controlled.
TRUE

14. (p. 148) The board of directors is the group ultimately responsible for the business.
TRUE

15. (p. 144) When you are a sole proprietor you are your own boss.
TRUE

Rationale: One advantage of a sole proprietorship is that the sole proprietor gets to be his or her own boss.
16. (p. 144) Profits of a sole proprietorship are taxed as a corporation.

FALSE

Rationale: Profits from a sole proprietorship are taxed as the personal income of the owner, so there are no special federal taxes the business owner must worry about.
17. (p. 146) A partnership of only limited liability partners will pay higher income taxes.
FALSE

Rationale: Every partnership must have at least one general partner. Thus, a partnership of only limited liability partners is impossible.
18. (p. 148) Owners of stock in a C corporation are liable for the debts of the corporation beyond the money they
invested.
FALSE

Rationale: Owners of C corporation stock are not liable for the debts or any other problems of the corporation, beyond the money they invested.
19. (p. 149) The advantage of an S corporation is that it is taxed like a sole proprietorship.
FALSE

Rationale: An S-Corporation is a type of legal entity in which the biggest advantage is that it is taxed like a sole proprietorship.
20. (p. 152) A company store is a retail outlet where employees can shop for everything they need.
FALSE

Learning Goal: Describe the alternatives to starting your business from scratch
21. (p. 152) A franchisee is the person who owns the rights to the franchise.
FALSE

22. (p. 156) A cooperative is a business owned and controlled by the people who use it.
TRUE

23. (p. 152) One of the biggest advantages of owning a franchise is the marketing and management assistance the
owner is given.
TRUE

Rationale: One of the biggest advantages with franchising is marketing and management assistance.
24. (p. 153) Franchisees have lower business failure rates than sole proprietors.
TRUE

Rationale: The lower failure rate of franchisees is likely attributed to the support provided by the franchisor.
25. (p. 157) An acquisition is the result of two firms forming one company.
FALSE

Learning Goal: Understand how a business can grow through mergers, acquisitions and buyouts
26. (p. 157) An acquisition is one company's purchase of the property and obligations of another company.
TRUE

27. (p. 157) A vertical merger is the joining of two firms involved in different stages of related businesses.
TRUE

28. (p. 158) A conglomerate merger unites firms in completely unrelated industries.
TRUE

29. (p. 159) A leveraged buyout is an attempt by employees, management or a group of investors to purchase an
organization primarily through borrowing.
TRUE

30. (p. 159) A management buyout occurs when employees of the company get together to purchase the business.
TRUE

31. (p. 157) A merger between a bicycle company and a company that produces bike wheels is an example of a
horizontal merger.
FALSE

Rationale: A vertical merger is the joining of two firms involved in different stages of related businesses such as a bicycle company and a company that produces bike
wheels.
32. (p. 157 - 158) An example of a horizontal merger is the merger of a bicycle company and a tricycle company.
TRUE

Rationale: A horizontal merger joins two firms in the same industry and allows them to diversify or expand their products. An example is the merger of a bicycle
company and a tricycle company.
33. (p. 159) Taking a firm private involves the efforts of a group of stockholders or management to obtain all of the
firm's stock for themselves.
TRUE

Rationale: Taking a firm private involves the efforts of a group of stockholders or management to obtain all of the firms stock for themselves. In other words, they buy it
back so it is no longer traded on the stock market.
34. (p. 160) A business plan is a detailed written statement that describes the nature of the business, the target
market, the advantages the business will have in relation to competition and the resources and qualifications of
the owner(s).
TRUE

Learning Goal: Describe the five main areas of focus when starting a small business
35. (p. 161) Intrapreneuring is the process of continuing to innovate a small business.
TRUE

36. (p. 162) A venture capitalist will likely take a stake in the business in return for loaning the business money.
TRUE

37. (p. 162) An angel investor loans businesses his or her own money in return for a stake of the business.
TRUE

38. (p. 163) In business, a market is the place where businesspeople purchase inventory.
FALSE

39. (p. 160) Businesses usually fail due to over planning.

FALSE

Rationale: Businesses usually fail due to a number of reasons including a lack of planning.
40. (p. 161) One of the most important parts of a business plan is the detailed financial plan.
FALSE

Rationale: One of the most important parts of the business plan is the executive summary at the beginning of the plan. The executive summary has to catch the readers
interest; otherwise potential investors may never see the financials.
41. (p. 162) SBA microloans are given based on the collateral of the borrower.
FALSE

Rationale: The Small Business Administration (SBA) microloans are awarded based on the belief in the borrowers integrity and the soundness of their business idea.
42. (p. 139) A(n) __________ entrepreneur must believe in his or her own idea even when no one else does.
self-nurturing

43. (p. 139) A(n) __________ entrepreneur must have a burning desire to realize, actualize and build your dream
into reality.
action-oriented

44. (p. 141) Many people decide to take the risk of becoming an entrepreneur for the following reasons:
opportunity, profit, independence and __________.
challenge

Rationale: Many people decide to take the risk of becoming an entrepreneur for the following reasons: opportunity, profit, independence and challenge. Challenge
refers to entrepreneurs taking moderate, calculated risks to obtain achievement.
45. (p. 144) A(n) __________ is the easiest kind of business to start.
sole proprietorship

46. (p. 145) A sole proprietor has limited/unlimited (circle one) liability.
unlimited

47. (p. 146) A(n) __________ is a partnership with one or more general partners and one or more limited partners.
limited partnership

48. (p. 146) A(n) __________ partnership is traded on the stock exchanges like a corporation, but it is taxed like a
partnership and thus avoids corporate income tax.
master limited

49. (p. 148) A(n) ___________ corporation is a state-chartered legal entity with the authority to act and have
liability separate from its owners.
conventional (C)

50. (p. 149) The __________ corporation is created by the government and is taxed like a sole proprietorship and
partnership.
S

51. (p. 149) __________ occurs when the owners of the corporation are taxed twiceonce when the corporation
itself gets taxed and a second time when the dividends are taxed.
Double taxation

52. (p. 147) Because of __________ each general partner is liable for the debts of the firm, no matter who was
responsible for causing those debts.
unlimited liability

Rationale: Because of unlimited liability, each general partner is liable for the debts of the firm, no matter who was responsible for causing those debts. This is similar
to a sole proprietor, in that general partners can lost their personal possessions if the company goes bankrupt.
53. (p. 152) Stores a chain owns are called __________.

company stores

54. (p. 156) A(n) __________ is owned and controlled by the people who use itproducers, consumers or
workers with similar needs, who pool their resources for mutual gain.
cooperative

55. (p. 154) In franchising, there may be the problem of __________ of existing businesses, because too many
stores open up in a small area.
cannibalization

Rationale: The problem of cannibalization of existing businesses occurs when too many new stores have opened up, cannibalizing the business at existing locations.
Cannibalizing means taking customers that might have gone to one franchise but end up going to another one because of location.
56. (p. 157) A(n) __________ is the result of two firms forming one company.
merger

57. (p. 157) A(n) __________ is one company's purchase of the property and obligations of another company.
acquisition

58. (p. 157) A(n) __________ merger is the joining of two firms involved in different stages of related businesses.
vertical

59. (p. 157) A(n) __________ merger joins two firms in the same industry and allows them to diversify or expand
their products.
horizontal

60. (p. 158) A(n) __________ merger unites firms in completely unrelated industries.
conglomerate

61. (p. 158) A(n) __________ takeover refers to attempts by the bidder to acquire a firm against the interest of the
latter's management.
hostile

62. (p. 158) The primary purpose of a __________ merger is to diversify business operations and investments.
conglomerate

Rationale: A conglomerate merger unites firms in completely unrelated industries. The primary purpose of a conglomerate merger is to diversify business operations
and investments.
63. (p. 159) A management buyout is/is not (circle one) always a leveraged buyout.
is not

Rationale: A management buyout occurs when employees of the company get together to purchase the business. Keep in mind, a management buyout may not always be
a leveraged buyout, if the managers purchasing the company have cash to purchase the business.
64. (p. 160) A(n) __________ is a detailed written statement that describes the nature of the business, the target
market, the potential for customers, the advantages the business will have in relation to competition and the
resources and qualifications of the owner(s).
business plan

65. (p. 161) __________ is the process of continuing to innovate a small business.
Intrapreneuring

66. (p. 163) A(n) __________ consists of people with unsatisfied wants and needs who have both the resources
and the willingness to buy.
market

67. (p. 162) The difference between a(n) __________ investor and a venture capitalist is that venture capitalists
usually invest other people's money, while __________ investors invest their own funds.
angel; angel

Rationale: Angel investors are individuals, usually wealthy, who invest their own money in a business for a share of the company. Angel investors are different from
venture capitalists, in that venture capitalists usually invest other peoples money, while angel investors invest their own funds.
68. (p. 164) Employees of small companies are often more/less (circle one) satisfied with their jobs than are their
counterparts in big business.
more

Rationale: Employees of small companies are often more satisfied with their jobs than are their counterparts in big business. Quite often they find their jobs more
challenging, their ideas more accepted and their bosses more respectful.
69. (p. 138) Which of the following companies was started by an entrepreneur?
A. Dupont
B. Ford Motor Company
C. Amazon.com
D. All of the above

70. (p. 139) Which of the following is a common characteristic that all successful entrepreneurs have in common?
A. Follows directions extremely well
B. Pays close attention to what others think of their ideas
C. Has a burning desire build their dreams into reality
D. Can direct people to do the work so that they don't have to work extremely long hours

71. (p. 141) Which of the following is a reason that many people decide to take the risk of becoming an
entrepreneur?
A. Opportunity
B. Independence
C. Challenge
D. All of the above

Rationale: Many people decide to take the risk of becoming an entrepreneur for the following reasons: opportunity, profit, independence and challenge.
72. (p. 142) Which of the following drive much of the growth in African American entrepreneurship?
A. Women
B. The rising affluence of African Americans
C. African American culture
D. Men

Rationale: New research, published by the Small Business Administration, shows that women drive much of the growth in African American entrepreneurship. African
American women owned 547,341 companies in 2002, up 75% from five years before.
73. (p. 144) Which of the following types of business is the easiest to start?
B. Partnership
C. S corporation
D. C corporation

74. (p. 145) The responsibility of business owners for all of the debts of the business is known as
______________________.
A. Limited liability
B. Unlimited equity
C. Unlimited liability
D. Unlimited indebtedness

75. (p. 146) Which of the following types of partnerships limits the partners' risk of losing their personal assets to
only their own acts and omissions and to the acts and omissions of people under their supervision?
C. Master limited partnership
D. Limited liability partnership

76. (p. 148) __________ refers to the processes, customs, policies, laws and institutions affecting the way in which
a corporation is directed, administered or controlled.
A. Corporate administration
B. Corporate rule
C. Corporate governance
D. Corporate responsibility

77. (p. 148) A(n) __________ is the group ultimately responsible for the business.
A. Group of C-level officers
B. Board of directors
C. Angel board
D. Investment bank consortium

78. (p. 150; Figure 5.2) Which of the following forms of business ownership has unlimited liability?
C. Conventional corporation
D. S-Corporation

79. (p. 144) Which of the following is an advantage of a sole proprietorship?

A. It is easy to get out of business
B. You get to be your own boss
C. You retain all of the profit
D. All of the above are advantages

Rationale: There are several advantages of a sole proprietorship: it is easy to start this form of business, as well as stop it; you get to be your own boss; you retain all
of the profit; and these profits are taxed as the personal income of the owner.
80. (p. 146 - 147) Which of the following is an advantage of a partnership?

A. Increased financial resources
B. Division of knowledge
C. Division of profits
D. Varying points of view about how and where to spend money

Rationale: There are several advantages to a partnership: there are more financial resources and there is pooled knowledge. However the disadvantages include the
division of profits and conflict among the partners about how and where to spend money.
81. (p. 151) Which of the following is a way to start your own business?
A. Become a franchisee
B. Buy an existing business
C. Start a cooperative
D. All of the above are ways to start your own business

82. (p. 152) A(n) __________ is the person who buys a franchise.
A. Franchisee
B. Franchisor
C. F-level officer
D. Franchisement owner

83. (p. 156) A __________ is a business owned and controlled by the people who use it.
B. Corporation
C. Franchise
D. Cooperative

84. (p. 153) Which of the following statements about a franchise is most true?
A. One advantage is that the franchisor enjoys the benefits of being a sole proprietor
B. The failure rate of franchises is lower than for sole proprietorships
C. Franchising has low start-up costs
D. Franchisors share the profits

Rationale: An advantage of franchising is that the franchisee enjoys the benefits of being a sole proprietor, if he or she chooses. There is a lower failure rate, likely
attributed to the support provided by the franchisor. However, there are large start-up costs and the franchisee must share the profit with the franchisor.
85. (p. 157) A __________ merger is the joining of two firms involved in different stages of related businesses.
A. Vertical
B. Horizontal
C. Diagonal
D. Conglomerate

86. (p. 157) A __________ merger joins two firms in the same industry and allows them to diversify or expand
their products.
A. Vertical
B. Horizontal
C. Diagonal
D. Conglomerate

87. (p. 157) A(n) __________ is one company's purchase of the property and obligations of another company.
A. Vertical merger
B. Horizontal merger
C. Diagonal acquisition
D. Acquisition

88. (p. 157) A __________ merger unites firms in completely unrelated industries.
A. Vertical
B. Horizontal
C. Diagonal
D. Conglomerate

89. (p. 159) Which of the following is a reason that a leveraged buyout might occur?
A. The employees in an organization feel that it is likely they will lose their jobs
B. The managers believe that corporate performance could be enhanced if they owned the company
C. The employees of a company get together to buy it
D. All of the above are reasons that a leveraged buyout might occur

Rationale: Suppose the employees in an organization feel that there is a good possibility that they may lose their jobs or suppose the managers believe that corporate
performance could be enhanced if they owned the company. Finally employees of the company may get together to purchase the business. All of these are reasons for a
leveraged buyout.
90. (p. 159) The difference between a leveraged buyout and a management buyout is
A. A management buyout is done by managers only
B. Investors in a leveraged buyout borrow the money to invest
C. Investors in a management buyout always borrow the money to invest
D. There is no difference between the two terms

Rationale: A management buyout occurs when employees of the company get together to purchase the business. A management buyout may not always be a leveraged
buyout, if the managers purchasing the company have cash to purchase the business. A leveraged buyout is an attempt by employees, management or a group of
investors to purchase an organization primarily through borrowing.
91. (p. 160) A __________ is a detailed written statement that describes the nature of the business, the target
market, the potential for customers, the advantages the business will have in relation to competition and the
resources and qualifications of the owner(s).
A. Profit and loss
B. Statement of cash flow
C. Business plan
D. Balance sheet

92. (p. 161) __________ is the process of continuing to innovate a small business.
A. Intrapreneuring
B. Extrapreneuring
C. Entrepreneuring
D. Continuous improvement

93. (p. 161) Jerrold Carrington advises that one of the most important parts of the business plan is the
_____________________.
A. Financial section
B. Explanation of the product/service
C. Executive summary
D. Description of the target market

Rationale: Jerrold Carrington of Inroads Capital Partners advises that one of the most important parts of the business plan is the executive summary at the beginning
of the plan. The executive summary has to catch the readers interest and this may be all that potential investors ever look at.
94. (p. 164) The way to meet customers' needs is to offer _____________________.
A. Top quality
B. A fair price
C. Great service
D. All of the above

Rationale: Once the market and its needs have been identified, you must set out to fill those needs. The way to meet customers needs is to offer top quality, at a fair
price, with great service.
95. (p. 164, 166) Which of the following statements about getting started in your own business is most accurate?
A. You will need to know your market
B. It is best to leave the set up of your accounting system to experts
C. To grow, you will need to learn how to delegate
D. All of the above statements are true

Rationale: To get started in your own business you will need to do all of the choices presented in the question.
96. Explain the common characteristics that all successful entrepreneurs have in common.
Entrepreneurs are self-directed and self-disciplined, since they are their own bosses. They are responsible for
their own success of failure. Entrepreneurs are self-nurturing and believe in their ideas, even when no one else
does and they must be able to replenish their own enthusiasm. Entrepreneurs are action-oriented with a burning
desire to realize, actualize and build their dreams into reality. Entrepreneurs are highly energetic and are
emotionally, mentally and physically able to work long and hard. Finally, entrepreneurs are tolerant of
uncertainty since they must take big risks sometimes.
97. List and define the three types of business ownership.
The three types of business ownership are sole proprietorships, partnerships and corporations. A sole
proprietorship is a form of ownership that involves one individual.
A partnership is defined as a legal form of business with two or more owners. There are several forms of
partnership. A corporation is a form of business ownership that provides limited liability. There are several
corporate forms.

98. Explain the alternatives to starting a business from scratch.
There are three alternatives to starting a business from scratch: starting a franchise, buying an existing business
or starting a cooperative. A franchise shares a brand name but does not have central management. The owner of
each franchise store is responsible for his or her own business. The advantages with franchising include
marketing and management assistance, enjoying the benefits of being a sole proprietor but likely experiencing a
lower failure rate than a sole proprietor might. Buying an existing business may be attractive because there is
already a customer base, inventory and a physical structure and location. A cooperative is owned and controlled
by the people who use itproducers, consumers or workers with similar needs, who pool their resources for
mutual gain. Members democratically control these businesses by electing a board of directors that hires
professional management.
99. Explain the three different types of mergers and give an example of each.
A vertical merger is the joining of two firms involved in different stages of related businesses. An example
includes a bicycle company and a company that produces bike wheels. A horizontal merger joins two firms in
the same industry and allows them to diversify or expand their products. An example is the merger of a bicycle
company and a tricycle company. The business can now supply a variety of cycling products. A conglomerate
merger unites firms in completely unrelated industries. The primary purpose of a conglomerate merger is to
diversify business operations and investments. The acquisition of a restaurant chain by a bicycle company
would be an example.
100. What are the five main areas of focus when starting a small business?
1. Planning the business

2. Financing the business
3. Knowing your customers (marketing)
4. Managing employees
5. Keeping records (accounting)

ch5 Summary
Category # of
Quest
ions
Dias - Chapter 05 100
Learning Goal: Describe the alternatives to starting your business from scratch 12
Learning Goal: Describe the five main areas of focus when starting a small business 18
Learning Goal: Discuss the types of business ownership and the advantages and disadvantages of each 29
Learning Goal: Explain the traits a successful entrepreneur possesses 13
Learning Goal: Understand how a business can grow through mergers, acquisitions and buyouts 23
Level of Learning: Knows basic terms and facts 62
Level of Learning: Understands concepts and principles 33
Rationale: A conglomerate merger unites firms in completely unrelated industries. The primary purpose of a conglomerate merger is to diver 1
sify business operations and investments.
Rationale: A horizontal merger joins two firms in the same industry and allows them to diversify or expand their products. An example is the 1
merger of a bicycle company and a tricycle company.
Rationale: A management buyout occurs when employees of the company get together to purchase the business. A management buyout may 1
not always be a leveraged buyout, if the managers purchasing the company have cash to purchase the business. A leveraged buyout is an atte
mpt by employees, management or a group of investors to purchase an organization primarily through borrowing.
Rationale: A management buyout occurs when employees of the company get together to purchase the business. Keep in mind, a manageme 1
nt buyout may not always be a leveraged buyout, if the managers purchasing the company have cash to purchase the business.
Rationale: A vertical merger is the joining of two firms involved in different stages of related businesses such as a bicycle company and a co 1
mpany that produces bike wheels.
Rationale: An advantage of franchising is that the franchisee enjoys the benefits of being a sole proprietor, if he or she chooses. There is a lo 1
wer failure rate, likely attributed to the support provided by the franchisor. However, there are large start-up costs and the franchisee must sh
are the profit with the franchisor.
Rationale: An S-Corporation is a type of legal entity in which the biggest advantage is that it is taxed like a sole proprietorship. 1
Rationale: Angel investors are individuals, usually wealthy, who invest their own money in a business for a share of the company. Angel inv 1
estors are different from venture capitalists, in that venture capitalists usually invest other peoples money, while angel investors invest their o
wn funds.
Rationale: Because of unlimited liability, each general partner is liable for the debts of the firm, no matter who was responsible for causing t 1
hose debts. This is similar to a sole proprietor, in that general partners can lost their personal possessions if the company goes bankrupt.
Rationale: Businesses usually fail due to a number of reasons including a lack of planning. 1
Rationale: Employees of small companies are often more satisfied with their jobs than are their counterparts in big business. Quite often they 1
find their jobs more challenging, their ideas more accepted and their bosses more respectful.
Rationale: Every partnership must have at least one general partner. Thus, a partnership of only limited liability partners is impossible. 1
Rationale: Jerrold Carrington of Inroads Capital Partners advises that one of the most important parts of the business plan is the executive su 1
mmary at the beginning of the plan. The executive summary has to catch the readers interest and this may be all that potential investors ever
look at.
Rationale: Many entrepreneurs simply do not enjoy working for someone else. Some have found enjoyment and self-satisfaction in starting t 1
heir own businesses where they are independent.
Rationale: Many people decide to take the risk of becoming an entrepreneur for the following reasons: opportunity, profit, independence and 1
challenge.
Rationale: Many people decide to take the risk of becoming an entrepreneur for the following reasons: opportunity, profit, independence and 1
challenge. Challenge refers to entrepreneurs taking moderate, calculated risks to obtain achievement.
Rationale: New research, published by the Small Business Administration, shows that women drive much of the growth in African America 1
n entrepreneurship. African American women owned 547,341 companies in 2002, up 75% from five years before.
Rationale: Once the market and its needs have been identified, you must set out to fill those needs. The way to meet customers needs is to of 1
fer top quality, at a fair price, with great service.
Rationale: One advantage of a sole proprietorship is that the sole proprietor gets to be his or her own boss. 1
Rationale: One of the biggest advantages with franchising is marketing and management assistance. 1
Rationale: One of the most important parts of the business plan is the executive summary at the beginning of the plan. The executive summa 1
ry has to catch the readers interest; otherwise potential investors may never see the financials.
Rationale: Owners of C corporation stock are not liable for the debts or any other problems of the corporation, beyond the money they invest 1
ed.
Rationale: Profits from a sole proprietorship are taxed as the personal income of the owner, so there are no special federal taxes the business 1
owner must worry about.
Rationale: Start-up costs have fallen as computers and other technologies grow cheaper. 1
Rationale: Suppose the employees in an organization feel that there is a good possibility that they may lose their jobs or suppose the manage 1
rs believe that corporate performance could be enhanced if they owned the company. Finally employees of the company may get together to
purchase the business. All of these are reasons for a leveraged buyout.
Rationale: Taking a firm private involves the efforts of a group of stockholders or management to obtain all of the firms stock for themselves 1
. In other words, they buy it back so it is no longer traded on the stock market.
Rationale: The lower failure rate of franchisees is likely attributed to the support provided by the franchisor. 1
Rationale: The problem of cannibalization of existing businesses occurs when too many new stores have opened up, cannibalizing the busine 1
ss at existing locations. Cannibalizing means taking customers that might have gone to one franchise but end up going to another one becaus
e of location.
Rationale: The Small Business Administration (SBA) microloans are awarded based on the belief in the borrowers integrity and the soundne 1
ss of their business idea.
Rationale: There are several advantages of a sole proprietorship: it is easy to start this form of business, as well as stop it; you get to be your 1
own boss; you retain all of the profit; and these profits are taxed as the personal income of the owner.
Rationale: There are several advantages to a partnership: there are more financial resources and there is pooled knowledge. However the disa 1
dvantages include the division of profits and conflict among the partners about how and where to spend money.
Rationale: To get started in your own business you will need to do all of the choices presented in the question. 1
Rationale: Whether it is your goal to become the next conglomerate or to keep your business small and personal, there are common character 1
istics that all successful entrepreneurs have in common.

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Introduction To Business, Test Bank, ch5

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ch5

1. One characteristic of successful entrepreneurs is that they are self-directed.

6. Entrepreneurship start-up costs have fallen.

7. An LLC is a form of ownership that involves only one individual.

16. Profits of a sole proprietorship are taxed as a corporation.

19. The advantage of an S corporation is that it is taxed like a sole proprietorship.

25. An acquisition is the result of two firms forming one company.

29. A leveraged buyout is an attempt by employees, management or a group of investors to purchase an

35. Intrapreneuring is the process of continuing to innovate a small business.

38. In business, a market is the place where businesspeople purchase inventory.

39. Businesses usually fail due to over planning.

45. A(n) __________ is the easiest kind of business to start.

46. A sole proprietor has limited/unlimited (circle one) liability.

53. Stores a chain owns are called __________.

60. A(n) __________ merger unites firms in completely unrelated industries.

69. Which of the following companies was started by an entrepreneur?

73. Which of the following types of business is the easiest to start?

79. Which of the following is an advantage of a sole proprietorship?

80. Which of the following is an advantage of a partnership?

81. Which of the following is a way to start your own business?

82. A(n) __________ is the person who buys a franchise.

88. A __________ merger unites firms in completely unrelated industries.

92. __________ is the process of continuing to innovate a small business.

94. The way to meet customers' needs is to offer _____________________.

97. List and define the three types of business ownership.

98. Explain the alternatives to starting a business from scratch.

6. (p. 142) Entrepreneurship start-up costs have fallen.

Dias - Chapter 05 #10

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16. (p. 144) Profits of a sole proprietorship are taxed as a corporation.

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39. (p. 160) Businesses usually fail due to over planning.

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