ENTR 206 Principles of Entrepreneurship

Second Semester October 18, 2012- February 22, 2013

Study Guide chapters 10-15
Chapter 15
1) Approximately how many people were honored as Ashoka Fellows between 1981 and 2009?
A. Around 10,000
B. Over 1,000
C. Nearly 3,000
D. One quarter of one percent of the worlds population
E. About 30 per year
(Answer B)
2) Who was the original founder of Ashoka?
A. Mohandas Gandhi
B. Wilt Chamberlain
C. Klaus Schwab
D. Bill Drayton
E. Mother Theresa
(Answer D)
3) Which of the following federally tax-exempt organizations are not required to file an IRS
Form 990?
A. Private educational institutions
B. Scientific research centers
C. Churches
D. Private foundations
E. The National Football League
(Answer C)
4) The Grameen Bank is an example of a social business because it ________ .
A. Is a nonprofit organization
B. Serves the poor
C. Includes the government as an investor
D. Does not need to repay its investors
E. Directs profits back into serving the poor
(Answer E)
5) What is the least innovative form of social entrepreneurship venture?
A. Imitative
B. Innovative
C. Hybrid
D. Double bottom line
E. Nonprofit organization
(Answer A)
6) Why is a Cooperative a form of social entrepreneurship?
A. It creates both social and economic value.
B. It is able to make a profit.
C. It competes with for-profit companies.
D. Schumpeter created the first model.
E. It can be organized anywhere worldwide.
(Answer A)

7) Which of the following is essential in order to undertake a social venture?

A. An existing organizational model.
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B. Receiving funding from a foundation.

C. Recognizing an opportunity.
D. Identifying a paying customer.
E. All of the above.
(Answer C)
8) Which of the following elements is least likely to be teachable in a course?
A. Identifying social values that motivate the social entrepreneur
B. Identifying opportunities
C. Determining a viable economic model
D. Motivating the social entrepreneur
E. Evaluating a social venture
(Answer D)
9) What is necessary to become tax-exempt at the Federal level?
A. Operating without making a profit.
B. Proving that a social need is being served.
C. Registration with the state attorney general.
D. Avoiding distribution of profits to private entities.
E. A determination letter from the IRS.
(Answer E)
10) What is the difference between outputs and outcomes?
A. Outcomes precede outputs
B. Outputs are usually tangible
C. Outcomes are defined in the logic model
D. There is no difference
E. Outcomes are defined in the theory of change
(Answer B)
11) What experience best qualified Sarah Usdin to start New Schools for New Orleans?
A. Hurricane Katrina
B. Preparing a business plan
C. Her exposure to Muhammad Yunus
D. Her prior knowledge of charter schools
E. Her studies in social entrepreneurship
(Answer D)
12) What most inspired Vanessa Kirsch to found New Profit?
A. That social entrepreneurship could be better evaluated
B. Her prior experience in establishing nonprofit organizations
C. The world of venture capital
D. The opportunity for growth
E. That foundations fail to sustain the organizations they fund
(Answer E)
13) Which example would probably not be considered a social entrepreneur?
A. John Mackey of Whole Foods
B. Linda Rottenberg of Endeavor
C. Rebecca Onie of Project HEALTH
D. Muhammad Yunus of Grameen Bank
E. Dan ONeill of Mercy Corps
(Answer A)
14) Which of the following would not be an allowable form of earnings by a social
entrepreneur in a 501-c-3 organization?
A. Benefits that are more generous than those received by other employees
B. A salary of over $5 million
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C. Stock options
D. A market-level benefits package
E. A severance package.
(Answer C)
15) What is usually the easiest step in social entrepreneurship?
A. Finding partners
B. Deciding the best form of organization
C. Closing down the enterprise
D. Identifying the opportunity
E. Getting funding
(Answer D)
16) When a nonprofit organization is closing, _____________________ .
A. its assets must be redirected to other nonprofit organizations
B. its assets must be distributed proportionally by salary
C. it assets must be converted into a for-profit company
D. a foundation must take possession of its assets
E. its debts must be paid off
(Answer A)
17) What is necessary to evaluate a social venture?
A. Funding for evaluation
B. Some criterion for judgment
C. A systematic way to collect assessment data
D. At least a few years of performance
E. A positive social impact
(Answer B)
18) What would make the evaluation of a social venture more decisive?
A. A control group.
B. A long period of performance.
C. Qualitative and quantitative measures.
D. Applicable case studies.
E. All of the above.
(Answer E)
19) What makes Dees definition of social entrepreneurship most useful?
A. His emphasis on social value
B. His focus on entrepreneurship
C. His description of the pursuit of opportunity
D. His inclusion of both social value and social change
E. His composite reference to several sources
(Answer D)

20) What most distinguishes Endeavor as a social venture?

A. The initial guidance of a venture capitalist.
B. Its presence in developing countries.
C. The use of a nonprofit model to create jobs.
D. The predominance of family businesses in certain countries.
E. The absence of venture capital in certain countries.
(Answer C)
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21) Why did Rottenberg reject the best advice of her chief financial officer?
A. None of the suggestions inspired trust.
B. None of the suggestions ensured the needed income.
C. All of the ideas required acting like a for-profit company.
D. The CFO had a poor background for social entrepreneurship.
E. None of the suggestions ensured financial sustainability.
(Answer A)
22) How did Muhammad Yunus first start the Grameen Bank?
A. As a foundation-funded startup.
B. As a research study.
C. As an alternative to his day job as professor.
D. As an Ashoka Fellow.
E. As a government-funded startup.
(Answer B)
23) Which of the following ventures that create some social value has the greatest revenues?
A. Ben and Jerrys
B. Endeavor
C. Ocean Spray
D. The Body Shop
E. Mondragn
(Answer E)
24) Where are you least likely to find opportunities for social entrepreneurship?
A. Millennium Development Goals
B. Ashoka
C. Standard & Poor's
D. The World Bank
E. United Nations specialized agencies
(Answer C)
25) What strategy is most likely to lead to growth for a nonprofit organization?
A. Focusing on a single source of funding
B. Building funds from a combination of private support and foundations
C. Diversification of funding sources
D. Going to scale by going international
E. Combining foundation and government funding
(Answer A)
Chapter 14
1. What does entrepreneurship begin with?
A)
Leadership.
B)
A loan.
C)
Venture capital.
D)
Opportunity.
E)
A management team.
(Answer D)
2. What is the least likely to lead to a failure in growth management?
A)
Having limited time and resources to spend on organization building
B)
Spending too much time on day-to-day operations
C)
Chasing many opportunities
D)
Spending time on planning
E)
Not having a strong management team
(Answer D)
3. What skills become increasingly important at later stages of development for a company?
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A)
Marketing
B)
Managerial
C)
Technical
D)
Entrepreneurial
E)
Opportunity identification
(Answer B)
4. Which of the following is not a part of the driving forces in the growth stages?
A)
Leadership
B)
The opportunity domain
C)
Resources and capabilities
D)
Execution
E)
The entrepreneur
(Answer E)
5. What is NOT an option an entrepreneur must consider beyond startup?
A)
Leaving the venture
B)
Selling the venture
C)
Maintaining the venture
D)
Growing the venture
E)
All of them are options
(Answer A)
6. According to the chapter, 50% of businesses started today will not exist in how many
years?
A)
2
B)
3
C)
5
D)
6
E)
8
(Answer E)
7. What fraction of firms started today, according to the chapter, will still be growing and
profitable in eight years?
A)
1/5
B)
1/6
C)
1/7
D)
1/8
E)
1/9
(Answer C)
8. In a typical acquisition deal, what portion of the selling price does the entrepreneur receive
in cash?
A)
1/2 of the price.
B)
1/3 of the price.
C)
1/4 of the price.
D)
1/5 of the price.
E)
1/6 of the price.
(Answer B)
9. What option does the entrepreneur have if he or she decides to maintain a business?
A)
Become an entrepreneurial leader
B)
Take alternate position in the firm
C)
Become a manager
D)
Seek other employment
E)
None of the above
(Answer C)
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10. What is the core of the growth model?

A)
Leadership
B)
Resources and capabilities
C)
The opportunity domain
D)
The entrepreneur
E)
Execution
(Answer E)
11. Who or what has the largest impact on a firms growth potential?
A)
Stakeholders
B)
Uncertainty
C)
Environmental conditions
D)
Technology changes
E)
Competitors
(Answer A)
12. What should an entrepreneur focus on during early growth?
A)
Expansion
B)
Strategy
C)
Operations
D)
Accounting
E)
Networking
(Answer B)
13. The chapter warns that which of the following can lead to poor coordination between
different activities within the company?
A)
Overdue collections
B)
Inventory outages
C)
Uncontrolled growth
D)
Diminishing cash flows
E)
None of the above
(Answer C)
14. Which of the following is not mentioned in the chapter as a key objective for a control
system?
A)
To create culture
B)
To institute control
C)
To manage cash
D)
To track performance
E)
All of the above are mentioned
(Answer A)
15. An effective control system includes all of following except:
A)
Account payables policies
B)
Accounts receivables and collections policies
C)
Assessment of performance and expenditures
D)
An inventory management system
E)
A risk-assessment ratios tracking
(Answer E)
16. After tracking key metrics in your companys performance, what should alert you that it
may be time to consider making adjustments in your policies?
A)
If your metrics are below your expectations.
B)
If the changes in your company are not result of changes in your policies.
C)
If the marketing expenditures are hard to predict.
D)
If your metrics require in-depth analysis.
E)
If receivables collection period is more than 30 days.
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(Answer B)
17. What does cash cycle ratio show?
A)
Number of dollars available to pay your short-term liabilities.
B)
How quickly you get your receivables paid.
C)
Time between purchase of supplies and collection of accounts receivable generated in
the sale of a product.
D)
How quickly you sell and replace your inventory over a period.
E)
Degree to which a company is using borrowed money.
(Answer C)
18. A positive cash conversion period means that:
A)
You have an inefficient receivables control system
B)
You are getting cash in before you deliver products/services
C)
You have a very efficient receivables control system
D)
You are receiving cash after you deliver products/services
E)
Customers pay you before you provide them products/services
(Answer D)
19. A series of steps showing the activities and entities that we need to coordinate in order for
the company to execute its product or service is called:
A)
Customer value delivery
B)
Value chain
C)
STEP
D)
Customer value proposition
E)
Attributes model
(Answer B)
20. What do customers usually want the company to do with its products?
A)
To improve the products they know best.
B)
To introduce new products.
C)
To change brand names of existing products.
D)
To produce products inside the country.
E)
None of the above.
(Answer A)
21. Which of the following is not a source of financing for early growth?
A)
Angel investors
B)
Founder loans
C)
Investment from key management
D)
Equipment leases
E)
All of them are sources
(Answer E)
22. What can identifying your firms range of value chain activities help you to detect?
A)
New markets.
B)
Legal liabilities.
C)
Ways to shift your core business.
D)
Resource draining side projects.
E)
All of the above.
(Answer D)
23. What best characterizes an entrepreneur?
A)
Resource driven
B)
Maintains consistency and predictability
C)
Implements the business
D)
Opportunity driven
E)
Enhances efficiency of organization
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(Answer D)
24. What purpose should the board of directors serve as a company professionalizes?
A)
Mentorship.
B)
Strategic.
C)
Operating.
D)
Credit lending.
E)
To represent suppliers.
(Answer B)
25. According to the Driving Forces of Growth Model, opportunity domain interacts with which
of the following?
A)
Stakeholders
B)
Environmental conditions
C)
Profitability
D)
Coordination
E)
Organizational capabilities
(Answer E)
Chapter 13
1) ______can be considered a public use of an invention, sufficient to activate the one-year period.
A. Market testing
B. Exhibitions
C. Use by the inventor himself
D. All of the above
E. None of the above
(ANSWER-D)
2) The basic requirement for a utility patent is that the ______ be different in some way from what
came before.
A. idea
B. appearance
C. value
D. design
E. product branding
(ANSWER-A)
3) Which of the following is not referred to as intellectual property creations of the mind?
A. inventions
B. literary and artistic works
C. symbols, names, and images
D. designs used in commerce
E. budget for a certain project
(ANSWER-E)

4) Which one of the following is within the range of Intellectual Property protection?
A. patents
B. trade secrets
C. trademarks
D. copyrights
E. all of the above
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(ANSWER-E)
5) The form of all patents contains the same basic sections, including: ____________.
A. drawings showing an embodiment of the invention
B. a written description of the invention referring to the drawings akin to an engineering
specification
C. one or more claimshybrid legal and technical language that captures the invention in
words
D. all of the above
E. none of the above
(ANSWER-D)
6) The design patent covers only______.
A. the appearance of the product
B. the idea of the product
C. the underlying concept of the product
D. the functionality of the product
E. the rarity of the product
(ANSWER-A)
7) Which of the following could NOT be protected as a common form of trademarks?
A. Geometric shapes
B. Natural shapes
C. Combinations of shapes and colors
D. Words used descriptively
E. Colors
(ANSWER-D)
8) People can establish which of the following without any formal governmental procedure?
A. Utility patent
B. Technique patent
C. Design patent
D. Trademark
E. Copyright
(ANSWER-D)
9) Copyrights cover many forms of writing; however, they will not cover which of the following?
A. Brochures
B. Photographs
C. Video presentations
D. Architectural designs
E. Biological materials
(ANSWER-E)
10)
The term license typically refers to a number of different types of contracts covering
intellectual property, including______.
A. an assignment
B. an exclusive usage agreement
C. a nonexclusive license
D. B and C
E. A, B, and C.
(ANSWER-E)
11)
A.
B.
C.
D.
E.

______ should be put in writing and signed before the business relationship begins.
Employment contracts
Consultant contracts
Confidential disclosure agreements
All of the above
None of the above

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(ANSWER-D)
12)
At what stage in a business relationship should you ask the other party to sign a
confidentiality agreement?
A. Before negotiations begin.
B. During the negotiation process.
C. When the contracts are executed.
D. At the first product shipment.
E. Anytime before the contract expires or is renegotiated.
(ANSWER-A)
13)
A.
B.
C.

Which of the following is not necessarily included in a consultant contract?

Why the consultant is hired.
What the consultant is expected to do
What the consultant may be exposed to in the way of company trade secrets and confidential
and proprietary information.
D. What the consultant is expected to assign to the company in the way of innovations,
inventions, patents, and copyrights.
E. What prior work the consultant has done for competitors.
(ANSWER-E)
14)
An often overlooked area in a consultant contract is ______.
A. The ownership of notes
B. The ownership of memos
C. Failed avenues of development
D. All of the above
E. None of the above
(ANSWER-D)
15)
After the U.S. Patent and Trademark Office examines the application and determines that the
mark could to be registered, the applicant must show actual use within how many months?
A. 1 month.
B. 3 months.
C. 6 months.
D. 12 months.
E. 24 months.
(ANSWER-C)
16)
In the U.S., how much does a typical search and registration for a trademark cost per mark?
A. $1,000 - $3,000
B. $4,000 - $6,000
C. $7,000 - $9,000
D. $10,000 - $12,000
E. $13,000 - $15,000
(ANSWER-A)

17)
If licensing a mark for use with a product or service, the owner of a mark should be mindful of
______.
A. the quality control of that product or service.
B. similar trademarks.
C. whether or not the trademark has already been licensed to a competitor.
D. the length of the patent protection on the trademark.
E. All of the above.
(ANSWER-A)
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18)
The benefit of a copyright registration is _______.
A. the registration is easy to obtain
B. protection lasts a long time
C. the cost is low
D. all of the above
E. none of the above
(ANSWER-D)
19)
Different countries have different conditions that entrepreneurs must meet to obtain any
patent protection; the first and most important restriction is______.
A. the time limit
B. the cost limit
C. the term of protection limit
D. the subject matter limit
E. the value limit
(ANSWER-A)
20)
Whereas the United States allows a business one full year to test market its new product,
most other countries require that the patent application be filed ______.
A. before any private disclosure.
B. before any public disclosure.
C. before any commercial promotion.
D. before any product test.
E. before any production.
(ANSWER-B)
21)
By filing a special PCT patent application in a specially designated PCT office within one year
of U.S. filing, and by designating certain countries, companies can preserve their right to file in
those countries without further expense for ___ after the U.S. filing date; that will provide
______for test marketing the product.
A. 1 or 10 months and an additional 8 or 18 months
B. 20 or 30 months and an additional 8 or 18 months
C. 24 or 36 months and an additional 8 or 18 months
D. 40 or 50 months and an additional 28 or 38 months
E. 50 or 60 months and an additional 48 or 58 months
(ANSWER-B)
22)
Many licensees prefer a______, because they want a clear playing field with no competitors in
order to maximize their revenue from the property and justify the license cost.
A. exclusive license
B. sub-exclusive license
C. nonexclusive license
D. common license
E. primary license
(ANSWER-A)
23)
Licensors generally seek ______ to ensure that the licensee will use its best efforts to exploit
the property and maximize the licensor's income.
A. to add a clause in which the licensee promises to use its best efforts
B. to compel certain achievements by the licensee
C. to use the simpler approach of a minimum royalty
D. all of the above
E. none of the above
(ANSWER-D)
24)
What type of clause evicts the licensee and returns control to the licenser in the event of
unmet goals?
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A. A competition clause.
B. A non-competition clause.
C. A reverter clause.
D. A confidential disclosure clause.
E. A royalty clause.
(ANSWER-C)
25)
Which of the following is NOT included in the scope of patent protection for new computer
software?
A. The coding or routines
B. The structure and organization
C. The user interface and menus of the program
D. The broad underlying concept of an algorithm
E. The manner of writings
(ANSWER-E)
Chapter 12
1. What concept requires that an employee does not knowingly take action designed to harm
the employer's business?
A) Reasonable protection
B)
Employees obligation
C)
Duty of loyalty
D)
Corporate tact
E)
Generally accepted protection principle
(Answer C)
2. If you decided to leave your current employer and establish your own venture, what actions
will decrease the likelihood of being sued for convincing other employees from the company
to leave with you?
A)
Working in the Human Resources department of the employer
B)
Talking to them after the business hours
C)
Talking to them over e-mail or/phone
D)
Offering them better working conditions in the new company
E)
None of the above
(Answer B)
3. Under what condition will the law consider the company to have taken reasonable
protection of its information?
A) If the company made its employees sign non-disclosure agreements
B)
If the company successfully kept the information confidential
C)
If the company protected the information through copyright laws
D)
If the company protected the information by registering patents
E)
All of the above
(Answer E)

4. What, if possible, must the employer do to make its employees not compete with the
company for a year after they quit the job?
A) Issue an internal order
B)
Does not have to do anything the obligation is imposed on any employee by statutes
C)
Obtain a court order
D)
Have the employees sign a non-competition agreement
E)
It cannot be done
(Answer D)
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5. Why are restraining orders dangerous for a startup?

A) They paralyze the company until the court battle is resolved
B)
They forbid the company to go public
C)
Its a first step of bankruptcy
D)
The board of directors has to be reelected, which is a very long process
E)
They violate the rights of minority shareholders
(Answer A)
6. What is the advantage of hiring a local attorney for a startup?
A) Usually good at suing multinationals
B)
Will gladly accept equity as the fee
C)
May agree upon installment payments
D)
May substitute expensive software at the early stage
E)
Good at representing your national interests
(Answer C)
7. An S corporation can be distinguished from other types of corporations in:
A) Tax status
B)
Number of employees
C)
Areas of expertise
D)
Geographic location
E)
Annual income
(Answer A)
8. The minimum number of owners in a general partnership is equal to:
A) 1
B)
2
C)
4
D)
5
E)
6
(Answer B)
9. Which of the following cannot be considered non-profit entities?
A) Social welfare organizations
B)
Educational institutions
C)
Churches
D)
Limited liability corporations
E)
Industry associations
(Answer D)
10. Which form of legal entity is the easiest to understand from the viewpoint of tax issues?
A) Limited liability company
B)
Sole proprietorship
C)
Limited partnership
D)
S corporation
E)
Not-for-profit
(Answer B)

11. The business is not recognized as a legal entity separate from its owners under which
form?
F)
Professional corporation
A) Limited Liability Company
B)
Partnership
C)
S corporation
D)
Non-profit
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(Answer C)
12. In the context of this chapter, IRC stands for:
A) Investment Recovery Center
B)
International Residential Code
C)
International Relations Center
D)
Initial Ready Company
E)
Internal Revenue Code
(Answer E)
13. How long does an organization have to file for and secure non-profit status?
A) 14 weeks
B)
1 year
C)
18 months
D)
2 years
E)
26 months
(Answer C)
14. All of the following forms of legal entities must file an annual report with the state
government in addition to their tax return except:
A) General partnerships
B)
Limited liability companies
C)
Limited partnerships
D)
Corporations
E)
Limited liability partnerships
(Answer A)
15. Which state is famous for its management-friendly corporate laws?
A) Ohio
B)
Massachusetts
C)
New Mexico
D)
California
E)
Delaware
(Answer E)
16. As can be learned from the chapter, a redemption agreement is the covenant, in which:
A) The business owns insurance policies on the owners and is obligated to use the
proceeds to purchase each stockholders equity upon his or her death.
B)
Each owner is required to take out insurance on the others and to buy a proportional
amount of the deceased's equity.
C)
Business assets, such as inventory or marketable securities, equal to the value of
owners share of the equity in the company will be transferred to relatives upon his or
her death.
D)
Internal Revenue Service allows installment tax payments to be received within 2 years
after an owners death.
E)
None of the above.
(Answer A )

17. The doctrine of vicarious liability states that:

A) The employers liability for the employees actions is limited to a specific amount of
money (the amount differs from state to state)
B)
The employer is responsible for any contract signed by the employee.
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C)

The employer is responsible for any actions of the employee occurring within the scope
of his/her employment
D)
The employee always answers for the consequences of his/her criminal actions without
transferring the responsibility to the employer
E)
Employees can be held criminally liable if they contribute to the unlawful actions of an
employer and should have reasonably understood the consequences.
(Answer C)
18. An employer may not discriminate against anyone for any of the following characteristics,
except for:
A) Religion
B)
Age
C)
National origin
D)
Sexual orientation
E)
Disability
(Answer D)
19. What is the main attraction of an employment agreement for the employee?
A) Social benefits
B)
Protection against firing without cause
C)
Guaranteed promotion on a regular basis
D)
Fewer responsibilities
E)
Higher wages
(Answer B)
20. A tax-friendly form of stock option is called a _______ .
A) pension
B) incentive stock option
C) phantom stock
D) municipal stock option
E) None of the above.
(Answer B)
21. According to the chapter, what type of insurance should an entrepreneur purchase first?
A) Health insurance for employees.
B)
Key person insurance.
C)
Business interruption insurance.
D)
Liability insurance.
E)
Property insurance.
(Answer E)
22. What type of insurance can a typical startup not afford?
A) Health insurance for employees.
B) Key person insurance.
C) Business interruption insurance.
D) Liability insurance.
E) Property insurance.
(Answer C)
23. What type of business can always provide group life, disability, and health insurance
policies tax-free and deduct the costs of premiums?
A) S corporation
B) Partnership
C) C corporation
D) LLC
E) All of the above
(Answer C)
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24. Which of the following criteria must a deal meet in order for it to be eligible for intra-state
securities offering exemption from registration?
A) Buyers and offerees of the securities have to be residents of one state
B)
The company must be incorporated under the laws of that state
C)
The company offering the securities must have most of its assets in the same state
D)
The company must do the most of its business in the same state
E)
All of the above.
(Answer E)
25. What is the maximum dollar amount of a securities offering for it to still qualify for private
placement exemption?
A) $100,000
B)
$500,000
C)
$1,000,000
D)
$2,000,000
E)
$5,000,000
(Answer C)

Chapter 11
26)
A. Character
B. Capacity
C. Capital
D. Collateral
E. Customers
(ANSWER-E)

Which of the following is NOT one of the Five Cs of credit?

27)
Although the opportunity costs for accounts receivable may be quite large, the largest
current asset balances are usually in______.
A. cash
B. accounts receivable
C. inventories
D. property, plant, and equipment
E. short-term investments
(ANSWER-C)
28)
Which of the following assets represents the most important current asset of many
manufacturing companies.
A. Cash
B. Accounts receivable
C. Inventories
D. Property, plant, and equipment
E. Short-term investments
(ANSWER-C)
29)
The ______ of receivables collection and payment of accounts payable are key
determinants in whether a firm is cash rich or cash poor.
A. quantity
B. cost
C. difference
D. interest
E. timing
(ANSWER-E)

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30)
The magnitude of a company's accounts receivable obviously depends upon a number
of factors, except _________.
A. the level and the pattern of sales
B. the breakdown between cash and credit sales
C. the difference between current assets and current liabilities
D. the nominal credit terms offered
E. the enforcement of credit terms
(ANSWER-C)
31)
The basis of all receivables and collections is actual net sales, which is equal to ______.
A. sales minus any returns.
B. sales plus any returns.
C. sales minus returns only if they are 90 days late.
D. sales plus returns only if they are 90 days late.
E. None of the above
(ANSWER-A)
32)
Methods of forecasting environmental change fall into two broad groups. One group is
primarily concerned with forecasting the future performance of the economy as a whole;
the other group is more concerned with forecasting ______ for individual industries and
products.
A. sales
B. cost
C. inventory
D. weather patterns
E. None of above
(ANSWER-A)
33)
The relative proportions of cash sales and credit sales make an important difference to
which of the following?
A. Expected sales.
B. Expected cost.
C. Expected inventory.
D. Expected cash flows.
E. Expected accounts receivable.
(ANSWER-D)
34)
What economic factor concerning the entrepreneurs product is the most significant for
the companys credit policy?
A. Elasticity of demand
B. Elasticity of supply
C. Margin of profit
D. Margin of utility
E. None of above
(ANSWER-A)
35)
Which of the following is a method of pursuing payment from a customer whom the
entrepreneur believes able to pay?
A. Refusing any further supplies, or supplying only for cash
B. Threatening legal action
C. Actually undertaking legal proceedings, using a specialized collection agency
D. All of the above
E. None of the above
(ANSWER-D)
36)
Its safe to say that collection procedures are expensive and justifiable only when the
expected results ______.
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A. are lower than the cost.

B. exceed the cost.
C. are equal to the cost.
D. are at least 40% lower than the cost.
E. None of the above.
(ANSWER-B)
37)
A method of reducing overdue accounts and limiting bad debts is setting limits to the
credit allowed on______.
A. corporate buyers
B. individual accounts
C. high-cost goods
D. low-cost goods
E. none of the above
(ANSWER-B)
38)
What does a trade-credit effectively amount to?
A. Higher accounts payable.
B. Higher trust among companies in the same industry.
C. A loan to the entrepreneurs working capital.
D. Debt swaps.
E. None of the above
(ANSWER-C)
39)
Which of the following is NOT a way to use inventory as security for a loan?
A. A chattel mortgage.
B. A floating lien.
C. Field warehousing.
D. Public warehousing.
E. Outside project financing.
(ANSWER-E)
40)
Typically, a company can borrow what percent of its accounts receivables face value if
it has a good credit rating and its customers have excellent credit ratings.
A. 15% to 25%
B. 25% to 50%
C. 50% to 75%
D. 75% to 90%
E. 90%to 100%
(ANSWER-D)
41)
Banks and finance companies usually lend ______, in writing a floating lien.
A. only a small fraction of the inventorys book value
B. only a small fraction of the inventory's market value
C. the total amount as the inventorys book value
D. a small fraction of the sales of the last year
E. a large fraction of the sales of the last year
(ANSWER-B)
42)
Which of the following is not suitable for using field warehousing?
A. Especially bulky inventory.
B. Especially valuable inventory.
C. Structural steel
D. An inventory of chemicals
E. None of the above.
(ANSWER-E)
43)

Which of the following is NOT a factor that influences the interest borrowers pay?

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A. the dollar amount of the loan

B. the length of time involved
C. the nominal rate of interest
D. the repayment location
E. the method used to calculate the interest
(ANSWER-D)
44)
The bank discount method is common in ______.
A. short-term business loans
B. long-term business loans
C. financing from customer prepayments
D. collateral appraisal
E. insurance
(ANSWER-A)
Chapter 10
1. The equation for the value of a company with the earnings capitalization method is:
A) Company Value = Gross Revenue Book Value
B)
Company Value = Net Income Capitalization Rate
C)
Company Value = Net Income Market price of stocks
D)
Company Value = Sum of Cash Flow for the past five years
E)
Company Value = Price of one share number of shares
(Answer B)
2. Which of the following must be added to Operating Income when calculating Free Cash
Flow?
A) Depreciation
B)
Principal Payments
C)
Interest Payments
D)
Capital Expenditures
E)
Tax Payments
(Answer A)
3. Replacement Value is a variation of:
A) Market-Comparable Valuation Method
B)
Earning Capitalization Method
C)
Present Value of Future Cash Flows Method
D)
Market Capitalization Method
E)
Asset-based Valuation Method
(Answer E)
4. All of the following is mentioned in the chapter as possible sources of funding that the
entrepreneur should explore prior to soliciting investments from family and friends, except:
A) Vendor financing
B)
Reduced rent from a landlord
C)
Selling infrastructural assets
D)
Customer financing
E)
Services at reduced rates
(Answer C)

5. What percent of informal investment is directed to businesses founded by the investors

relative?
A) 25%
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B)
35%
C)
40%
D)
50%
E)
65%
(Answer D)
6. According to the GEM study, half of all informal investors are expecting their money to be
returned within how many years?
A) 1 year
B)
2 years
C)
3 years
D)
4 years
E)
5 years
(Answer B)
7. How much do business angels invest annually in the US?
A) $5 - 6 billion
B)
$10 - 15 billion
C)
$15 - 20 billion
D)
$20 - 30 billion
E)
$50 - 60 billion
(Answer C)
8. Which of the following types of angels is usually a passive investor?
A) Professional
B)
Entrepreneurial
C)
Corporate
D)
Micromanagement
E)
Enthusiast
(Answer E)
9. The least desirable way for venture capitalist to harvest an investment is:
A) IPO
B)
Acquisition
C)
Buyback
D)
Stock swap
E)
They are equally attractive
(Answer C)
10. Which of the following is a non-financial reason for an angel to invest?
A) A desire to mentor entrepreneurs
B)
Recreation
C)
To indirectly benefit society
D)
All of the above
E)
None of the above
(Answer D)
11. Which of the following is not one of the six top factors venture capitalists evaluate in
analyzing a candidate for investment?
A) Management team
B) Business plan
C) Product/service
D) Investors recommendations
E) Target market
(Answer D)
12. Venture capitalists will invest only if the company has the potential to return at least:
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A) Seven times their investment in five years

B) Four times their investment in three years
C) Five times their investment in two years
D) Ten times their investment in seven years
E) Five times their investment in five years
(Answer A)
13. What are the most attractive companies that go public usually backed with?
A) Angel capital.
B)
Venture capital.
C)
Positive cash flow.
D)
Investments from family members.
E)
Sweat equity
(Answer B)

14. From a venture capitalists perspective, an introduction to an entrepreneur through which

of the following people is most worrisome?
A) Other entrepreneurs
B)
Lawyers
C)
Finders
D)
Angels
E)
Bankers
(Answer C)
15. In general, a venture capitalist should not sit on more than what number of portfolio
company boards?
A) 2
B)
5
C)
8
D)
10
E)
12
(Answer B)
16. What will a VC usually receive in exchange for the money invested?
A) Common stock
B)
Stock options
C)
Promissory notes
D)
Letter of deposit
E)
Convertible preferred stock
(Answer E)
17. What is the term for the event by which the investor realizes his or her investments?
F)
Crop
A) Gain
B)
Exit
C)
Yield
D)
Cream
(Answer C)
18. What percent of all VC backed companies ever go public?
A) <1%
B) 5%
C) 10%
D) 25%
E) 55%
(Answer B)
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19. The period when the prior shareholders are not permitted to sell any of their stock is
called:
A) Lockup period
B)
Blocking period
C)
Limited period
D)
Banning period
E)
None of the above
(Answer A)
20. What is the underwriters standard commission for taking a company public?
A) ~1.5%
B) ~3%
C) ~5%
D) ~7%
E) ~10%
(Answer D)
21. For the entrepreneur advancing through the IPO process, what is the step that
immediately follows the SECs approval of the preliminary prospectus?
A) The road-show
B) Filing the registration form with the SEC
C) Agreeing upon the price of stocks
D) Meeting with all key players
E) Start seeking an underwriter for the IPO
(Answer A)
22. What is the term for the founders compensation to be paid a few years after the company
is acquired, if the company meets certain targets?
A) Added value
B)
Plus value
C)
Money on the table
D)
Premium for excess
E)
Earn-out
(Answer E)

Essay:
1. The four Cs of entrepreneurship: Calling, Competence, Confidence, Character.
Write in minimum 100 words for each C to explain these four Cs of entrepreneurship that guide the
process of entrepreneurship.

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2. Essay 2 has four questions. Business Plan

a. What is the purpose of a business plan?
b. What is included in the business plan?
c. Give a short summary of the business plan you worked on for this class.
d. What did you learn about entrepreneurship as a result of doing the business plan?
Suggested answer: The Business Planning Process
The most important aspect of writing the business plan is the learning that goes on as you identify
your concept and then research the concept, the industry, the competitors, and customers.
The process undertaken in developing a tight, well written story is also very important.
The plan must establish an opportunity worth exploiting and detail how to accomplish it.
The business planning process raises critical questions about the feasibility of the venture.
The great benefit of the business planning process is that it allows the entrepreneur to articulate the
business opportunity to various stakeholders in the most effective manner.

THE PLANNING PROCESS

Business planning literally starts when you start thinking about your new venture.
Start organizing information in a meaningful way after acquiring a critical mass of learning.
Your planning process will focus on critical aspects of your business model, and not coincidentally,
these critical aspects map well to the typical format of a business plan.
Wisdom is realizing that the business plan is a living document.

THE BUSINESS PLAN

7.1.1 The Cover
7.1.2 Table of Contents
7.1.3 Executive Summary
7.1.4 Industry, Customer, and Competitor Analysis
7.1.5 Company and Product Description
7.1.6 Marketing Plan
7.1.7 Development Plan
7.1.8 Team
7.1.9 Critical Risks
7.1.10Offering
7.1.11Financial Plan
7.1.12Appendices

.* * * * * Praises to God for Asia-Pacific International University * * * * *

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