BUSINESS 10 06. All Answers Correct

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1. (p. 114) The corporation is the most common form of business ownership. 2. (p. 114) The three major forms of business ownership in the U.S. are sole proprietorships, partnerships, and corpor ations... . 3. (p. 114) Few people today start their own business. 4. (p. 115) Once a business is established, it's almost impossible to change from one form of business ownership to another. 5. (p. 114) When two or more people legally agree to become co-owners of a business, the form of business is called a partnership. 6. (p. 114) A legal entity with authority to act and have liability separate from its owners is called a partnership. 7. (p. 114) Corporations represent 20 percent of all the businesses in the U.S. and earn 81 percent of the total U.S. business receipts. 8. (p. 114) A comparison of the three major forms of business ownership shows that sole proprietorships are usually the most difficult type of business to establish. 9. (p. 115) The first step in starting a sole proprietorship is to fill out a proprietorship charter application form and file it with the state government. 10. (p. 115) It is usually easy to start and end a sole proprietorship. 11. (p. 115) The profits of a sole proprietorship are taxed as the personal income of the owner. 12. (p. 115) The sole proprietorship form of ownership tends to be attractive to people who want to invest in a company without taking an active role in management. 13. (p. 115) A major advantage of sole proprietorships is that an owner has limited liability for the debts of his or her business. 14. (p. 115) One of the strengths of the sole proprietorship is its ability to sustain rapid growth by raising large amounts of financial resources. 15. (p. 116) The debts of a business operated as a sole proprietorship are considered to be the personal debts of the owner of the business. 16. (p. 116) A drawback of sole proprietorships is that they usually have limited access to additional financial resources. 17. (p. 116) An advantage of forming a sole proprietorship is that it allows the owner to have more time for leisure activities. 18. (p. 116) If a sole proprietorship fails, the owner may lose whatever was invested in the business, however, the owner's personal assets are not at risk. Sole proprietors have unlimited liability for the debts of their business. This means that if their business gets into financial trouble they can lose their personal assets. 19. (p. 115) If the business is designated a sole proprietorship, profits are passed along to the owner. For tax purposes, these profits are accounted for with any other personal income the owner may have accumulated and taxed at the owner's personal income tax rate. The profits of a sole proprietorship are passed through to the owner, and taxed at the owner's personal tax rate. However, owners do have to pay self employment tax (Social Security and Medicare). By law, sole proprietors are required to estimate their taxes and make quarterly payments to the government or suffer penalties for nonpayment. 20. (p. 116) A difficulty that sole proprietors try to overcome is the fact that they have trouble competing with large firms for expert talent. Large firms can usually pay better and offer fringe benefits that are unaffordable to the sole proprietor. Sole proprietors often find it difficult to attract qualified employees to help run the business because often they cannot compete with the salary and benefits offered by larger companies. 21. (p. 116) Unlike partnerships, if sole proprietorships find themselves in bankruptcy, they need not worry about a court of law requiring them to sell-off personal assets to pay for the debts of the firm. Sole proprietorships have unlimited liability. This means that the proprietor is financially responsible for all debts incurred by the company. In a court of law, a judge could require the owner/proprietor to liquidate personal assets to pay the debts of the business. 22. (p. 115) Eric wants to start a business. He is attracted to the idea of being his own boss, and wants to get started with a minimum of expense and hassle. He is confident in his abilities, and the market he can draw from, so he is not particularly worried about financial risks. All of these factors suggest that Eric may favor starting his business as a sole proprietorship. People who want to be their own boss often prefer to operate their business, at least initially, as a sole proprietorship. An advantage of the sole proprietorship is that it is a relatively easy and inexpensive form of business to set up. One drawback of a sole proprietorship is that the owner has unlimited liability. However, at this time, Eric is not worried about risk. The unlimited liability factor does not appear to be a problem for him. 23. (p. 115-116) Sandy Beech, a talented fashion designer who wants to start her own women's swimwear and beach towel line is trying to decide which form of business ownership is right for her. As a young mother who aspires to send her children to college some day, she does not want to jeopardize her savings account in any way. In order to overcome these risks, Sandy should start her business as a sole proprietorship. Sandy is concerned about the risk of losing personal assets if her business does not succeed. Although the sole proprietorship is easy to set-up, it may not be the best form of business ownership for Sandy due to her need to protect personal assets. She may want to consider a form of ownership that provides limited liability. 24. (p. 116) Rocky Rhodes is convinced that he has a great idea for a new business. Unfortunately, the type of business he wants to start would require a fairly high initial investment and Rocky has a poor credit rating and very little personal wealth. Rocky would be unlikely to find success if he organized his business as a sole proprietorship. Funds available to sole proprietorships are often limited to the amount the owner can raise. Thus, Rocky's business would probably have a hard time raising enough money if he organized it as a sole proprietorship. 25. (p. 117) A general partner takes an active role in the management of the business. 26. (p. 117) All partners in a general partnership have limited liability for the debts of their firm. 27. (p. 117) In a general partnership, all partners share in management of the business and in the liability for the firm's debts. 28. (p. 117) In a general partnership, all partners are entitled to an equal share of the firm's profits. 29. (p. 117) Limited partnerships are just like general partnerships, except that they are partners for a limited time period. 30. (p. 117) A limited partner is an owner who assumes no management responsibility and has no liability for losses beyond the amount invested. 31. (p. 117) A limited partnership consists of one or more general partners and one or more limited partners. 32. (p. 117) Although shares of master limited partnerships can be purchased on one of the national stock exchanges, these companies are taxed like partnerships. 33. (p. 118) The Uniform Partnership Act is law in every state except Louisiana. 34. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are (1) shares of stock to represent ownership, (2) limited liability, and (3) ease of ownership transfer. 35. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are (1) common ownership, (2) shared profits and losses, and (3) the right to participate in managing the operations of the business. 36. (p. 118) A recent study showed that partnerships are more likely to fail than sole proprietorships. 37. (p. 117) A major objective of limited liability partnerships (LLPs) is to limit each partner's personal liability to the consequences of their own acts and those of people under their supervision. 38. (p. 119) One of the major disadvantages of a partnership is that profits must be divided equally. 39. (p. 117) A general partner has unlimited liability for the debts of the partnership only if he or she personally approved the decisions that resulted in those debts. 40. (p. 119) In order to protect all parties and minimize misunderstandings among partners, all terms of the partnership should be spelled out in writing. 41. (p. 118) One advantage of a partnership is that there is a simple process for partners to terminate their business. 42. (p. 118) Compared to sole proprietorships, an advantage of partnerships is their ability to obtain more financial resources. 43. (p. 119) Setting up a partnership under the terms of a written agreement is a bad idea, because written agreements tend to be too inflexible and impersonal. 44. (p. 118) Compared to sole proprietorships, partnerships offer the advantage of shared management and pooled knowledge. 45. (p. 117) A limited partnership refers to a partnership set up for a temporary purpose, such as a real estate development project. 46. (p. 117) In a limited partnership, the general partners should encourage the limited partners to take a more active role in the operations of the business. After all, the limited partner has comparable liability in the business, even though he/she may not be a partner for as long a period of time as the general partners. By definition, a limited partnership will consist of one or more general partners and one or more limited partners. The limited partners are passive investors. By law, they do not take an active role in the management of the business, yet they may share in the profits of the business and remain a partner for as long as the partnership exists. 47. (p. 119) If a partner in a limited partnership dies, the partnership ceases to exist. If a partner in any partnership dies, the partnership agreement automatically ceases to exist. Good partnership agreements usually have provisions for these situations. 48. (p. 119) In the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", the writer suggests that potential partners discuss the types of skills that each brings to the business. Partners with complimentary skills may enhance the business. It is suggested that you ask yourself what types of skills you and your potential partners bring to the business, and whether those skills compliment each other. Successful partners often come with varying backgrounds. Sometimes one partner will have the technical skills to get the job done, while others might have the business or accounting knowledge. 49. (p. 119) One method to avoid conflicts between partners is to solicit the services of a lawyer to create a well-written partnership agreement. One of the most important tasks to achieve before forming a partnership is to create a partnership agreement. The partnership agreement addresses a number of rules that will govern the activities of the partnership including but not limited to: the duties of each partner; the rules for adding partners; contributions by each partner; and, how profits will be distributed. 50. (p. 119) According to the Spotlight on Small Business box, titled, "Pick Your Partners Wisely", attributes such as trust and integrity are not something you should get overly concerned about when selecting partners, due to the fact that this is a business decision, not a friendly game of golf. Prospective partners should concern themselves with several aspects of the business relationship, including the values shared by partners who are entering into business together. Others things that you should ask yourself is whether the partners share the same goals and whether each partner's skills compliments the others. 51. (p. 118-119) The fairest way to handle profits in any partnership arrangement is to divide things evenly. If there are two owners in the business, each gets 50%. If there are three owners (even if one is a limited partner), each gets 33.333% of any accumulated profits. The partnership agreement should stipulate the way the business plans to share the profits. The partnership may not necessarily divide the profits equally among members. Several criteria may enter into the decision of how to share profits, including the expertise of each partner, the investment amount of each partner, and the amount of time each partner spends in the business. 52. (p. 117) Ted and Mark are partners in a dry cleaning business. They would like their brother Todd to join them. Unfortunately, partnership law states that only two partners can participate in a partnership. A partnership consists of two or more owners. Unless explicitly written in the original partnership agreement, the partnership can add partners. 53. (p. 117) Connie is a general partner in a retail cookie store. Her personal assets are legally protected from the debts of the business. As a general partner, Connie assumes unlimited liability for the debts of her business. 54. (p. 117) Two of Diana's friends have approached her about starting a new business. Diana is willing to invest money in the business and share in its profits, but she has no desire to be involved in the day-to-day management of the company, nor is she willing to risk any amount beyond her initial investment. Diana's preferences suggest that she prefers a general partnership form of business ownership. In a general partnership, all partners share in the management of the business, and have unlimited liability for the firm's debts. Since Diana has no interest in managing a company and wants to limit her risk, she is more suited for a Limited Partnership, where her friends would serve as general partners and she would serve as a limited partner. 55. (p. 117) Emma Pebble and Chase Stone formed a partnership in a landscape business. Under their arrangement. Emma actively manages the company and assumes unlimited liability for the firm's debts. Chase has invested several thousand dollars of his money with plans to share in the profits, but does not actively make management decisions, nor will he assume liability beyond his initial investment. Emma and Chase participate in a limited partnership. A limited partnership consists of at least one general partner, who has unlimited liability, and at least one limited partner, who risks only what he or she has invested. By law, the limited partner cannot actively manage the partnership. 56. (p. 118-119) Sergio has agreed to become a partner in his brother's horse breeding business. Since he provided 30 percent of the money to start the firm and build an air-conditioned barn, he is entitled to 30 percent of any profits the firm earns during its first year of operation. The division of profits in a partnership is negotiable and is not necessarily tied to the amount of the initial investment. 57. (p. 119) After spending a summer down-under, two Oregon friends, Rick and Mick created a general partnership to import emu from Australia to the U.S. After a year, Rick found himself at the mercy of Mick who seemed to keep the books and seldom share the financial results, even though Rick was out selling the emu idea to farmers and ecologically conscious consumers; and, shipments were increasing. As their consultant, one of the first things that you inquire about is whether they are familiar with the UPA (Uniform Partnership Act), specifically the right to participate in managing the operations of the business. The Uniform Partnership Act (adopted in every state except Louisiana) stipulates: 1) common ownership; 2) shared profits and losses; and, 3) the right to participate in managing the operations of the business. Rick has the right to know and be provided with regular financial statements that pertain to his business. 58. (p. 118) Marco is a limited partner in an e-commerce company. As a limited partner, Marco can be involved with the company for a maximum of five years. A limited partner has limited liability and cannot actively manage the firm, but his involvement is not restricted as to length of time. 59. (p. 118) According to the Spotlight on Small Business box, "Pick Your Partners Wisely", it is really not necessary to interview your prospective partner carefully, especially if they are an old friend. The Spotlight on Small Business box suggests doing three things before starting a partnership: (1) talk to people who have been in successful and unsuccessful partnerships; (2) interview your prospective partner(s) very carefully; and (3) evaluate the decision skills of your prospective partner(s). 60. (p. 117-118) Last night as you scrolled through the TV channels to find an action flick, you came across an old movie with tough guy, James Cagney, called "Yankee Doodle Dandy". Although not particularly your kind of movie, you stayed on that channel for a few minutes because Cagney and another guy were in partnership together. They were arguing over who was the senior partner and who was the junior partner, even though, clearly, they started the business at the same time. If you were brought on board as their present-day business advisor, you would explain to them that all partnerships have at least one general partner (known as the senior partner) and one limited partner (known as the junior partner). According to the Uniform Partnership Act adopted in every state except Louisiana, partners have the right to 1) common ownership; 2) shared profits and losses; and, 3) the right to participate in managing the operations of the business. In some cases, partners may have differing skills and skill levels (or level of experience) of the other partners, but as partners they are on equal-footing. A good partnership agreement will spell-out the details of the partnership. Further, partnerships can be 1) general partnerships or 2) limited partnerships, but these variations do not hold the senior/junior designation. 61. (p. 121) A conventional corporation is a state-chartered legal entity, with authority to act and have liability separate from its owners. 62. (p. 121) In today's economy, only large business enterprises should operate as corporations. 63. (p. 121) The owners of a corporation are known as general corporate partners. 64. (p. 122) A corporation can raise financial capital by selling shares of stock to interested investors. 65. (p. 121) Stockholders in a corporation accept unlimited liability for the corporation's debts. 66. (p. 122) A disadvantage of corporations is that their charters are only valid for 99 years, so corporations are less permanent than other types of businesses. 67. (p. 122) When one of the owners of a corporation dies, the corporation legally ceases to exist. 68. (p. 124) Corporations are easy to start and easy to terminate. 69. (p. 124) A disadvantage of corporations is that they generally require extensive paperwork. 70. (p. 124) A disadvantage of corporations is that an owner must get the approval of all other owners before selling his or her interest in the firm to another investor. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #70 Topic: Corporations 71. (p. 124) Stockholders in a corporation normally exert a significant degree of control over the company's daily operations. 72. (p. 123) The stockholders in a corporation elect a board of directors to oversee the company's major policy issues. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #72 Topic: Corporations 73. (p. 124) Stockholders in a corporation exert a significant degree of control over the company's daily operations. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #73 Topic: Corporations; Figure 5.4 74. (p. 123) Stockholders in a corporation have limited liability. 75. (p. 123-124) Stockholders in a corporation entrust control over the company's daily operations to managers selected by the board of directors to run the company. 76. (p. 124) One advantage of corporations is that the initial cost of organization is usually lower than for other forms of business ownership. 77. (p. 124) States may levy special taxes on corporations that are not imposed on other businesses. 78. (p. 123) Most states have legal restrictions that prevent individuals from incorporating. 79. (p. 123) One reason Individuals incorporate is to obtain the advantage of limited liability. 80. (p. 122) An alien corporation does business abroad but is chartered in the U.S. 81. (p. 122) A domestic corporation does business in the state in which it's chartered. 82. (p. 122) A foreign corporation is chartered in a country outside the U.S. 83. (p. 122: 124) Delaware is a popular state to seek incorporation due to its reduced costs and other perks. 84. (p. 122) A closed corporation is one whose stock is held by a few people and is not available to the general public. 85. (p. 122) A non-profit corporation does not seek personal profit for its owners. 86. (p. 122) A quasi-public corporation is a corporation chartered by the government as an approved monopoly to perform services to the general public. 87. (p. 122) A multinational corporation is a firm that operates in several countries. 88. (p. 123) To change ownership in a corporation you simply sell your stock to someone else. 89. (p. 123) Stock options are the right to purchase shares of the corporation for a fixed price. 90. (p. 123) An advantage of corporations is their ability to attract good talent by offering stock options and other employee benefits. 91. (p. 123) It is said that corporations have perpetual life. 92. (p. 125) One advantage of an S Corporation is that the profits of the business are distributed to the owners and taxed as each owner's personal income, thus avoiding the problem of double taxation. 93. (p. 125) By filling out the correct paperwork annually, any corporation can qualify to be classified as an S corporation. 94. (p. 125) A company that loses its status as an S corporation may not reelect this status for at least 5 years. 95. (p. 126) By law, providers of personal services such as doctors and lawyers cannot set-up their businesses as limited liability companies. 96. (p. 125) An S corporation has fewer ownership rules than a limited liability company. 97. (p. 125) The S corporation form of business would be particularly attractive to fast growing companies that want to attract thousands of new stockholders. 98. (p. 126) A limited liability company is similar to an S corporation, but without the special eligibility requirements. 99. (p. 126) Limited liability companies have both flexibility in tax treatment of earnings and limited liability protection for owners. 100. (p. 126) One of the drawbacks of a limited liability company is that most states do not yet recognize this form of ownership. 101. (p. 126) Like stockholders of a C corporation, owners of a limited liability company (LLC) are free to sell their ownership without the approval of other members. 102. (p. 126) The limited liability company requires a minimum of 10 members. 103. (p. 123) The organization structure of a corporation allows for stockholders to exert a significant degree of control over the company's daily operations. Stockholders elect the Board of Directors of a corporation. The Board of Directors appoints the Management. The management operates separately from stockholders. 104. (p. 122) Public utilities are examples of quasi-public corporations. Quasi-public corporations are corporations authorized by the government to serve as regional monopolies. 105. (p. 122) The purpose of corporate by-laws is to maintain a legal structure and also to stipulate how the firm will be managed. By-laws describe how a firm will operate from both a legal standpoint and a management perspective. 106. (p. 121-123) In order to establish a C-Corporation, it is a requirement that investors run the company, whereas in an S-Corporation, this is not the case. In a C-Corporation, the investors elect the Board of Directors. The Board of Directors appoints the officers and management team. It is not a requirement that investors run the company. S-Corporations also have stockholders, directors, and employees, but S-Corporations are taxed differently from C-Corporations. 107. (p. 123) If you want to sell your ownership in a publicly traded corporation, you find someone willing to buy your shares. There is ease of ownership in a corporation. If you no longer want to be an owner/stockholder, you sell your shares to another party. The corporation has perpetual life, but your ownership does not need to be for life. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #107 Topic: Corporations 108. (p. 123) The stockholders of large, publicly traded corporations have a daily pulse on the operation of the business. The owners/stockholders elect a board of directors, who hires the officers of the corporation and oversees major policy issues. The owners/stockholders thus have some say in who runs the corporation but have little to no control over the daily operations. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #108 Topic: Corporations 109. (p. 123) If a corporation distributes after-tax profits to its stockholders in the form of dividends, the government considers these distributions as part of each stockholder's personal income. Stockholders pay taxes on these distributions. A disadvantage of the corporate form of business ownership is double taxation. If corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on this income. Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them. 110. (p. 123) If a corporation has after-tax profits of $360,000, and elects to distribute this amount in the form of dividends to its stockholders, these distributions are free and clear of taxes because the corporation paid taxes on this amount prior to distribution. A disadvantage of the corporate form of business ownership is double taxation. If corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on dividend income. Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them, hence the term, double taxation. 111. (p. 123) Double taxation means that a corporation pays twice the amount of taxes as a sole proprietorship or partnership. A disadvantage of the corporate form of business ownership is double taxation. If corporations distribute after-tax profits to stockholders, these individuals are required to pay taxes on dividend income. Unfortunately, these amounts were already taxed once, when the corporation paid taxes on them, hence the term, double taxation. 112. (p. 125-126) The major differences between an S-Corporation and a Limited Liability Company are limits on the number of owners, and, the citizenship status of individuals who are owners. A limited liability company (LLC) is similar to an S corporation but without the special eligibility requirements. S-Corporations require its owners to be U.S. citizens or the estates of U.S. citizens. The LLC does not have these requirements. 113. (p. 126) The owners of a limited liability company (LLC) must pay self-employment taxes on any profits they earn, even if they did not obtain a salary from the company. Although the LLC allows for profits to be distributed to owners and taxed at each owner's personal tax rate, the owners must also pay self-employment taxes on those earnings. Self-employment taxes include Medicare and Social Security taxes. 114. (p. 121) A group of medical doctors are interested in incorporating their business. There is no advantage due to the costs involved. Many individuals choose to incorporate to obtain limited liability. In some cases, they may also receive tax savings by doing so. 115. (p. 121) Nutty Dough is a small chain of donut shops currently owned and operated by a group of seven partners. The owners think that their chain has the potential for rapid growth, but several of the partners are concerned about the growing financial risks that will accompany this growth. One way the partners could deal with this problem would be to incorporate their business. An advantage of corporations is that they provide their owners (stockholders) with the protection of limited liability. 116. (p. 123) Chad recently invented Wave-Aerobics, a next generation watercraft that can safely perform water stunts similar to an amusement park ride. As the founder of a fast growing business, you think his goal of incorporating, "to remain in steadfast control of the firm's operations for an indefinite number of years" is good strategy. One potential drawback of incorporation is the possibility of conflict between the entrepreneurs who originally start a business and the stockholders and board of directors who may eventually gain control. 117. (p. 125) Mojo Motors is a small conventional corporation with only 212 stockholders. Eleven of the stockholders are citizens of Mexico, and eight others are citizens of Canada. Due to its size and diversity in ownership, you would recommend that Mojo Motors change to an S-Corporation. Mojo Motors does not satisfy the requirements for an S corporation—it has more than 100 stockholders, some of whom are not U.S. citizens or permanent residents of the United States. 118. (p. 125-126) The owners of Idle Time Gaming Company would like to switch to an S corporation. Unfortunately, their lawyer advised them that they do not meet some of the requirements necessary to qualify as an S corporation. An alternative form of business that would give them similar advantages is a limited liability company. Limited liability companies offer many of the same advantages as S corporations, including limited liability and the possibility of taxation like a partnership, without the special eligibility requirements required to qualify for S corporation status. 119. (p. 126) The owners of California Canines, a firm that designs and manufactures coats, sweaters, jackets, and rainwear for dogs want to organize as an LLC. Two members are college students and two others are thirty something couples with young children. This is good strategy because each member can choose to commit to limited or unlimited liability. All members of an LLC have limited liability. There is no choice in that matter. The purpose of organizing as an LLC is to eliminate the risk of losing personal assets in an unprofitable venture. In terms of taxes, a limited liability company offers the best of both worlds, allowing the owners to choose to be taxed as a partnership or a corporation depending on which tax rates would benefit them the most. 120. (p. 127) A few years back, your friends who are horse fanatics inherited several acres of land that they turned into a retirement haven for race horses. Peaceful Pastures was recently incorporated as a limited liability company. The members are re-evaluating this form of ownership. Unlike an S-corporation, they now pay self-employment taxes on all company profits - not just on the salaries they pay themselves. While S-Corporations have several restrictions, one advantage they have compared to the Limited Liability Company is the self-employment tax requirements. Any profits earned by the LLC are considered part of the owner's wages/salary/income. These wages are subject to self-employment taxes. The S-Corporation only pays self-employment taxes on those dollars designated as salary or wage expenses by the business. They do not pay self-employment taxes on the profits of the business. 121. (p. 127) According to the Legal Briefcase box, "Vermont wants to be the Home of Your New Virtual Company", a Vermont virtual LLC's profits are distributed to members according to their contribution of time, expertise, and money. A virtual LLC is the newest form of business ownership in the state of Vermont. Vermont hopes to attract companies who operate virtually. The company does not hire and train employees in the traditional sense. Members of the LLC contribute their expertise and time, virtually, and are paid according to the value and amount of their contribution(s). 122. (p. 122) After a successful five years, Peaceful Pastures, LLC (a retirement ranch for race horses) thinks it may be able to attract donations from animal activist groups and even the federal government if it becomes a non-profit corporation. As its business advisor, you explain that as a non-profit corporation, the owner(s) may earn a salary but the business should not seek after-tax profits. If Peaceful Pastures decides to change its form of business ownership to a non-profit corporation, it will not seek personal profits for its owners. If the owner(s) works in the business, he/she can expect a salary. By law, the firm cannot distribute any additional income to owners. It must put all revenues and/or contributions back into the business. 123. (p. 124) Chipper's Golf Resort has the opportunity to buy 1000 acres of property adjacent to its 18-hole golf course. After talking with her banker, the owner is encouraged to begin the paperwork to change from a Limited Liability Company form of business ownership to a corporation. You applaud this strategy because she will eliminate the problem of double taxation. C-corporations (not LLCs) face the disadvantage of double taxation. A C-corporation's income is taxed twice. First the corporation pays tax on all income before it can distribute any, as dividends, to stockholders. The stockholders pay income tax on the dividends they receive. 124. (p. 129) When two firms join together to form one company, it is called a merger. 125. (p. 129) The three major types of mergers are acquisitional, joint, and connective. 126. (p. 129) An acquisition is when one company buys the property and obligations of another company. 127. (p. 129) One of the major reasons for the wave of mergers in the late 1990s and early 2000s was the desire of firms to expand within their own markets. 128. (p. 129) Taking a firm private involves converting a firm from a corporation to a general partnership. 129. (p. 129) If firms wish to gain market share in their current market, they would consider a conglomerate merger. 130. (p. 129) The purpose of a conglomerate merger is to diversify operations and investments. 131. (p. 129) A merger between two businesses in different stages of related businesses is known as a vertical merger. 132. (p. 129) A horizontal merger refers to a merger between two companies that serve entirely different markets. 133. (p. 129) A horizontal merger refers to a merger between two companies in the same industry, and serving the same markets. 134. (p. 130) A leveraged buyout is an attempt by top management to gain control of a company by issuing a large amount of new stock. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #134 Topic: Corporate Expansion: Mergers and Acquisitions 135. (p. 130) When a group of investors take a firm private, they purchase all the company's outstanding stock. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #135 Topic: Corporate Expansion: Mergers and Acquisitions 136. (p. 130) In recent years, foreign firms were reluctant to merge with or acquire American corporations. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #136 Topic: Corporate Expansion: Mergers and Acquisitions 137. (p. 129) A merger is a mutual agreement where a firm joins together with another firm, whereas an acquisition is when one firm purchases the assets and obligations of another firm. When companies merge, there is a mutual agreement to join forces. Although the assets and obligations are combined, there is no offering of funds or stock by one company, for the other, as in an acquisition. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #137 Topic: Corporate Expansion: Mergers and Acquisitions 138. (p. 129) One reason that a firm would choose to merge or acquire another company would be to gain market share. Firms know that the fastest way, but not always the least expensive way to acquire market share or expand their market is to merge with or buy-out a competitor. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #138 Topic: Corporate Expansion: Mergers and Acquisitions 139. (p. 129) One reason that a firm may choose to merge or acquire another company would be diversity with diversify of products or services. When firms participate in conglomerate mergers, they purchase companies whose products and services are different or unrelated to what they currently offer. They choose to diversify the portfolio of business units and even the industries where they operate. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #139 Topic: Corporate Expansion: Mergers and Acquisitions 140. (p. 130) The strategy of a leveraged buyout is used when employee talent is at a minimum. If employees and/or management believe they can improve performance by running the company themselves, they will seek financial backing (borrow funds) and take ownership, by buying all available stock from the current stockholders. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #140 Topic: Corporate Expansion: Mergers and Acquisitions 141. (p. 129) Taking a firm private means turning a profit-seeking corporation into a nonprofit corporation in order to avoid a hostile takeover. Taking a firm private involves an effort by a group of stockholders or managers to gain control of all of a corporation's outstanding stock. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #141 Topic: Corporate Expansion: Mergers and Acquisitions 142. (p. 130) A major objective of a leveraged buyout is to enable investors to gain control of a company by issuing new shares of ownership, thus minimizing the use of debt. Leveraged buyouts involve financing the acquisition of an organization through the use of debt financing. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #142 Topic: Corporate Expansion: Mergers and Acquisitions 143. (p. 129) Hole in One Golf Company announced plans to purchase the property and assume the obligations of Champion Golf, Inc., one of its major competitors. Hole In One Golf Company's plans are an example of a merger. Hole In One Golf Company's actions are an acquisition rather than a merger. An acquisition refers to one firm's purchase of the assets and obligations of another firm. Since the firms are competing in the same market rather than at different stages, this is a horizontal move. Learning Goal: 05-4 Nickels - Chapter 05 #143 Topic: Corporate Expansion: Mergers and Acquisitions 144. (p. 129) Two competitors: Stanley's Food Mart and Bluejay Groceries recently issued a joint announcement stating their decision to merge. The announcement claimed that the new firm would have more financial resources, which would enable it to expand services and broaden offerings to consumers. This proposed merger is an example of a horizontal merger. A merger between two firms in the same industry, such as two grocery stores, is a horizontal merger. Learning Goal: 05-4 Nickels - Chapter 05 #144 Topic: Corporate Expansion: Mergers and Acquisitions 145. (p. 129) Tech Solutions, Inc., a manufacturer of laptops, is considering a merger with Outtel, a leading producer of microprocessors and other computer chips. Tech Solutions believes such a merger would give them a guaranteed source of needed components, and enable them to have better control over quality. If this merger occurs, it would be an example of a horizontal merger. A merger between two companies at different stages of related business is known as a vertical merger. Learning Goal: 05-4 Nickels - Chapter 05 #145 Topic: Corporate Expansion: Mergers and Acquisitions 146. (p. 129) Cory Raider is leading a group of stockholders who wants to take the Bigbux Corporation private. If Cory's group succeeds, Bigbux's stock will no longer be available to investors on the open market. Taking a firm private involves gaining control of a firm's stock so that it is no longer available to investors on the open market. Learning Goal: 05-4 Nickels - Chapter 05 #146 Topic: Corporate Expansion: Mergers and Acquisitions 147. (p. 130) Due to several years of poor performance, Scrappy's Metal Fabrication, Inc., is closing. Through the use of debt financing, workers plan to purchase the company's stock from current shareholders, in order to buy the firm, improve company performance, and save jobs. A leveraged buyout involves the use of debt financing to buy the stock of a company. Skilled workers want to save their jobs and make their company profitable again. Learning Goal: 05-4 Nickels - Chapter 05 #147 Topic: Corporate Expansion: Mergers and Acquisitions 148. (p. 131) A franchise agreement is an arrangement where a franchisor sells the rights to a business name and the right to sell a product or service within a given territory to a franchisee. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #148 Topic: Franchises 149. (p. 131) A franchise may be organized as a sole proprietorship, partnership, or corporation. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #149 Topic: Franchises 150. (p. 131) Recent figures indicate that franchising has declined in importance over the last ten years. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #150 Topic: Franchises 151. (p. 131) Franchisors give franchisees the right to use their name and product, with the understanding that franchisees obtain all financing and develop all marketing strategies on their own. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #151 Topic: Franchises 152. (p. 132) According to recent data, 80% of all franchises are restaurants. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #152 Topic: Franchises 153. (p. 132) In a franchise arrangement, ownership remains in the hands of the franchisor. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #153 Topic: Franchises 154. (p. 132) One of the major advantages for the franchisee is instant business name recognition and important management assistance from the franchisor. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #154 Topic: Franchises 155. (p. 133) Franchisees must follow more rules, regulations, and procedures than if they operated independently-owned businesses. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #155 Topic: Franchises 156. (p. 133) The "coattail effect" refers to the burden of corporate rules and regulations on franchisees. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #156 Topic: Franchises 157. (p. 133) The "coattail effect" refers to inevitable repercussions on your business if a fellow franchisee should fail. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #157 Topic: Franchises 158. (p. 132-133) One drawback of franchises is that they have a higher failure rate than other types of business ventures. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #158 Topic: Franchises 159. (p. 133) The franchisee pays the franchisor a share of profits or a percentage commission on sales, known as a royalty. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #159 Topic: Franchises 160. (p. 133) Many franchisors have rules that prohibit franchisees from sponsoring their own websites. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #160 Topic: Franchises 161. (p. 132) Because of the growth of minority-owned businesses in the U.S., franchisors are becoming more focused on recruiting minority franchisees. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #161 Topic: Franchises 162. (p. 132) It is impossible to run a franchise completely from home. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #162 Topic: Franchises 163. (p. 134) Franchising is popular in the United States, but legal barriers have limited its popularity in foreign countries. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #163 Topic: Franchises 164. (p. 134) Global franchising is unlikely to experience major growth due to the high costs of operations in global markets. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #164 Topic: Franchises 165. (p. 134) Franchising in global markets has demonstrated that high operating costs are counterbalanced by high profit opportunities. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #165 Topic: Franchises 166. (p. 133) Franchisors sometimes pay reverse royalties to franchisees if it is evident that the franchisor's Internet sales have negatively impacted the profits of traditional bricks and mortar franchisee businesses. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #166 Topic: Franchises 167. (p. 131) In a typical franchise agreement, the franchisor pays the franchisee a fee to manage its company, and the two of them split the profits based on the percentages established in the agreement. The franchisor, who owns the rights to the company's name and products, usually does not pay the franchisee. More typically, the franchisee pays the franchisor a royalty to use the company's name and sell its products or services in a given area. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #167 Topic: Franchises 168. (p. 131) Although franchise arrangements are a good source of income for the franchisee, these businesses do not contribute significantly toward job creation. Franchised businesses contribute in a big way to job creation in the U.S. Between the years 2001 - 2002, 1.2 million jobs were created in franchised operations. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #168 Topic: Franchises 169. (p. 131) Even though you may elect to enter into a franchise arrangement, your company will still have a designation as a sole proprietorship, partnership, or a form of incorporation. A franchise is a special arrangement. You pay a fee to a franchisor for the right to the business name, business model, and ongoing management assistance. You are bound by a legal agreement to follow specific rules and regulations. Your willingness to comply with this system is based on the success rate of the franchised businesses. As a business owner, you must still designate with the state where you enact business as to the type of business you own: sole proprietorship; partnership; or one of the forms of incorporation. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #169 Topic: Franchises 170. (p. 133) It is correct to say that if a franchisor expects a 6% royalty fee on revenue, the franchisor earns 6 cents on each dollar of revenue the franchisee generates. "Shared profits" is an important aspect of most franchise arrangements. The franchise agreement will stipulate the percent of revenues that the franchisor will collect from each franchisee. In this example, 6% of each dollar of revenue = 6 cents, or $.06 that will go to the franchisor. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #170 Topic: Franchises 171. (p. 133) The financial advantage to the parent company (the franchisor) in a franchise arrangement is the upfront franchise fee and the collection of royalties if franchisees are successful. "Shared profits" is an important aspect of most franchise arrangements. The franchisee will pay the franchisor an up-front fee for the opportunity to use the business name, and the right to sell the product or service. Besides this fee, the franchise agreement almost always includes royalty payments. The franchisee will pay the franchisor a percentage of revenues or profits for the entire contract period. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #171 Topic: Franchises 172. (p. 133) If a firm is advertising that it is selling franchise opportunities, the prospective franchisee can be assured that the government has performed due diligence on this company, and has deemed it a safe investment. Most franchisors are not large systems like McDonald's and Subway. Many are small, rather obscure companies that prospective franchisees may know little about. Most are honest, but complaints to the Federal Trade Commission have increased about franchisors that delivered little or nothing of what they promised. Before you buy a franchise, make certain you check out the facts fully. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #172 Topic: Franchises 173. (p. 133) If a franchisee decides he wants out of the business, he is free to close-up shop or sell the business, just as if he were a sole proprietor or partnership outside of a franchise arrangement. Unlike owners of private businesses, who can sell their companies to whomever they choose on their own terms, many franchisees face restrictions on the resale of their franchises. Franchisors want to reserve the right to select new owners. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #173 Topic: Franchises 174. (p. 132) If an established franchisor agrees to provide you the opportunity to become a franchisee in its franchise system, the franchisor may also be willing to serve as a source of financing for your operation. One advantage of entering into a franchise arrangement is that the franchisor will often provide financing. The financing may come in the form of a loan to get started, or an arrangement whereby you will pay the franchise fee, over time. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #174 Topic: Franchises 175. (p. 133) Joshua wants to run his own business. A friend suggested that an inexpensive way to get started is to buy a franchise, where he will have the freedom to run it exactly as he sees fit. As a recent student of business, you concur with this advice. The start-up costs of franchising can be quite high, so becoming a franchisee is not necessarily an inexpensive way to start a business. Moreover, although they have some authority to run their franchise, franchisees generally follow a set of rules and procedures and meet certain standards established by the franchisor. This would limit Joshua's freedom to run his business the way he wants. Learning Goal: 05-5 Nickels - Chapter 05 #175 Topic: Franchises 176. (p. 133) Marilyn paid a sizeable franchise fee to obtain a Fontmaster Printers franchise in Cleveland, Ohio. With the franchise fee behind her, she can look forward to using her creative talents to make her print shop different and more attractive than other Fontmaster shops in the Cleveland area. Although they have a certain amount of managerial freedom, franchisees are expected to follow rules and procedures set by the franchisor. While this limits the freedom and flexibility of the franchisee, it also helps ensure quality and a predictable level of service. Learning Goal: 05-5 Nickels - Chapter 05 #176 Topic: Franchises 177. (p. 133) Liam owns a Far Horizons Travel Agency franchise. As a franchisee, Liam is guaranteed the right to retain all of his franchise's revenues and profits. Franchisees usually pay a royalty to the franchisor. This royalty is sometimes expressed as a share of the franchisee's revenues or a share of the franchisee's profits. Learning Goal: 05-5 Nickels - Chapter 05 #177 Topic: Franchises 178. (p. 133) Leanne, a franchisee runs a chain of small restaurants with a well-known name. Due to her hard work and people skills, her locations are doing quite well. She has noticed that several other franchisees in the same franchise system have let their restaurants deteriorate, especially in terms of lack of upgrades. Leanne should be concerned about this trend, since it eventually could affect her own business. The actions of less successful franchisees can hurt the success of others in the same franchise. This is known as the coattail effect. Learning Goal: 05-5 Nickels - Chapter 05 #178 Topic: Franchises 179. (p. 132; 136) Maria is already a successful franchisee with Nite Lite, a chain of "no frills" motels that provide clean rooms and good service at affordable rates. The motel she currently operates is located in Texas, but she is considering an opportunity to open another Nite Lite motel in Canada. Although her costs of operating in a foreign nation may be higher, she has the benefit of an expanding market and less competition. Franchisees often find that the costs of operating franchises in foreign countries are high, but these costs are counterbalanced by expanding markets and less competition. Learning Goal: 05-5 Nickels - Chapter 05 #179 Topic: Franchises 180. (p. 131) According to the Thinking Green box, "Root, Root, Root for the Green Team", high profile sports franchises are serious about the environment. The new Washington Nationals stadium is LEED (Leadership in Energy and Environmental Design) certified. U.S.'s favorite past time is also a franchise system. Since baseball ownership and baseball stadiums are big business, the city where they take-up residence may expect special concessions from the owners. Washington D.C. asked the owners of the new Washington Nationals team to go the extra mile and build a LEED certified stadium. MLB (Major League Baseball) franchise system is cooperating with the trend toward going green by encouraging its franchisees to initiate projects that protect the environment. Learning Goal: 05-5 Nickels - Chapter 05 #180 Topic: Thinking Green box 181. (p. 133) About 15 years ago, a well-known franchised food chain was brought to its knees when several customers got sick from tainted beef. Although the food chain recovered due to its quick and consistent action, several franchisees sued the parent company for loss of sales. The franchisees experienced the coattail effects of the bad publicity this event received. The coattail effect occurs when bad publicity affects one or more of the businesses associated with a franchise chain. The coattail effect can negatively impact growth and profitability. Learning Goal: 05-5 Nickels - Chapter 05 #181 Topic: Franchises 182. (p. 133) Alex's uncle recently passed away and left him an American Dream Real Estate franchise business. Alex is not a licensed agent or broker, nor does he know anything about the real estate business. He plans to sell his American Dream franchise to his friend, Derek who recently got his real estate license. One of the advantages of owning a franchise is that you can decide to sell-out to anyone you believe is suitable for the business. Most franchisors reserve the right to approve or disapprove the sale of new or existing franchises. A franchise owner usually cannot sell his/her business without the approval of the parent company. Learning Goal: 05-5 Nickels - Chapter 05 #182 Topic: Franchises 183. (p. 133) Your friend, Brett called to tell you he just left a sales pitch for a new web site development franchise where "he can get in for a few thousand dollars." He wants to know if you are ready to invest too. Although you lack expertise in graphic design or html programming, this should be a safe investment since it is already advertised as a franchise system. It's probably too good to pass up. Fraudulent franchises exist. These are small, obscure companies that most prospective franchisees know little about. Before buying, it is important to check out the facts, the franchisor's offering circular, and even with the FTC (Federal Trade Commission). Learning Goal: 05-5 Nickels - Chapter 05 #183 Topic: Franchises 184. (p. 137) A cooperative is simply another name for a corporation. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #184 Topic: Cooperatives 185. (p. 137) A cooperative consists of people with similar needs who pool their resources for mutual gain. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #185 Topic: Cooperatives 186. (p. 137) It is not unusual for members of cooperatives to work for and help manage their cooperative. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #186 Topic: Cooperatives 187. (p. 137) Farm cooperatives were originally established to help farmers increase their economic power by acting as a group rather than as individuals. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #187 Topic: Cooperatives 188. (p. 138) The following companies: Blue Diamond, Ocean Spray, and Land O'Lakes are well known cooperatives. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #188 Topic: Cooperatives 189. (p. 138) A disadvantage of farm cooperatives is that they are subject to higher tax rates than corporations. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #189 Topic: Cooperatives 190. (p. 137) At one time there were many farm cooperatives, but more recently, they have been replaced by other forms of business ownership. Farm cooperatives have expanded their role over time and have become a multibillion-dollar industry. Blooms: Comprehension Learning Goal: 05-6 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #190 Topic: Cooperatives 191. (p. 137) Originally, food cooperatives were formed to provide better prices for farmers. These groups now cooperatively buy farm equipment and other products, and realize economies of scales by banding together for these things. By participating in a larger group, it is more affordable for farmers and other business people to buy certain items that they would normally pay a lot more to purchase. By forming a cooperative, they enjoy economies of scale. Blooms: Comprehension Learning Goal: 05-6 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #191 Topic: Cooperatives 192. (p. 137) Jocelyn belongs to a food cooperative in her community. As a member, she can expect to have a vote in the election of the cooperative's board of directors. In cooperatives the members typically have the right to elect a board of directors. Members democratically control these businesses by electing a board of directors that hires professional management. Blooms: Comprehension Learning Goal: 05-6 Nickels - Chapter 05 #192 Topic: Cooperatives 193. (p. 137) Jane has always disliked the notion that the customers, managers and workers of a business are separate individuals with competing goals. She has joined with many other people in her community who share this view to become a member, and part owner, of a child care center. Jane and the other members operate the center for their own benefit, and each is expected to work at the center at least 12 hours each month. The type of organization Jane belongs to is known as a joint venture. Jane belongs to a cooperative, which is a special form of business organization that is owned by its members/customers, who operate the business for their mutual gain. Many cooperatives expect their members/customers to work a certain number of hours per month for the organization. Blooms: Comprehension Learning Goal: 05-6 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #193 Topic: Cooperatives 194. (p. 114) The __________ is the most common form of business ownership. A. partnership B. corporation C. joint venture D. sole proprietorship Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #194 Topic: Basic Forms of Business Ownership 195. (p. 115) A ___________ is a form of business that is owned, and usually managed, by one person. A. closed corporation B. subchapter S corporation C. sole proprietorship D. limited partnership Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #195 Topic: Basic Forms of Business Ownership 196. (p. 114) ____________ comprise about 20% of all businesses but account for about 81% of U.S. business receipts. A. Corporations B. Partnerships C. Sole proprietorships D. Limited liability companies Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #196 Topic: Basic Forms of Business Ownership; Figure 5.1 197. (p. 115-122) Two important considerations when choosing a form of business ownership is: A. Number of employees and banking access. B. Taxes and liability. C. Liability and number of hours of work per week. D. Number of small businesses vs. Large businesses currently formed and percentage of profits that each form brings to the nation's GDP. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #197 Topic: Basic Forms of Business Ownership 198. (p. 115) To many businesspeople, one of the major attractions of a sole proprietorship is: A. The ability to obtain additional financial resources. B. The protection of limited liability. C. An unlimited lifespan. D. The chance to be their own boss. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #198 Topic: Sole Proprietorship 199. (p. 115) The __________ is usually the easiest form of business to start and end. A. sole proprietorship B. limited partnership C. corporation D. cooperative Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #199 Topic: Sole Proprietorship 200. (p. 116) One of the major disadvantages of a sole proprietorship is the: A. Possibility of disagreements between owners. B. Unlimited liability the owner has for the debts of the firm. C. Fact that any income earned by this type of business is taxed twice. D. High cost of starting or ending the company. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #200 Topic: Sole Proprietorship 201. (p. 115) Starting a new business as a sole proprietorship: A. Requires retaining the services of an attorney. B. Is simple, but the proprietorship fee is very expensive in some states. C. Is usually simpler and less expensive than starting other forms of ownership. D. Is very similar to starting a business as a corporation. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #201 Topic: Sole Proprietorship 202. (p. 115) In a sole proprietorship, the profits earned by the business are: A. Taxed as income for the business, but is exempt from the personal income tax paid by the owner. B. Taxed at the lowest corporate rate. C. The property of the owner, except for taxes owed to the government. D. Tax-free if the appropriate exemption is filed with the local government. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #202 Topic: Sole Proprietorship 203. (p. 115) With respect to taxes, the sole proprietorship: A. Pays taxes on the profits of the business at the same rate that corporations pay taxes. B. Pays taxes on the profits of the business, at the owner's personal tax rate. C. Pays taxes only if there are no expenses associated with the business. D. Is permitted to determine its own tax rate and schedule of payments. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #203 Topic: Sole Proprietorship 204. (p. 116) A significant disadvantage of owning a sole proprietorship is the: A. Possibility of limited liability. B. Heavy tax liability that must be assumed. C. Overwhelming time commitment often required of the owner. D. Lack of incentives to motivate the owner. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #204 Topic: Sole Proprietorship 205. (p. 117) When a sole proprietor dies: A. The sole proprietor's heirs have the option of taking over the business. B. The business is sold to a larger corporation. C. The company continues to function as it always has. D. The company always closes down. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #205 Topic: Sole Proprietorship 206. (p. 116) Unlimited liability means: A. When you own your own business you are responsible for all the business debts. B. You are only liable for the money you invest in the business. C. As a franchisee your franchisor is responsible for the debts of the franchise. D. You are liable for whatever advertising promises your firm makes. Unlimited liability means the owner is responsible for all the debts of the firm. If the firm should land in bankruptcy court, the judge could liquidate the owner's personal assets to pay the debts of the business. Learning Goal: 05-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #206 Topic: Sole Proprietorship 207. (p. 116) Any debts or damages incurred by a firm organized as a sole proprietorship are: A. The responsibility of the owner. B. Limited to the amount the owner has invested in the firm. C. Paid for out of a reserve contingency fund that sole proprietors are required by law to set up. D. Normally covered by liability insurance. A sole proprietor accepts unlimited liability. This means that he/she is responsible for all debts of the business. If the firm should land in bankruptcy court, the judge could liquidate the owner's personal assets to pay the debts of the business Blooms: Comprehension Learning Goal: 05-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #207 Topic: Sole Proprietorship 208. (p. 116) An entrepreneur who wishes to start a business with little delay or hassle, and who wants to be his or her own boss, should organize the business as a: A. Sole proprietorship. B. Cooperative. C. C corporation. D. General partnership. Two advantages of sole proprietorships are ease of starting (and ending) and being your own boss. Learning Goal: 05-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #208 Topic: Sole Proprietorship 209. (p. 116) Which of the following statements is the most accurate? Sole proprietorships: A. Are well suited for people who want to own a business and share in its profits without taking an active role in management. B. Are taxed at the owner's personal tax rate. C. Is the least risky form of business ownership. D. Must receive a state charter before they can legally conduct business. One of the major advantages of sole proprietorships is that they are easy to form and end and taxed at the owner's personal tax rate. Blooms: Comprehension Learning Goal: 05-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #209 Topic: Sole Proprietorship 210. (p. 116) Although sole proprietors do not pay any special taxes, as the owner of the business you are also an employee of the business which requires you to: A. Pay income tax only one time each year. B. Pay self-employment taxes. C. Pay for the right to get an employee identification number. D. File an income tax return for the business. Sole proprietors pay self-employment taxes such as social security and Medicare. Blooms: Comprehension Learning Goal: 05-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #210 Topic: Sole Proprietorship 211. (p. 116) Being your own boss means: A. Reducing your working hours. B. Having the freedom to set your own ours and taking lots of vacations, particularly when just beginning the business. C. Accepting accountability for the mistakes of the business. D. Having limited financial resources to throw into the business. When you are your own boss, you must accept all mistakes as your mistakes. Blooms: Comprehension Learning Goal: 05-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #211 Topic: Sole Proprietorship 212. (p. 117) Joe Jackson operates a sole proprietorship, but he is in poor health and may be unable to continue running the business. If Joe becomes incapacitated, his business: A. Automatically continues under new management as a sole proprietorship. B. Automatically converts into a public corporation with stock sold to interested investors. C. Ceases to exist unless sold or taken over by Joe's heirs. D. Becomes the property of the most senior employee who wishes to continue operating the firm. A sole proprietorship ceases to exist if the proprietor dies, retires, or becomes incapacitated, unless it is sold or taken over by the owner's heirs. Learning Goal: 05-1 Nickels - Chapter 05 #212 Topic: Sole Proprietorship 213. (p. 115) Maria has a lot of self-confidence and business knowledge. She recently opened a bakery as a sole proprietor. She is expecting a high level of profits and is looking forward to: A. The lower corporate tax rate paid by sole proprietorships. B. Keeping all of the money she earns except for the taxes she is required to pay. C. Keeping all of the money she earns since she does not have to pay taxes as a sole proprietor. D. Easily raising additional large sums of money from the capital markets since she is a sole proprietor. One of the advantages of a sole proprietorship is the retention of company profit. The owner can earn as much as possible and not have to share that money with anyone else except the government, in taxes. AACSB: Application Learning Goal: 05-1 Nickels - Chapter 05 #213 Topic: Sole Proprietorship 214. (p. 115) Cali owns Dog Trotters, a dog-walking business that she started to earn money after school and supplement her allowance. She planned to keep all the profits, and kept things simple, by putting a flier on the bulletin board at the local grocery store announcing that she was available to provide this service. Cali's business is a: A. Sole proprietorship. B. Franchise. C. S-corporation. D. Partnership. Cali's simple form of business ownership is a sole proprietorship. She, alone, keeps the profits from her service. Learning Goal: 05-1 Nickels - Chapter 05 #214 Topic: Sole Proprietorship 215. (p. 115) Nick wants to start his own business. Nick should consider a sole proprietorship if he: A. Expects rapid growth and want to be able to raise a large sum of money. B. Wants to make it easy to attract qualified employees. C. Wants to be his own boss and can accept unlimited liability. D. Wants to minimize the financial risk he must accept as the owner of a business. A sole proprietorship is a business that is owned and managed by a single individual. This form of business ownership appeals to people who want to be their own boss. Learning Goal: 05-1 Nickels - Chapter 05 #215 Topic: Sole Proprietorship 216. (p. 115) Javier is the sole proprietor of a golf shop. Because he is a sole proprietor, any profit Javier's business earns is: A. Totally tax-free. B. Taxed only as Javier's personal income. C. Taxed twice, once as business income, then again as Elroy's personal income. D. Taxed only if and when it is distributed to investors. A tax advantage of sole proprietorships is that their earnings are only taxed once, as personal income to the owner. Learning Goal: 05-1 Nickels - Chapter 05 #216 Topic: Sole Proprietorship 217. (p. 116) Selma owns a roofing business. She enjoys being her own boss, but her satisfaction comes at a price. Her days are filled with organizing the activities of her employees and soliciting new customers. She often misses activities with friends and family because of the obligations of running her own business. She also knows that she has unlimited personal liability for any of her firm's debts. Selma's business is organized as a(n): A. Joint venture. B. C corporation. C. S corporation. D. Sole proprietorship. A key advantage of sole proprietors is that the owner is his or her own boss, and can run the business the way they like. However, this freedom comes with a great deal of responsibility. Sole proprietors have no one else to share the burdens of ownership and often must work very long hours to keep the company on course. Another disadvantage of a sole proprietorship is that the owner has unlimited liability. Learning Goal: 05-1 Nickels - Chapter 05 #217 Topic: Sole Proprietorship 218. (p. 115-116) Halle wants to start a business. She has two goals. First, given her limited personal wealth and eagerness to get started, she wants to get her business up and running with the least possible hassle and expense. Second, she wants to minimize her personal risk in the event that her company experiences difficulties. If Halle chooses a sole proprietorship, she would: A. Achieve both goals since this form of ownership is both the easiest to form and the least risky. B. Meet her first goal since sole proprietorships are easy and inexpensive to form. However, she would expose herself to personal risk because owners of sole proprietorships have unlimited liability. C. Not achieve either goal since proprietorships are both costly to set up and subject to unlimited liability. D. Achieve her second goal, since the owners of sole proprietorships are legally protected from losing more than the amount they invest in their company. However, she would find that the start-up costs would be higher than if she had incorporated her business. One advantage of sole proprietorships is that they are relatively easy and inexpensive to start. However, a major disadvantage is that the owner has unlimited personal liability for any debts of the firm. This unlimited liability means that the owner is exposed to a high level of risk. Learning Goal: 05-1 Nickels - Chapter 05 #218 Topic: Sole Proprietorship 219. (p. 117) In a partnership, a(n) __________ partner (owner) actively manages the company and has unlimited liability for claims against the firm. A. unlimited B. limited C. general D. associate Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #219 Topic: Partnerships 220. (p. 117) A partner (owner) who invests money in a business, does not take an active role in managing the operation, and is only subject to losing the funds he/she invested. A. Implied partner. B. Limited partner. C. Partial partner. D. Corporate partner. Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #220 Topic: Partnerships 221. (p. 116) The limited liability provided to limited partners means that they are not responsible for the debts of the business beyond: A. The firm's total assets. B. The amount they have invested in the company. C. The percentage of profits they are entitled to earn. D. Their total personal assets. Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #221 Topic: Partnerships 222. (p. 118) According to the Uniform Partnership Act, the three key elements of any general partnership are: A. A board of directors, a written partnership agreement, and a well-defined product or service. B. Two owners, an adequate financial base, and a written statement describing the manner in which profits and losses will be divided. C. Common ownership, shared profits and losses, and right to participate in management. D. Common stock, a board of directors, and a statement of limited liability. Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #222 Topic: Partnerships 223. (p. 117) A type of partnership called a ___________ acts much like a corporation and is traded on stock exchanges, but it is taxed like a partnership with profits passing through to the owners and taxed as the owner's personal income. A. limited partnership B. combined general partnership C. cooperative partnership D. master limited partnership Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #223 Topic: Partnerships 224. (p. 118) Compared to a sole proprietorship, which of the following is considered an advantage of a general partnership? A. ability to pool financial resources B. unlimited liability for all owners C. division of profits among owners D. ease and flexibility in transferring shares of ownership to others Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #224 Topic: Partnerships 225. (p. 118) In a limited liability partnership, each partner's risk of losing personal assets is: A. Unlimited. B. Limited to losses that result from his/her own acts and omissions and the acts and omissions of those who work under his/her supervision. C. Determined entirely by the maximum loss provision established by the articles of co-partnership. D. Nonexistent. Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #225 Topic: Partnerships 226. (p. 118) Which of the following is an advantage of a partnership? A. Ease of starting and ending the business B. Unlimited liability C. Shared management and pooled skills D. Little time commitment Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #226 Topic: Partnerships 227. (p. 119) When entering into a new partnership, a good strategy is to: A. Avoid putting their agreement in writing since this would limit the flexibility of the partnership. B. Put the partnership agreement in writing. C. Plan to incorporate as soon as possible. D. Agree to put the first year's profits back into the partnership. Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #227 Topic: Partnerships 228. (p. 118) One difference between partnerships and sole proprietorships is that partnerships: A. Take less work to form. B. Are managed by an elected board of directors. C. Have the advantage of limited liability. D. Have a greater chance of long term survival due to the accountability of each partner to the other. The text cites a study that indicates that partnerships are four times more likely to succeed than sole proprietorships. Partners not only give the firm a stronger financial base and a broader range of expertise, they also watch over each other, thus providing a more disciplined environment. Blooms: Comprehension Learning Goal: 05-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #228 Topic: Partnerships 229. (p. 119) Which of the following statements about partnerships is most accurate? A. A partnership is a corporation with fewer than 100 owners. B. A major advantage of a partnership is that it offers all owners limited liability. C. A major drawback of a partnership is that it is difficult to terminate. D. Partnerships are taxed at the lowest corporate tax rate. Once partners commit to a partnership, the arrangement is often difficult to terminate. Questions of who gets what and what happens next are usually hard to resolve when the business is closed. Blooms: Comprehension Learning Goal: 05-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #229 Topic: Partnerships 230. (p. 118) When comparing general partnerships to sole proprietorships, an advantage of partnerships is that they: A. Are less risky, because each partner is responsible for only a specified fraction of the firm's debts. B. Are easier to terminate. C. Cost less to organize. D. Give the firm a stronger financial foundation. When a partnership is formed, two or more people can pool their financial resources to provide the business with a stronger financial base. Blooms: Comprehension Learning Goal: 05-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #230 Topic: Partnerships 231. (p. 119) A good reason why partners should spell-out the details of their partnership arrangements in writing is: A. The partnership is not a legally recognized business unless they do so. B. A written agreement will help reduce misunderstandings and disagreements among the partners. C. Putting the agreement in writing will limit the liability of each partner to a specified level. D. Doing so will make it easier to convert the business to a corporation at a later date. A major drawback of a partnership is the potential for disagreements among the partners. Spelling out the agreement in writing is a way to protect all parties and minimize misunderstandings. Blooms: Comprehension Learning Goal: 05-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #231 Topic: Partnerships 232. (p. 117) A master limited partnership (MLP) is: A. Not traded on the stock exchanges. B. Pays corporate income taxes. C. Taxed like a partnership. D. The corporate form of choice for small groups of individuals. The master limited partnership looks much like a corporation because it is traded on the stock exchanges but it is taxed like a partnership and avoids the corporate income tax. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #232 Topic: Partnerships 233. (p. 120) Which of the following is not a disclosure that should be part of a partnership agreement? A. The way profits will be divided among partners. B. The list of personal assets of each partner. C. The specific responsibilities of each partner. D. The salaries and drawing accounts of each partner. The Model Business Corporation Act recommends several things be written in a partnership agreement, including the way profits will be divided; the responsibilities and duties of each partner, and the salaries and drawing accounts of each partner. It does not ask for a list of personal assets of each partner. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #233 Topic: Partnerships; Figure 5.2 234. (p. 118) One way to eliminate some of the risk of your partners making costly mistakes that could jeopardize your personal assets is to set-up a: A. Master Limited Partnership. B. Sole proprietorship. C. Limit the amount of time each can actively spend in the business. D. Limited Liability Partnership. A limited liability partnership (LLP) limits partners' risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision. If you are a limited partner in an LLP, you can operate without the fear that one of your partners might commit an act of malpractice resulting in a judgment that takes away the personal assets of those who did not commit the errors. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #234 Topic: Partnerships 235. (p. 117) Finley is a limited partner in Gettout & Associates. Heywood U. Gettout, one of the general partners in the company, must temporarily leave the company to attend to some personal matters. Heywood has asked Finley to perform his managerial duties while he is gone. As a limited partner, Finley: A. Can fill in as a manager whenever necessary, as long as it is for only a limited time. B. Can make managerial decisions as long as they do not involve the payment of money. C. Cannot participate in the management of the partnership. D. Can manage the firm as long as he gets approval from the company's other general partners. A limited partner invests money in a partnership but cannot legally take an active role in its management. Blooms: Comprehension Learning Goal: 05-2 Nickels - Chapter 05 #235 Topic: Partnerships 236. (p. 120) Kristen and her brothers and sisters decided to form a partnership that specializes in home design of all types. One their goals is to maintain the loving relationship they currently enjoy so they are following the Model Business Corporation Act recommendations as they write the partnership agreement. Which of the following is an accurate recommendation of the Act? A. The business should be actively operating for an extended period before the partners decide who is responsible for what business functions. B. Family businesses never take on outside partners, so no discussion of this need take place. C. There should be discussion and well-understood ways that the partners will handle disagreements. D. Due to the fact that they are all under 40 years old and expect to work until they are 65 there is no need to decide what will happen to the partnership if one decides to leave the business, retire, or die. The Model Business Corporation Act recommends including a number of specifics in the written partnership agreement including how disagreements will be handled. Learning Goal: 05-2 Nickels - Chapter 05 #236 Topic: Partnerships 237. (p. 117) Maya plans to open a shop specializing in foods and cultural items from the Middle East. She wants to be the firm's only general partner, but she is trying to get several friends to participate as limited partners. Apparently Maya wants to: A. Limit her personal liability to the amount she personally invests in the company. B. Keep all of the firm's profits. C. Obtain a strong financial base for the firm while maintaining personal control over the firm's management. D. Meet the legal requirements of the Uniform Partnership Act. Limited partners invest money in a business and share in the profits, but are not allowed to assume any management responsibilities. Since Maya plans to be the only general partner, she will be the only owner who has a direct role in managing the company. Learning Goal: 05-2 Nickels - Chapter 05 #237 Topic: Partnerships 238. (p. 117) Zach and Mac own an auto repair business which they operate as co-owners. Both take an active role in the management of the business, and each accepts unlimited liability. Zach and Mac operate as a __________. A. joint venture B. general partnership C. limited partnership D. cooperative Since Zach and Mac operate the business as co-owners, they have formed a general partnership. Since both will manage the firm and accept unlimited liability, they are both general partners. Learning Goal: 05-2 Nickels - Chapter 05 #238 Topic: Partnerships 239. (p. 119) Mel, Tim, and Bill agreed to partner in a small rehab business. Initially, they were enthusiastic contributors until their first project took more work than Mel initially estimated; Tim wanted morning meetings and long lunch hours; and, Bill decided to go on vacation even though the project was not complete and ready to sell. As the Spotlight on Small Business box, titled, "Pick Your Partners Wisely" indicates, A. It's smart to begin the partnership with honest communication of what each partner expects to give and get from the partnership. B. Organize the business as a limited liability company to reduce the financial risks that put pressure on members of the partnership. C. Designate one of the partners as the primary partner with final authority to call all the shots. D. Enter into partnerships with people who have similar educational and cultural backgrounds and similar personalities. This question is based on the material in the Spotlight on Small Business box in Chapter 5. This box provides advice on how to choose a partner. A key point made in the box is that "Just like most good marriages, the best way to avoid major conflicts is to begin with an honest communication of what each partner expects to give and get from the partnership." Learning Goal: 05-2 Nickels - Chapter 05 #239 Topic: Spotlight on Small Business box 240. (p. 119) Jamie and Maria invested all their savings in a small pizzeria they opened outside the University of Western Kentucky. They operated the business as a general partnership. After 11 months, the business went broke and Jamie and Maria were left with outstanding bills of $37,500, which was more than their initial investment in the company. Jamie and Maria can: A. Lose their personal assets as the result of their company's financial problems. B. Lose only the funds they originally invested in their company. C. Lose only the total value of the assets actually used to operate the business. D. Avoid any liability for these debts since a partnership is considered to be a business entity that is separate and distinct from the partners who own it. General partners have unlimited liability for the debts of their business. This means their personal assets are at risk. Learning Goal: 05-2 Nickels - Chapter 05 #240 Topic: Partnerships 241. (p. 120) Randy and Mandy plan to pool their money and musical talents to form a general partnership and begin booking weekend gigs. One of the first things Randy and Mandy should do is: A. Seal the deal with at least five night spots where they can book three months worth of gigs. B. Consult an attorney and put their agreement in writing. C. Pay the partnership formation fee to their state's commerce commission. D. File the limited liability paperwork at the court house in the county in which their partnership will be formed. One problem with a partnership is the potential for disagreements and misunderstandings among the partners. Consulting an attorney and getting the agreement in writing helps minimize the risk of such problems. Learning Goal: 05-2 Nickels - Chapter 05 #241 Topic: Partnerships; Figure 5.2 242. (p. 117) Travis has agreed to invest $16,000 in a partnership with his sister and brother-in-law. He does not intend to actively work in the partnership, nor does he wish to risk any of his own assets other than the $16,000 he initially invests. The partnership has agreed to permit him to share in the profits. As an expert on forms of business ownership, you know that Travis is a ______________ in this partnership. A. General partner B. Preferred stockholder C. Secondary partner D. Limited partner A limited partner invests in a partnership, but has limited liability and does not take an active role in managing the business. Learning Goal: 05-2 Nickels - Chapter 05 #242 Topic: Partnerships 243. (p. 117) Jim is one of several general partners who own Beef ‘N Beer, a small chain of restaurants located in Missouri and Illinois. Jim is interested in converting the partnership into a master limited partnership. If he convinces other partners to go along with his idea, Beef ‘N Beer will: A. Offer shares of ownership that are traded on a stock exchange much like a corporation. B. Pay its taxes like a corporation. C. Begin to operate much like a sole proprietorship. D. Have to change its name to include the term Ltd. In its title to indicate its owners have limited liability. Master limited partnerships act much like corporations with shares of ownership traded on the stock exchanges, but they are taxed like partnerships, where each owner adds his/her dividends to other personal income earned and pays taxes on it at the owner's personal income tax rate. Learning Goal: 05-2 Nickels - Chapter 05 #243 Topic: Partnerships 244. (p. 118) Kristen and her brothers and sisters set up a design firm called Houses by Design LLP. Although key business functions are centralized, each sibling is a licensed architect that designs, builds, and installs residential and commercial buildings for his/her own clients. Unfortunately, a design created and installed for one of their clients resulted in water damage to the basement of the client's new home. The limited liability partnership: A. Guarantees that none of the company's partners will lose more than the amount they invested in the company. B. Guarantees that only those partners who were directly involved in designing and building this home face unlimited liability for claims against the firm. C. Protects the partners from any suit by the client. D. Will enable the firm to quickly reorganize with only minor financial losses. A key advantage of a limited liability partnership is that it limits the liability of individual partners to damages or debts that result from their own decisions or actions, or to those of employees under their direct supervision. Learning Goal: 05-2 Nickels - Chapter 05 #244 Topic: Partnerships 245. (p. 121) A(n) ___________________ is a state-chartered legal entity with authority to act and to have liability separate from its owners. A. limited partnership B. conventional corporation C. unlimited partnership D. nonprofit organization Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #245 Topic: Corporations 246. (p. 121) An owner of a corporation is known as a(n): A. General partner. B. Limited partner. C. Director. D. Stockholder. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #246 Topic: Corporations 247. (p. 121) Which of the following statements about the operation of a corporation is correct? A. A corporation receives its charter from a state government. B. A corporate charter automatically expires in 99 years and must be renewed if the corporation wants to remain in business. C. Owners of a corporation have unlimited liability for any claims against their company. D. A corporation tends to be much easier to set up than a sole proprietorship or partnership. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #247 Topic: Corporations 248. (p. 121) The form of business ownership best suited to raising large amounts of money for expansion is the: A. Sole proprietorship. B. Partnership. C. Corporation. D. Cooperative. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #248 Topic: Corporations 249. (p. 121) The vast majority of corporations in the U.S. are: A. Small businesses. B. Large, multinational organizations. C. Owned by foreign investors. D. Classified as S corporations. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #249 Topic: Corporations 250. (p. 121) Which of the following is an advantage of the corporate form of business when compared to sole proprietorships and partnerships? A. Ease of formation B. Lower taxes C. Simplified paperwork D. Limited liability of owners Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #250 Topic: Corporations 251. (p. 121) Compared to partnerships and sole proprietorships, a major advantage of the C (conventional) corporation as a form of business ownership is that it: A. Has the ability to raise more money. B. Is easier and less expensive to form. C. Qualifies for simplified tax treatment. D. Creates unlimited liability for its owners. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #251 Topic: Corporations 252. (p. 124) Which of the following is normally considered a disadvantage of the corporate form of business? A. Unlimited liability of owners. B. Difficult transfer of ownership. C. Limited life. D. Double taxation of earnings. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #252 Topic: Corporations 253. (p. 123) The board of directors for a corporation is elected by its: A. Creditors. B. Stockholders. C. Managers. D. Employees. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #253 Topic: Corporations 254. (p. 123) A separation between ownership and management is most likely to occur in a: A. Sole proprietorship. B. General partnership. C. Corporation. D. Limited liability partnership. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #254 Topic: Corporations 255. (p. 123) One disadvantage of _________ is the initial cost of formation. A. corporations B. general partnerships C. sole proprietorships D. limited partnerships Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #255 Topic: Corporations 256. (p. 124) The form of business ownership that usually requires the most detailed record keeping is the: A. Corporation. B. Partnership. C. Sole proprietorship. D. Limited partnership. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #256 Topic: Corporations 257. (p. 125) A major advantage of S corporations is that they: A. Can have more stockholders than a C corporation. B. Can operate in foreign nations as if they were domestic corporations. C. Require less paperwork to set up than a C corporation does. D. Avoid the problem of double taxation associated with conventional corporations. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #257 Topic: Corporations 258. (p. 125) One reason many companies do not organize themselves as an S corporation is that this form of business: A. Is subject to a higher tax rate than a general partnership. B. Does not provide owners with limited liability. C. Has a special eligibility restriction which many businesses are unable to meet. D. Is much more difficult to set up than C corporations. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #258 Topic: Corporations 259. (p. 125) To qualify as an S corporation, a company must: A. Have no more than 50 shareholders. B. Have shareholders who are individuals or estates, and, qualify as permanent residents of the U.S. C. Have a different class of stock for each owner. D. Have not more than 5 percent of income derived from passive sources. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #259 Topic: Corporations 260. (p. 125) The income generated by S-Corporations: A. Passes through to its owners, and each is taxed individually for this income. B. Is provided to non-profit organizations, so it is considered a tax-free source of funds. C. Is taxed separately from its owners. D. Must be reinvested in the business. Owners should not expect dividends. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #260 Topic: Corporations 261. (p. 126) _____________ are companies that are similar to S Corporations but are not restricted with similar eligibility requirements. A. Regulated equity companies B. Corporate cooperatives C. Limited liability companies D. Private drawing companies Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #261 Topic: Corporations 262. (p. 126) One disadvantage of a limited liability company is that it: A. Requires all earnings of the business be taxed at the corporate rate. B. Has a limited life span. C. Requires the owners to divide up profits and losses in a fixed proportion. D. Has a more restrictive ownership requirement than S corporations. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #262 Topic: Corporations 263. (p. 126) One reason limited liability companies have become so popular is that they: A. Can be taxed either as a corporation or as a partnership, so owners can choose the tax treatment that is most advantageous for their situation. B. Allow owners to sell their interests in the company without requiring approval from other owners. C. Have unlimited life. D. Permit owners to avoid paying self-employment taxes on the company's profits. Learning Goal: 05-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #263 Topic: Corporations 264. (p. 124) Earnings of C (conventional) corporations can be: A. Taxed twice if they are distributed as dividends to stockholders. B. Taxed at twice the going rate of a partnership or sole proprietorship. C. Taxed by the federal government, but they are exempt from state taxes if the corporation owns any facilities within that state. D. Taxed the same as a partnership. Corporations must pay taxes on income before it is distributed to stockholders, then the stockholders must pay taxes on the income they receive from dividends. Dividend income ends-up being taxed twice - once when it was part of the total net income of the company and then again when it is part of the owner/stockholder's personal income. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #264 Topic: Corporations 265. (p. 123) Which of the following is an attractive benefit of a corporation? A. Corporations can enjoy double taxation. B. Unlike limited partnerships, all owners of corporations are passive investors. C. Corporations can protect its owners with unlimited liability. D. Corporations can attract employees by offering stock options. Corporations can attract skilled employees by offering such benefits as stock options (the right to purchase shares of the corporation for a fixed price). Double taxation is a disadvantage of corporations. Owners of corporations have limited liability; and, due to stock options and other benefits employees of corporations are quite often stockholders/owners of the corporations, as well. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #265 Topic: Corporations 266. (p. 124) The reason a professional such as a lawyer or doctor would incorporate his/her business is A. To be assured that another professional firm would not take over and make decisions - similar to a hostile takeover. B. To comply with the law because insurance companies require that they be corporations. C. To protect his/her other assets with limited liability. D. To protect his/her assets with unlimited liability. Limited liability provides corporation owners protection from loss of personal assets if the business goes bankrupt. Although costlier to set-up, the corporation provides the added protection by keeping the business assets separate from the owner's personal assets. Your liability is limited to your investment in the business. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #266 Topic: Corporations 267. (p. 125) Which of the following statements about S corporations is most accurate? A. The major attraction of S corporations is that they avoid the problem of double taxation. B. S Corporations are similar to C corporations, except that the majority of owners are foreign investors. C. Any corporation willing to pay the necessary fees and fill out the required paperwork can become an S Corporation. D. Only large corporations with operations in more than one state can qualify to be classified as S corporations. The S-corporation does not file an income tax return separate from its owners. The profits of S-corporations are distributed to the owners. Owners account for these earnings on their personal income tax returns, thus avoiding double taxation. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #267 Topic: Corporations; Figure 5.4 268. (p. 123) The organizational structure of a corporation permits: A. The company management to elect the Board of Directors. B. Stockholders to elect the Board of Directors. C. Stockholders to elect the officers and management team. D. Permit employees, by committee to elect the officers of the company. Stockholders elect the Board of Directors. The Board of Directors selects the officers and top management of the firm. Officers hire managers that supervise employees. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #268 Topic: Corporations; Figure 5.4 269. (p. 122) Which of the following statements is the most accurate? A foreign corporation: A. Does business in one or more states, but is chartered in another state. B. Is 50% owned by individuals or companies from another nation. C. Is headquartered in another nation. D. Is the same thing as a multinational corporation. A foreign corporation is one that does business in one state while being chartered in another state. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #269 Topic: Corporations; Figure 5.3 270. (p. 125) The S corporation is likely to be less popular in the future because: A. Congress repealed the limited liability protection of S corporations and limited them to companies with earnings of less than $3 million per year. B. Limited liability companies, which do not have the restrictive eligibility requirements of S corporations and offer greater flexibility in the choice of tax treatment, are now legal in all 50 states. C. Many states significantly increased the annual fee that S corporations must pay to maintain their tax status, thus eliminating the financial advantages of this form of ownership. D. S corporations have been made illegal in several states as a reaction to widespread abuse of the special benefits available to this type of business. Limited liability companies allow firms great flexibility to choose the most advantageous tax treatment, and avoid the special eligibility requirements that characterize S corporations. In 1995 the National Conference of Commissioners on Uniform State Laws approved the final version of the Uniform Limited Liability Company Act. By 1996, all 50 states and the District of Columbia recognized LLCs. Today more than half of new business registrations in some states are LLCs. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #270 Topic: Corporations 271. (p. 126) Compared to the C-corporation, the limited liability company is an attractive form of business ownership because: A. Even though it is a little more expensive to form, it has a longer life than the C-corporation. B. A limited liability company permits one owner to own all the stock of the company, whereas a C-corporation requires several owners. C. Once formed the limited liability company is a legal form of business ownership, worldwide, whereas the C-corporation must file for corporate status in each nation it elects to do business. D. Once formed, the limited liability company does not require the firm to hold annual meetings, and has the option to avoid double taxation. The limited liability company can choose to be taxed as a partnership or a corporation, giving it the option to avoid double taxation. This form of business ownership files articles of organization, however it does not hold annual meetings, nor does it need to file annually. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #271 Topic: Corporations 272. (p. 124) "Double taxation" means: A. If stockholders decide to sell their shares, they are subject to paying twice the amount of taxes on any capital gains. B. As the owner of the company, you pay twice the amount in employment taxes on yourself, as you do on your employees. C. Corporations pay taxes on their profits. If they distribute after-tax profits to the stockholders, the stockholders also pay taxes on the distribution. D. If the corporation doubles its profits from the previous year, the firm's tax rate (the percentage it pays in taxes) will also double. A corporation files a separate tax return from its owners. It pays taxes on all profits earned after legitimate expenses are deducted. If any profits remain after taxes are paid, these are considered after-tax-profits and they can be distributed to owners in the form of dividends. These earnings are subject to double taxation because the government requires the recipient (the owner/stockholder) to pay taxes on the dividends, even though they were already taxed when they were part of the corporation's earnings. Blooms: Comprehension Learning Goal: 05-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #272 Topic: Corporations 273. (p. 122) Trevor and Tyler own all the stock in the Double T Corporation. The stock of this corporation is not sold to the general public. Trevor and Tyler own a: A. Limited liability company. B. Master limited partnership. C. Alien corporation. D. Closed corporation. A closed corporation is one whose stock is all owned by only a few investors (or privately held), and isn't available to the general public. Learning Goal: 05-3 Nickels - Chapter 05 #273 Topic: Corporations; Figure 5.3 274. (p. 122) Tess and Tijuana have considered starting their own business but are concerned about the possibility of losing their personal assets if the business fails. One way for Tess and Tijuana to avoid this risk would be to organize their firm as a(n): A. General partnership. B. Limited partnership. C. Corporation. D. Sole proprietorship. A corporation has the advantage of limited liability for all of its owners. Although a limited partner also has limited liability, even a limited partnership must have at least one general partner with unlimited liability. Learning Goal: 05-3 Nickels - Chapter 05 #274 Topic: Corporations 275. (p. 121) Maria recently purchased 100 shares of stock in Idle Time Gaming, Inc. Maria is a(n)_____________ of this company. A. owner B. manager C. creditor D. partner Stock represents shares of ownership in a corporation. Learning Goal: 05-3 Nickels - Chapter 05 #275 Topic: Corporations 276. (p. 121) Dane is a stockholder in SmallWorld, Inc., a C-corporation that manufactures amusement park rides. The company recently lost a major court decision and will probably be forced into bankruptcy. In fact, the damages awarded are so great that, even if all company assets are sold and the proceeds are used to pay its debts, SmallWorld is likely to still owe money to its creditors. If SmallWorld go bankrupt, Dane and the other stockholders will: A. Be personally responsible for all remaining debts. B. Lose their investment but nothing else. C. Be entitled to full reimbursement of any investment losses. D. Automatically qualify for federal reimbursement for any losses suffered by the firm. Owners of a corporation have limited liability. This means that the most they can lose is the amount they invest in the corporation. Learning Goal: 05-3 Nickels - Chapter 05 #276 Topic: Corporations 277. (p. 125) Ramon lives in Mexico City and is a Mexican citizen. He has several friends in the United States who own shares in an S corporation. Ramon would like to invest in this company. Ramon: A. Can invest in this company, but must pay both U.S. and Mexican taxes. B. Cannot become a shareholder since he is not a citizen or permanent resident of the U.S. C. Can become a shareholder but cannot become a manager, and his income must be paid in pesos. D. Needs approval from the Mexican government before he can invest. S corporations are required to meet several special conditions that conventional corporations do not have to satisfy. One requirement is that all of the owners of an S corporation must be U.S. citizens or permanent residents of the United States. Learning Goal: 05-3 Nickels - Chapter 05 #277 Topic: Corporations 278. (p. 125) Although it is a small company, Zorn Enterprises owns a large number of inexpensive rental housing units in Texas and Louisiana. Currently, the company is a chartered C-corporation, but the owners are interested in switching to an S corporation. After consulting a lawyer, they learned that Zorn Enterprises does not qualify to be designated as an S corporation. Which of the following characteristics of Zorn Enterprises would prevent it from becoming an S corporation? A. The firm has fewer than 75 stockholders. B. The firm is chartered in one state, but owns property in another. C. The firm has only one class of stock, all owned by U.S. citizens. D. The firm receives more than 70 percent of its income from rents and other passive sources. An S corporation may earn no more than 25 percent of its income from passive sources such as rents, royalties and interest. Learning Goal: 05-3 Nickels - Chapter 05 #278 Topic: Corporations 279. (p. 126) Emily wants to open a chain of hair styling salons and hopes to attract investors to help finance growth. She considered forming a C corporation, but wants to have more flexibility about how the new business will be taxed. She also wants to offer investors/owners limited liability. Emily can satisfy her objectives by setting up a(n): A. Limited liability company. B. S corporation. C. Alien corporation. D. General partnership. Limited liability companies offer limited liability protection while allowing the company the choice of being taxed as a corporation or as a partnership. Although S corporations also offer limited liability, they do not offer the tax flexibility. Moreover, an S corporation has more stringent ownership rules. Learning Goal: 05-3 Nickels - Chapter 05 #279 Topic: Corporations 280. (p. 125) A few years back, your three U.S. born friends that live in the State of Wyoming inherited a dude ranch that they plan to turn into a retirement haven for race horses. Peaceful Pastures wants to open its doors by spring, 2010. After attending several small business seminars, the three friends are certain they need limited liability. The high-risk, labor-intensive business will require a sizeable investment including an air-conditioned barn, several fenced-in pastures and loads of animal feed. You recently heard that one form of business ownership requires owners to pay self-employment taxes on the entire amount of earnings. You are fairly certain this is one tax loophole your friends would like to avoid. You recommend: A. Sole Proprietorship B. General Partnership C. Limited Liability Company D. S-Corporation Unlike the Limited Liability Company, the S-Corporation form of business ownership avoids paying self-employment taxes on total earnings and still provides limited liability to business owners who are U.S. citizens. Learning Goal: 05-3 Nickels - Chapter 05 #280 Topic: Corporations 281. (p. 127) In the Legal Briefcase box, "Vermont Wants to be the Home of Your New Virtual Company," A. The box discusses the Vermont Teddy Bear Company and their difficulty in going from an S-Corporation to a C-Corporation. B. The box talks about a newly created LLC in Vermont called the Virtual Company, where all members contribute their skills through electronic communication. C. The box discusses how the state of Vermont wants to attract business, yet refuses to permit the electronic submission of filing for any form of business ownership. D. The box talks about the Vermont maple syrup industry and how due to the fact that it is a seasonal business, it cannot exist virtually. The labor intensive business requires the expertise of experienced tree tappers. The Virtual Company operates differently from traditional bricks and mortar operations. Rather than each member actively working in the business, this form of LLC draws upon the expertise of members only when it is needed. Members profit from the business in proportion to their contributions. Blooms: Analysis Learning Goal: 05-3 Nickels - Chapter 05 #281 Topic: Legal Briefcase box 282. (p. 127) "Vermont Wants to be the Home of Your New Virtual Company" talks about: A. A new form of LLC offered in the state of Vermont, where all members can operate virtually. B. The fact that it is difficult to ask firms to commit to one form of business ownership since "global is now local". C. A new law that says your firm can be a corporation in the U.S., an LLC in England, and a sole proprietorship in China. D. How states are competing for your business, particularly individuals who want to start sole proprietorships. The Virtual Company operates differently from traditional bricks and mortar operations. Rather than each member actively working in the business, this form of LLC draws upon the expertise of members only when it is needed. Members profit from the business in proportion to their contributions. All work, including meetings, is performed electronically. Blooms: Analysis Learning Goal: 05-3 Nickels - Chapter 05 #282 Topic: Legal Briefcase box 283. (p. 129) One reason that companies participate in mergers and acquisitions is: A. To do the same thing as the competition because it makes for a highly leveraged company. B. To convert a sole proprietorship into a partnership. C. To expand within their own field or enter new markets. D. To take the first step toward a join venture. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #283 Topic: Corporate Expansion: Mergers and Acquisitions 284. (p. 129) In recent years, firms found it easier to grow market share by: A. Switching from the corporate form of ownership to the partnership form of ownership. B. Merging with other companies or acquiring new companies. C. Downsizing their operations. D. Avoiding problems with antitrust regulations. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #284 Topic: Corporate Expansion: Mergers and Acquisitions 285. (p. 129) A ____________ is two firms combining to form one company. A. joint tenancy B. tenancy in common C. merger D. leveraged buyout Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #285 Topic: Corporate Expansion: Mergers and Acquisitions 286. (p. 129) A(n) _________ occurs when one company buys the property and obligations of another company. A. cooperative B. hostile takeover C. leveraged buyout D. acquisition Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #286 Topic: Corporate Expansion: Mergers and Acquisitions 287. (p. 129-130) Three types of corporate mergers are: A. Economic, geographic, and financial. B. Vertical, horizontal, and conglomerate. C. Flexible, differentiated, and conditional. D. Explicit, implicit, and intrinsic. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #287 Topic: Corporate Expansion: Mergers and Acquisitions; Figure 5.7 288. (p. 129-130) A ______________ merger unites firms at different stages of related businesses. A. vertical B. horizontal C. diagonal D. conglomerate Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #288 Topic: Corporate Expansion: Mergers and Acquisitions; Figure 5.7 289. (p. 129-130) When two companies in the same industry agree to become one firm, the result is called a: A. Vertical merger. B. Joint venture. C. Monopoly. D. Horizontal merger. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #289 Topic: Corporate Expansion: Mergers and Acquisitions; Figure 5.7 290. (p. 129-130) When two companies in completely unrelated industries agree to become one firm, the result is called a: A. Vertical merger. B. Joint venture. C. Conglomerate merger. D. Horizontal merger. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #290 Topic: Corporate Expansion: Mergers and Acquisitions; Figure 5.7 291. (p. 129) A conglomerate merger will: A. Diversify business operations and investments. B. Allow the firm to have a less dominant position in its market. C. Enable the firm to enjoy a higher degree of specialization. D. Give the firm a more secure access to needed materials and components and better control over quality. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #291 Topic: Corporate Expansion: Mergers and Acquisitions 292. (p. 129) One result of taking a firm private is: A. The firm's stock is no longer available for purchase on the open market. B. Managers lose some control as the number of stockholders increases. C. The public image of the firm will suffer. D. The firm will have access to more capital. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #292 Topic: Corporate Expansion: Mergers and Acquisitions 293. (p. 130) An attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing is called a(n): A. Golden parachute. B. Arbitrage agreement. C. Factor transaction. D. Leveraged buyout. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #293 Topic: Corporate Expansion: Mergers and Acquisitions 294. (p. 130) If a group of stockholders or management obtain all the stock of a previously publicly traded firm for themselves, this is referred to as: A. Capitalizing. B. Stock turning. C. Turning the equity. D. Taking the firm private. Learning Goal: 05-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #294 Topic: Corporate Expansion: Mergers and Acquisitions 295. (p. 129) The difference between a merger and an acquisition is: A. A merger does not combine the assets and liabilities of firms, whereas an acquisition combines assets and liabilities. B. A merger combines the assets of the two firms, but each company continues to assume its own liabilities, whereas an acquisition is a total buyout of one firm by another. C. A merger is the joining of resources of two companies, whereas an acquisition is a buyout of one firm by the other. The new company concerns itself with merging of resources. D. A merger is always something smaller tagging onto something larger, like a merging lane onto an interstate, whereas an acquisition is two firms that are relatively the same size agreeing to continue as one - more like two major interstates that come together and travel as one for several miles. A merger is the result of two firms combining their resources and forming one company. An acquisition is when one firm purchases the assets and obligations of another firm. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #295 Topic: Corporate Expansion: Mergers and Acquisitions 296. (p. 129) When two firms who do not participate in the same industries, for example a software company and a fast food restaurant company decide to merge, the result is called a ____________ merger. A. vertical B. horizontal C. linear D. conglomerate A conglomerate merger involves two firms from different industries. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #296 Topic: Corporate Expansion: Mergers and Acquisitions 297. (p. 129) A merger involving a commercial bakery and a grocery retailer would be an example of a: A. Vertical merger. B. Horizontal merger. C. Linear merger. D. Conglomerate merger. A vertical merger involves two firms in different stages of related businesses. The bakery would make bread and other items to be sold in the grocery. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #297 Topic: Corporate Expansion: Mergers and Acquisitions 298. (p. 129) A merger involving a software producer and a clothing manufacturer is an example of a: A. Vertical merger. B. Horizontal merger. C. Linear merger. D. Conglomerate merger. A conglomerate merger is two firms from unrelated industries combining their resources. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #298 Topic: Corporate Expansion: Mergers and Acquisitions 299. (p. 130) In a leveraged buyout, the managers of a firm, its employees, or other investors: A. Move the company elsewhere and start over. B. Obtain the assets of the company through bankruptcy proceedings. C. Borrow funds to buy out the firm's stockholders. D. Negotiate a merger with another firm to create a conglomerate. A leveraged buyout is an attempt by employees, management, or a group of investors to use borrowed funds to buy out the existing owners of a firm. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #299 Topic: Corporate Expansion: Mergers and Acquisitions 300. (p. 130) When investors successfully take a firm private, the firm's stock is: A. Converted into bonds. B. Converted into cash. C. No longer sold to investors on the open market. D. Pledged as collateral to its bondholders. When investors take a firm private, they obtain all of the stock for themselves. The stock is no longer traded on the open market. Blooms: Comprehension Learning Goal: 05-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #300 Topic: Corporate Expansion: Mergers and Acquisitions 301. (p. 129) Modern Screen Entertainment, Inc., recently bought Star Power Pictures, Inc., for an undisclosed amount of money. It now owns all of Star Power Picture's properties and obligations. This is an example of a(n): A. Merger. B. Combination. C. Expropriation. D. Acquisition. When one company buys out another firm's property and obligations, the result is called an acquisition. Learning Goal: 05-4 Nickels - Chapter 05 #301 Topic: Corporate Expansion: Mergers and Acquisitions 302. (p. 129) Continental Foods is considering a conglomerate merger with a company that makes storage solutions. A likely reason is: A. Expand its market share. B. Develop spin-off companies. C. Diversification. D. Meet the requirements to convert to a limited liability company. A conglomerate merger is between firms in unrelated markets. One of the common motivations for this type of merger is the desire to diversify business operations and investments. Learning Goal: 05-4 Nickels - Chapter 05 #302 Topic: Corporate Expansion: Mergers and Acquisitions 303. (p. 129) Trans Globe Airlines is in talks with Royal Blue Airlines, a financially troubled rival. The firms believe the merger will create a stronger company that can offer travelers more flights to a wider variety of destinations. This proposed merger is an example of a: A. Conglomerate merger. B. Leveraged buyout. C. Horizontal merger. D. Joint venture. A merger between firms in the same industry is called a horizontal merger. Learning Goal: 05-4 Nickels - Chapter 05 #303 Topic: Corporate Expansion: Mergers and Acquisitions 304. (p. 129-130) Several years ago. Regis Corporation, a very large hair styling salon company purchased 60 "Your Father's Mustache" salons. Although this was initially an acquisition, the merging of these two businesses was a(n) ____________. Regis went on to purchase several hair care product companies. Joining forces with hair care product companies would represent a _____________. A. conglomerate merger; horizontal merger B. vertical merger; horizontal merger C. horizontal merger; vertical merger D. conglomerate merger; conglomerate merger A merger of two companies who compete in the same industry and for the same market is a horizontal merger. A merger between two firms at different stages of related businesses is a vertical merger. Learning Goal: 05-4 Nickels - Chapter 05 #304 Topic: Corporate Expansion: Mergers and Acquisitions; Figure 5.3 305. (p. 130) The strategy of investors who are attempting a leveraged buyout is: A. Shape up the company for quick resale. B. Use debt to finance the buyout of the firm's stockholders and gain control of the firm themselves. C. Secure ownership of all of the existing stock in a company by issuing and selling large amounts of new stock. D. Use investment tax credits from the government to acquire all of the physical assets owned by the firm. In a leveraged buyout, the objective of the investors is to use debt financing to gain control of the firm's stock for themselves. Learning Goal: 05-4 Nickels - Chapter 05 #305 Topic: Corporate Expansion: Mergers and Acquisitions 306. (p. 129) Adam is a major stockholder in Precision Transmission Services (PTS), a nationwide network of transmission repair shops founded by his father. Currently, PTS stock is sold on the open market, but Adam has talked to several relatives about his desire to get all of the PTS stock back in his family's hands. Adam is interested in _______________________________. A. taking the firm private B. a hostile takeover of the firm C. converting the firm to a general partnership D. forming a master limited partnership When a group of stockholders, such as a family, obtains all of the stock in a company for themselves, they have taken the firm private. Learning Goal: 05-4 Nickels - Chapter 05 #306 Topic: Corporate Expansion: Mergers and Acquisitions 307. (p. 131) A ___________ is an arrangement whereby someone with proven idea for a business sells the rights to use the business model, to sell a product or service to others in a given territory. A. conditional grant B. franchise agreement C. trade contract D. extended ownership agreement Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #307 Topic: Franchises 308. (p. 131) A(n) _____________ is a company that has a proven business model and is willing to sell the rights to use the business model to others so that they can sell the same product or service within a given territory. A. intrapreneur B. franchisee C. limited partner D. franchisor Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #308 Topic: Franchises 309. (p. 131) A person who buys the right to use a business name and sell a product within a given territory is called a: A. Stockholder. B. Franchisee. C. Limited franchisor. D. Venture capitalist. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #309 Topic: Franchises 310. (p. 131) A franchise can be formed: A. Only as a general partnership. B. Only as a corporation. C. As either a corporation or partnership, but not as a sole proprietorship. D. As a corporation, partnership or sole proprietorship. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #310 Topic: Franchises 311. (p. 132) The most popular type of business for franchising is: A. Consumer wholesale firms. B. Restaurants. C. Specialty steel manufacturing. D. Medical services. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #311 Topic: Franchises 312. (p. 133) A ____________ is the share of profits or percentage of sales a franchisee pays to a franchisor. A. royalty B. dividend C. premium D. co-pay Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #312 Topic: Franchises 313. (p. 132) Which of the following is an advantage of franchises? A. Shared profit. B. Management regulation. C. Management and marketing assistance. D. Coattail effects. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #313 Topic: Franchises 314. (p. 132) One reason franchises have become so popular is that this arrangement provides the franchisee with: A. A nationally recognized name and product. B. A low cost way to start a business. C. Limited liability. D. The right to retain all profits earned by their franchise. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #314 Topic: Franchises 315. (p. 136) Global franchising offers: A. Few opportunities for American investors. B. Opportunities for large franchise systems, but not small ones. C. Opportunities for both large and small franchises. D. American firms the opportunity to market goods overseas without any need to adjust for cultural differences. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #315 Topic: Franchises 316. (p. 136) Opening and operating a franchise in a different country: A. Is illegal according to the Clayton Antitrust Act. B. Is no different than setting up a franchise in the domestic market. C. May require the owner to adapt to social and cultural differences. D. Is much less risky than owning a domestically based franchise. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #316 Topic: Franchises 317. (p. 133) Franchisors may send reverse royalties to franchisees who: A. Have not yet created their own web site. B. Feel their sales have been hurt by the franchisor's Internet sales. C. Are using e-commerce to expand their sales territory. D. Desire to streamline their communication with employees, customers, and vendors. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #317 Topic: Franchises 318. (p. 136) _____________ is by far the most popular target for American franchisors seeking to establish franchises in other countries. A. Canada B. Mexico C. Great Britain D. Japan Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #318 Topic: Franchises 319. (p. 136) Franchised businesses are successful (both domestically and internationally because: A. They require very little start-up revenue. B. People prefer the owners and employees of franchised businesses. C. Laws require franchisors to provide the same level of service to franchisees. D. Customers like the predictability of the product and/or service. Learning Goal: 05-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #319 Topic: Franchises 320. (p. 131) An evaluation of franchising would conclude that this type of arrangement: A. Has become the dominant form of business organization in the United States because it has many advantages and almost no disadvantages. B. Appeals to people who want to own a business, but are not comfortable starting a company from scratch. C. Has a much higher risk of failure than independent companies. D. Has little chance of success outside the United States because many foreign countries do not allow such arrangements. An advantage of franchising is that it allows franchisees to own their business while taking advantage of an established name and product. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #320 Topic: Franchises 321. (p. 134) Which of the following statements identifies an advantage for women who have become franchisors in recent years? A. The federal government has offered a series of special financial incentives to women to encourage them to convert their businesses into franchises. B. Women usually have less difficulty than men obtaining the needed start-up capital to establish a franchise. C. Women business owners have found that operating their businesses as franchises is the best way to limit their personal liability. D. Women business owners have learned that becoming franchisors can help them finance the costs of business expansion. Women often find that obtaining the financial capital needed for expansion is difficult. Selling franchises to others has assisted with expansion for growth. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #321 Topic: Franchises 322. (p. 135-136) Which of the following statements best summarizes the experience of American franchisors in foreign countries? A. Very few American franchisors of any size have had success in international markets. B. Large franchisors have had success in other nations, but newer and smaller franchisors have lacked the financial strength and reputation to succeed in global markets. C. The only nations in which American franchisors have achieved any success are Great Britain and Mexico. D. Both large and small franchises have found success in foreign countries by providing convenience and a predictable level of service and quality. Literally hundreds of U.S.-based franchisors have outlets in foreign countries. Even new and relatively small franchisors are finding success in other countries. The key to international success in franchising is the same as the key to success in the United States: providing the customer with convenience and a predictable level of service and quality. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #322 Topic: Franchises 323. (p. 133) When evaluating a franchised opportunity, which of the following would you not find it necessary to do? A. Determine the territory of operation and whether it is an exclusive territory for the length of time of the franchise agreement. B. Avoid investigating the financial strength of the franchisor because it will be you who is making the money. C. Ask for sales and profit performance of similar franchises, and verify the information you received. D. Explore the market and the competition for same or similar products and services. The number of franchise systems has grown exponentially in the past ten years. All franchise systems are not strong. There are many weak systems that are at risk of not being able to support their franchisees with management and marketing assistance. Others are fraudulent. It is important to find out everything you can about the franchisor, and particularly its financial standing. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #323 Topic: Buying a Franchise; Figure 5.8 324. (p. 134) With respect to franchised operations, what is a "bust-out"? A. Franchises whose sales begin rather slow, and then a positive situation such as a new office building emerges near the site and helps grow the business. B. The successful expansion of a business, by selling franchises to others. C. A scam operation that temporarily locates in an area, in order to sell fake or unproven franchises. D. A lengthy and full investigation of the franchisor by the franchisee, and usually involves retaining an attorney to help with the legal matters. Scams known as "bust-outs" are usually operations that enter an area, set up office space, and attempt to convince investors to buy-into fraudulent franchised businesses. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #324 Topic: Buying a Franchise; Figure 5.8 325. (p. 134) Which of the following statements about buying a franchise is most accurate? A. One of the advantages of buying a franchise is that franchisors are so closely regulated that there is virtually no chance for scams to succeed. B. Before purchasing a franchise, the buyer should carefully evaluate the franchise, the franchisor, his or her own situation, and the nature of the market. C. Franchise agreements are simple to evaluate, since federal law requires that all such agreements must be written in plain English with all fees and terms clearly explained. D. Buying a franchise is the simplest and least expensive way to set up a business, since the franchisor has already worked out all of the details for setting up and running the business. This question is based on information in Figure 5.8. The figure provides a lengthy checklist of questions for evaluating a franchise, including questions about the franchise itself, the franchisor, the franchisee, and the market. Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #325 Topic: Franchises; Figure 5.8 326. (p. 136) Which of the following statements about operating a U.S.-based franchise in a foreign country is most accurate? A. U.S.-based franchises are most likely to succeed in a foreign market if they use the same strategies and procedures used by franchises in the United States. B. There are limited opportunities for U.S.-based franchises to open in foreign countries because, aside from Canada, Mexico, and a small number of European countries, most foreign nations do not allow American-owned franchises to operate within their borders. C. The operating costs for franchises in foreign countries may be fairly high, but chances for success are quite good, because competition is likely to be less intense and the customer base in many foreign countries is expanding. D. It is difficult for U.S.-based franchises to succeed in most foreign countries because the low incomes of most households in these countries result in weak demand. Franchises in foreign countries can be more expensive, but this is usually counterbalanced by less competition and a rapidly expanding consumer base. Blooms: Comprehension Learning Goal: 05-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #326 Topic: Franchises 327. (p. 133) Sierra is interested in becoming a franchise owner, by opening and operating one of 50 Cactus Katie's Grills, a very successful fast food chain specializing in food dishes from the American southwest. Which of the following problems is Sierra most likely to encounter if she agrees to become a franchisee? A. high initial costs and fees B. poor name recognition and visibility C. lack of financing D. lack of managerial assistance While franchisors often provide franchisees with financial and managerial assistance, they typically demand a fee just to obtain the rights to the franchise. The fees charged by successful franchisors can by quite high. In addition, most franchisors also require franchisees to pay a fee, called a royalty, based on profits or sales. Learning Goal: 05-5 Nickels - Chapter 05 #327 Topic: Franchises 328. (p. 133) Marco is a franchisee with Daggies, a chain of sandwich shops. His business was doing well until several Daggies franchisees got in trouble and were forced to close their shops. Soon afterward, Marco's business deteriorated and he too was forced to close. This is an example of: A. An economic shakeout at work. B. The coattail effect. C. The law of diminishing returns. D. Management by exception. Coattail effects refer to situations where the actions of other franchisees can have an impact on the success or failure of a particular franchisee's business. Learning Goal: 05-5 Nickels - Chapter 05 #328 Topic: Franchises 329. (p. 131) Daggie's Sandwiches, Inc., sells the rights to use its name and sell its sandwiches in a given market area to aspiring business people who are willing to pay agreed upon fees and meet certain contractual terms. Daggie's: A. Is offering investors the opportunity to form limited partnerships. B. Is a franchisor. C. Creates private subsidiary companies. D. Offers a tax-free investment potential. A franchisor is someone with a good idea for a business who sells the rights to use the business name and to sell its products or services in a given territory. Learning Goal: 05-5 Nickels - Chapter 05 #329 Topic: Franchises 330. (p. 131) Midas Muffler sells franchises to prospective businesspersons who want to use the Midas name and offer Midas products. In a franchise arrangement, Midas would be the __________, and the buyer of the franchise is the __________. A. owner; limited partner B. co-signer; co-signee C. franchisor; franchisee D. franchisee; franchisor In a franchising arrangement, the person or company that sells the right to use the name and product is the franchisor, and the person who buys the rights is known as the franchisee. Learning Goal: 05-5 Nickels - Chapter 05 #330 Topic: Franchises 331. (p. 131) In the Thinking Green box titled, "Root, Root, Root For the Green Team", The Washington Nationals baseball team is featured as a franchised business that demonstrates environmental stewardship by: A. Replacing all sod in the stadium with astro-turf to conserve water. B. Building a LEED certified building and initiating recycling programs. C. Joining several other baseball franchises and only washing uniforms in phosphate-free detergents because the run-off eventually ends up in our drinking water supply. D. Painting the steel beams and seats in the stadium "green" and continuously flashing the words "green" on the display monitors to remind everyone to use the waste cans and to clean around their seats before departing the stadium. The Washington Nationals is the first baseball franchise to show its commitment to a greener planet. It cooperated with the Washington, D.C. City council and built a LEED (Leadership in Energy and Environmental Design) certified building. It also instituted recycling programs and installed filtering screens to collect organic debris in its wastewater. Learning Goal: 05-5 Nickels - Chapter 05 #331 Topic: Thinking Green box 332. (p. 133) Jenna plans to invest in a cleaning service franchise called "Spare Time". At her first interview with the franchisor's selling agent, she learned that the parent company expects royalties of 5%. These are: A. The initial investment, also known as the franchise fee paid to the franchisor. B. The cost of supplies that she will purchase one time each month from the parent company. C. Milestones that the parent company expects her to reach. With each milestone, she will be rewarded with commissions. D. A share of the profits or a percentage share of revenues (net sales). Franchisors usually require a royalty fee which can be a portion of the profits of each franchised operation, or a percentage of the revenues (net sales) of each operation. These are typically collected on a monthly basis. Learning Goal: 05-5 Nickels - Chapter 05 #332 Topic: Franchises 333. (p. 133) Greg plans to open up three Hottie Patatee franchises in the greater Denver area. He just informed you that he plans to negotiate with the franchisor to eliminate the Big Potato Head that graces the roof of these restaurants. Greg is likely to learn that: A. The parent company will give him a start-up cost break for the same amount that it would have to pay for three of these signs. B. He is making a smart decision because it is not the sign that will bring customers to his potato bar. It is the wide-selection of toppings and six different ways he will cook potatoes. C. It is non-negotiable due to company rules. D. His failure rate will not increase or decrease because franchises traditionally have low failure rates. Franchisors quite often require franchisees to adhere to strict rules when it comes to the design of their buildings, the signs that they use, and other mandates. The proven business model usually has centralized regulations that franchisees must follow. Learning Goal: 05-5 Nickels - Chapter 05 #333 Topic: Franchises 334. (p. 137) A ___________ is an organization that is owned and controlled by the people who use it—producers, consumers and workers with similar needs pool their resources for mutual gain. A. corporation B. limited partnership C. mutual fund D. cooperative Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #334 Topic: Cooperatives 335. (p. 137) In rural areas electrical power is often sold by ____________ that take advantage of the government's policy to sell them electricity at wholesale rates. A. franchises B. limited partnerships C. mutual funds D. cooperatives Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #335 Topic: Cooperatives 336. (p. 137) Some __________ ask members/customers to work at the organization for a number of hours a month as part of their duties. A. franchises B. limited partnerships C. mutual funds D. cooperatives Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #336 Topic: Cooperatives 337. (p. 137) The purpose of a farm cooperative is to: A. Give members more economic power as a group than they would have as individuals. B. Give each farm an equal share in the running of the cooperative. C. Equalize the members' standard of living. D. Allow socialism a foothold in the U.S. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #337 Topic: Cooperatives 338. (p. 137) In a cooperative, members/customers: A. Democratically control their businesses by electing a board of directors. B. Are known as limited partners. C. Each have unlimited liability for the debts of the firm. D. Take turns serving on the board that manages the company. Learning Goal: 05-6 Level of Learning 1: Knowledge of key terms Nickels - Chapter 05 #338 Topic: Cooperatives 339. (p. 137) People who form cooperatives: A. Believe the government should play a larger role in the economy. B. Dislike the notion of having owners, managers, and customers as separate individuals with separate goals. C. See competitive behavior as the key to ensuring rapid economic growth. D. Want to find a way to supply basic necessities free of charge to everyone. People who form cooperatives dislike the notion of separating owners, managers, and customers into separate groups with separate goals. They tend to favor more cooperation and a more equal distribution of wealth. Blooms: Comprehension Learning Goal: 05-6 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #339 Topic: Cooperatives 340. (p. 137) A distinguishing feature of a cooperative is that it: A. Maintains a distinct separation between ownership and management. B. Is only intended to operate for a limited period of time. C. Is owned and operated by the people who use it. D. Can have no more than 75 owners, all of whom must be citizens of the United States. A cooperative is an organization that is owned and operated by the people who use it—producers, consumers and workers with similar needs who pool their resources for mutual gain. Blooms: Comprehension Learning Goal: 05-6 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #340 Topic: Cooperatives 341. (p. 138) Which of the following statements about farm cooperatives is most accurate? Farm cooperatives have: A. Declined in importance in recent years. B. Become a major force in American agriculture. C. Run afoul of U.S. antitrust laws in recent years. D. Increased in number, but decreased in size in recent years. Statistics and examples cited in the text clearly indicate that farm cooperatives, such as Sunkist, Land O'Lakes, Blue Diamond, and Ocean Spray, are a major force in U.S. agriculture. Blooms: Comprehension Learning Goal: 05-6 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 05 #341 Topic: Cooperatives 342. (p. 137) Which of the following people would be most interested in participating in a business organized as a cooperative? A. Joe is intrigued by the idea of combining his time and resources with many other people to operate a business providing a good or service that they all will use. B. Joan wants to be an owner of a business and share in its profits, but has no desire to take an active role in managing the company or participating in its daily operations. C. Jeff wants to work for a government-owned business because he believes government ownership ensures a more equitable distribution of income and wealth. D. Jennifer prefers to work for a charitable organization that emphasizes helping people who are less fortunate than she is. As its name implies, a cooperative emphasizes cooperation. A cooperative appeals to people who dislike the notion of having owners, managers, workers, and customers as separate groups with different goals. In a cooperative, the people who will use a product join together and pool resources to operate the business for their mutual gain. Learning Goal: 05-6 Nickels - Chapter 05 #342 Topic: Cooperatives 343. (p. 137) Twenty-six years ago, several small vineyard owners in California joined voluntarily to market their grapes and wine in an attempt to get better prices. Over the years they expanded the organization to include other services such as buying and selling farm supplies and equipment and providing financial and technical services. The arrangement established by these vineyard owners is an example of a(n): A. Closed corporation. B. Joint venture. C. Limited agricultural partnership. D. Farm cooperative. A farm cooperative is an organization of farmers who have joined to gain more economic power than they would have as individuals. These organizations often buy and sell supplies and equipment, provide warehouses, offer insurance and financial and technical services, and even operate manufacturing facilities. Learning Goal: 05-6 Nickels - Chapter 05 #343 Topic: Cooperatives 344. (p. 114-117) Although most new firms start out as sole proprietorships, few large firms are organized this way. Why is the sole proprietorship such a popular form of ownership for new firms? What features of the sole proprietorship make it unattractive to growing firms? Sole proprietorships have many features which are attractive to people starting a new business, including the following: 1) They are relatively easy and inexpensive to set up. 2) The owner can be his or her own boss, which appeals to many entrepreneurs who want to do things their own way, without the need to consult others. 3) The owner can keep all of the profits (except the share the government takes in taxes). 4) Proprietors can take a great deal of pride in owning their own independent business and running it as they see fit. 5) The owner's work establishes a legacy on which future generations may build. 6) There are no special taxes on proprietorships. However, sole proprietorships also have some disadvantages that limit their growth potential: 1) With only one owner, sole proprietorships have limited access to the financial capital needed by rapidly growing firms. 2) As the firm grows and becomes more complex, the owner may become overwhelmed with the tasks of running the firm and need to attract qualified help. 3) Unfortunately, qualified professional workers are often reluctant to work in a sole proprietorship. 4) One of the biggest drawbacks for sole proprietorships is the unlimited liability of the owner. This means that the owner can lose much more than the amount he or she initially invested in the company (including personal property and savings) if the company gets into severe financial trouble. In this respect, a sole proprietorship is a risky form of ownership. Many growing companies decide to change their form of ownership to a corporation to overcome these drawbacks. Learning Goal: 05-1 Nickels - Chapter 05 #344 Topic: Sole Proprietorship 345. (p. 117) What is the difference between a general partner and a limited partner? Give an example of a situation in which a person would want to be a limited partner. A general partner is an owner (partner) who has unlimited liability and is active in managing the firm. A limited partner invests money in the business and shares in the profits, but has limited liability and cannot legally assume any management responsibility. Students could offer any number of examples. Among them might be: 1) Wealthy persons who want to invest in what they think could be a successful firm, but don't want to risk their personal assets. 2) Persons who do not want the responsibility of managing a partnership. 3) Persons who are interested in a particular type of business but know nothing about the field. Learning Goal: 05-2 Nickels - Chapter 05 #345 Topic: Partnerships 346. (p. 121-124) What is a C corporation? What are the major advantages and disadvantages of this form of business ownership? The C corporation is a state-chartered legal entity with authority to act and have liability separate from its owners. The text identifies many advantages of corporations. Among the major advantages are: 1) More money for investment. A corporation can sell stock (shares of ownership) to large numbers of interested investors. This enables corporations to finance growth, modernize facilities and invest in the latest technologies. 2) Limited liability. The personal assets of the stockholders are not at risk. This is a major advantage to investors who want to invest in a company but want to limit potential losses. 3) Perpetual life. Unlike a sole proprietorship or partnership, a corporation is separate from its owners, so its existence is not threatened by the death of an owner. 4) Ease of ownership change. Unlike the other major forms of business ownership, stockholders in corporations can easily transfer ownership by simply selling their stock. 5) Ability to attract talented employees. Because of their ability to grow and offer opportunities for advancement, as well as the ability to offer fringe benefits (including stock options), corporations often can attract talented and highly qualified employees. The text also mentions disadvantages of becoming a C corporation, including: 1) High initial cost of formation. It is generally more expensive and time consuming to form a corporation than to form a sole proprietorship or partnership. 2) Increased regulation and paperwork. Corporations are subject to closer government regulation than other forms of ownership, and must keep detailed records. 3) Possible conflicts between the corporation's board of directors and management. Stockholders elect the board of directors, and may choose members who are at odds with top management. As the text points out, this can result in an entrepreneur being forced out of the very company he or she founded. 4) Double taxation. If a corporation pays dividends, its earnings are taxed both as income to the corporation and as income to the stockholders. In other forms of ownership, earnings are taxed only once. Learning Goal: 05-3 Nickels - Chapter 05 #346 Topic: Corporations 347. (p. 126) What is a limited liability company (LLC)? How does it compare to an S corporation? What are the major advantages and disadvantages of an LLC? A limited liability company (LLC) is a relatively new form of business organization that has been called the "business entity of the future." LLCs have some similarities to S corporations. Both of these forms of ownership have the advantage of providing limited liability for their owners while allowing the earnings of the company to be taxed as a partnership, thus avoiding the problem of double taxation that is a disadvantage of the conventional (or C) corporation. However, S corporations must meet certain eligibility requirements. For example, they can have no more than 100 stockholders (entire families are considered 1 stockholder), and all of the stockholders must be either individuals or estates and the individuals must be citizens or permanent residents of the United States. LLCs avoid these special eligibility requirements. Moreover, LLCs offer even more flexibility than S corporations in the choice of taxation methods and they provide a great deal of flexibility in the way they are operated, and in the way profits and losses are distributed. For all of these reasons, LLCs have quickly become a very popular form of ownership. However, LLCs also have some disadvantages. For example, shares of ownership in LLCs are not transferable without the approval of other owners. In addition, LLCs have a limited life, and members of LLCs must pay self-employment taxes on profits. (In contrast, owners of S corporations pay self-employment taxes only on salary, not on the entire profits of their company.) LLCs cannot deduct the cost of fringe benefits as an expense, and there is more paperwork for an LLC than there is for a sole proprietorship. Thus, though LLCs offer many attractive benefits, they are not the best choice in all situations. Learning Goal: 05-3 Nickels - Chapter 05 #347 Topic: Corporations 348. (p. 129) Describe and differentiate between the three types of corporate mergers. Give an example of each type. A vertical merger is the joining of two firms involved in different stages of related businesses. A horizontal merger joins two firms in the same industry and allows them to expand their product offerings and/or achieve efficiencies in production and distribution. A conglomerate merger unites completely unrelated firms for the purpose of diversifying operations and investments. Students could come up with many different examples here. Probably most will draw from the examples in the chapter but other examples could include: 1) Vertical: a candy producer that merges with a sugar refiner. 2) Vertical: a swimming pool contractor that merges with a pool filter manufacturer to ensure a constant supply of filters. 3) Horizontal: a publisher of business textbooks merges with a publisher that specializes in legal and political texts. 4) Horizontal: a chain of donut shops merges with a company that operates a chain of shops selling fresh baked cookies and candy in shopping malls. 5) Conglomerate: an insurance company that merges with a magazine publisher. 6) Conglomerate: an auto parts manufacturer merges with a clothing store chain. Learning Goal: 05-4 Nickels - Chapter 05 #348 Topic: Mergers and Acquisitions 349. (p. 131-136) Franchising has certainly become a key component of the U.S. economy. What are the major advantages and disadvantages of franchising? Students should be able to identify and discuss several of the following advantages: 1) Management assistance: most franchisors offer franchisees advice and managerial assistance. 2) Personal ownership: the business is still owned by the franchisee. 3) Use of a nationally recognized name: Many franchises have established a national reputation. 4) Financial advice and assistance: Franchisors often provide franchisees with expert financial advice and may even be willing to provide financing to franchisees. 5) Lower failure rate than that of other business ventures. Again, students can select from several disadvantages cited in the text. Among them are: 1) Large start-up costs to obtain the franchise. 2) Sharing profits with the franchisor, or paying commission based on sales to the franchisor. 3) Management regulations: franchisees have to follow rules and regulations set by the franchisor that can limit their freedom. Thus, even though the franchisees own their business, they do not have as much control as owners of independent small businesses do. 4) Negative coattail effects: the owners of a successful outlet can be adversely affected by the problems and poor performance of less successful franchisees in the same franchise. 5) Restrictions on selling: many franchisees face restrictions in the reselling of their franchises. 6) Fraudulent franchisors: many franchisors are small, rather obscure companies that prospective franchisees may know little about. There has been an increase in complaints to the Federal Trade Commission about franchisors that delivered little or nothing of what they promised. Learning Goal: 05-5 Nickels - Chapter 05 #349 Topic: Franchises Mini-Case For as long as she could remember, Jenna Raiter's passion was cars. As a teenager, she spent hours with her dad tinkering with the family car, learning to change the oil and making minor repairs. She got a job at a local garage while still in high school. A few years after graduating from high school and completing the auto mechanics degree at a local community college, Jenna decided she wanted to be her own boss. She quit her job, borrowed some money from her dad, and began her own repair shop, the AutoMotion Garage. Jenna's hard work gradually attracted a loyal clientele of satisfied customers. Her success has her thinking about opening garages in two other locations, but she lacks the financial resources needed for expansion. Furthermore, the success of her business is forcing Jenna to spend more time managing the business and less time doing the actual technical work she still enjoys. She wants to find business partners who can help her with management and provide additional financial resources. She has approached a couple of friends she met in high school: Al Ternator and Lew Banfilter, to see if they would like to join the business. Nickels - Chapter 05 350. (p. 114) Currently, AutoMotion Garage is operated as a(n): A. Limited liability company. B. Cooperative. C. Sole proprietorship. D. Solitary subsidiary. A business that is owned, and usually managed, by one person (such as Jenna) is a sole proprietorship. Learning Goal: 05-1 Nickels - Chapter 05 #350 Topic: Sole Proprietorship 351. (p. 117) Jenna approached Al Ternator about joining the business as an owner. She proposed that she continue to provide the technical expertise and deal directly with customers, while Al, who has a college degree in finance, handles many of the financial aspects of running AutoMotion. In addition, Jenna wants Al to contribute some much-needed money for expansion. Under Jenna's proposal, she and Al would operate the business together as: A. Limited partners. B. General partners. C. Majority shareholders. D. Business consultants. Since both partners are taking an active role in the business, they would be considered general partners. Learning Goal: 05-2 Nickels - Chapter 05 #351 Topic: Partnerships 352. (p. 117) Although Lew Banfilter, now a young attorney is impressed with AutoMotion and believes it could be a place to invest money, he informed Jenna that his professional position at a law firm prevents him from taking an active role in the business. He is also concerned about accepting more risk since he has a young family. He mentioned a preference for unlimited liability. If Lew joined Jenna and Al, the three might consider forming a: A. Limited partnership. B. General partnership. C. Sole proprietorship. D. Master Limited Partnership. A limited partner invests in the business and shares in the profits, but has limited liability and does not take an active role in the management of the company. This type of arrangement would meet Lew's goals of investing without incurring unlimited liability. Learning Goal: 05-2 Nickels - Chapter 05 #352 Topic: Partnerships 353. (p. 126) When Jenna confided in Lew and Al that she, too was concerned about adding additional risk, Lew suggested that they explore the possibility of one of the newest forms of business ownership, a(n) ____________, which has very flexible ownership rules and would give them more choices in how the company's earnings are taxed while still protecting all owners from high levels of risk. A. alien corporation B. master limited partnership C. limited partnership D. limited liability company Limited liability companies offer the protection of limited liability, but allow the company a great deal of flexibility in how the earnings of the business are taxed. In many cases, the company will choose to have its earnings taxed as if it were a partnership, thus avoiding the problem of double taxation. However, the company can also choose to have its earnings taxed as a corporation if that is more advantageous. Learning Goal: 05-3 Nickels - Chapter 05 #353 Topic: Corporations 354. (p. 131) Al also suggested another way Jenna could finance her expansion. He described setting-up a chain of AutoMotion Garages by selling the rights to use AutoMotion's name, business model, garage design and service ideas to others who would like to own a similar shop. These individuals would pay AutoMotion an initial fee and monthly royalties based on earnings. Al is suggesting that Jenna set up a: A. Joint venture. B. Franchise arrangement. C. C corporation. D. Master limited partnership. A franchise arrangement exists when someone with an idea for a business (the franchisor) sells the right to use the business name and to sell a product or a service (the franchise) to others (the franchisees) in a given territory. Franchisees usually pay the franchisor an initial fee and royalties. Many women have turned to franchising as a means of financing an expansion of their business. Learning Goal: 05-5 Nickels - Chapter 05 #354 Topic: Cooperatives 355. (p. 131) With all these choice, Jenna's head is swirling with ideas. She knows that Al and Lew have expertise in business and management, but she also knows that she will need to read on her own for more information. Referring back to a textbook she had in her Introduction to Business class in College, she comes upon the following statement: A. All forms of business ownership ultimately offer the same liability protection. B. An S-Corporation is a suitable form of business ownership for all businesses, while an LLC is limited to ownership by U.S. citizens. C. Even if you sell the rights to others to own a similar business, you still need to commit to a form of business ownership. D. The least risky form of business ownership is still the sole proprietorship, and that is precisely the reason that so many are formed each year. 06 Key 1. (p. 146) Entrepreneurship involves accepting the risk of starting and running a business. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #1 Topic: The Age of the Entrepreneur 2. (p. 146) Entrepreneurship is another name for management. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #2 Topic: The Job-Creating Power of Entrepreneurs in the United States 3. (p. 146) Entrepreneurs are less important now than in the past to the U.S. economy. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #3 Topic: The Job-Creating Power of Entrepreneurs in the United States 4. (p. 147) People who are 16 to 34 years old are not attracted to starting their own business. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #4 Topic: Spotlight on Small Business box, "You're Never Too Young to Be an Entrepreneur" 5. (p. 148) While entrepreneurs frequently earn significant profits for themselves, their impact on society is quite small. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #5 Topic: Why People Take the Entrepreneurial Challenge 6. (p. 146) Many business started by entrepreneurs have grown into major corporations employing thousands of workers. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #6 Topic: The Job-Creating Power of Entrepreneurs in the United States 7. (p. 148) Entrepreneurs are motivated by the desire to earn a profit. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #7 Topic: Why People Take the Entrepreneurial Challenge 8. (p. 148) Entrepreneurs take calculated risks. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #8 Topic: Why People Take the Entrepreneurial Challenge 9. (p. 148) Most entrepreneurs prefer working for someone else. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #9 Topic: Why People Take the Entrepreneurial Challenge 10. (p. 148) Most entrepreneurs are more interested in personal achievement than in power. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #10 Topic: Why People Take the Entrepreneurial Challenge 11. (p. 148) If you have managerial skills and leadership ability, you also posses the personality to be an entrepreneur. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #11 Topic: What Does it Take to Be an Entrepreneur? 12. (p. 148) Because of the stress of being in business for yourself, it's important that entrepreneurs have people around them to help replenish their enthusiasm. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #12 Topic: What Does it Take to Be an Entrepreneur? 13. (p. 148) Successful entrepreneurs rely on others for direction and support. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #13 Topic: What Does it Take to Be an Entrepreneur? 14. (p. 149) Successful entrepreneurs accept the risk of failure. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #14 Topic: What Does it Take to Be an Entrepreneur? 15. (p. 149) Entrepreneurs avoid risk and place a high priority on security. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #15 Topic: What Does it Take to Be an Entrepreneur? 16. (p. 148) It is important for an entrepreneur to be highly energetic. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #16 Topic: What Does it Take to Be an Entrepreneur? 17. (p. 150) Most entrepreneurs get the ideas for their products and services from a flash of inspiration. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #17 Topic: Turning Your Passions and Problems into Opportunities 18. (p. 150) Potential entrepreneurs would be well advised to surround themselves with people who are smarter than they are. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #18 Topic: Entrepreneurial Teams 19. (p. 150) An entrepreneurial team is a group of experienced managers who share the same skills and abilities. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #19 Topic: Entrepreneurial Teams 20. (p. 150) Entrepreneurial teams combine the creative marketing and production ideas of a group of experienced people. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #20 Topic: Entrepreneurial Teams 21. (p. 150) Successful entrepreneurs often make use of professional managers to introduce new ideas. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #21 Topic: Entrepreneurial Teams 22. (p. 150) Micropreneurs is a term used to describe entrepreneurs who focus on the continued growth of their businesses. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #22 Topic: Micropreneurs and Home-Based Business 23. (p. 152) The most important difference between entrepreneurs and micropreneurs is the focus placed by micropreneurs on balancing the demands of work and family. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #23 Topic: Micropreneurs and Home-Based Business 24. (p. 150-152) The primary concern of micropreneurs is to balance the risk of starting your own business with the desire to build a powerful organization earning significant profits. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #24 Topic: Micropreneurs and Home-Based Business 25. (p. 152) Many micropreneurs are home-based business owners. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #25 Topic: Micropreneurs and Home-Based Business 26. (p. 152) Micropreneurs are motivated by a desire to have both a satisfying family life and rewarding work. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #26 Topic: Micropreneurs and Home-Based Business 27. (p. 152) Advancements in computer technology put home-based businesses at a disadvantage. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #27 Topic: Micropreneurs and Home-Based Business 28. (p. 152) Many micropreneurs operate home-based businesses in the service industry. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #28 Topic: Micropreneurs and Home-Based Business 29. (p. 152) Corporate downsizing reduces the opportunities for home-based businesses. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #29 Topic: Micropreneurs and Home-Based Business 30. (p. 152) Opponents of home-based businesses successfully lobbied Congress to reduce the tax deductions available for home offices. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #30 Topic: Micropreneurs and Home-Based Business 31. (p. 152) Successful micropreneurs require self-discipline to separate work from family responsibilities. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #31 Topic: Micropreneurs and Home-Based Business 32. (p. 153) Micropreneurs are exempt from the local ordinances that restrict home-based businesses from operating in residential areas. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #32 Topic: Micropreneurs and Home-Based Business 33. (p. 152) One advantage enjoyed by home-based businesses is the relative ease in attracting new customers. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #33 Topic: Micropreneurs and Home-Based Business 34. (p. 154) Small businesses have not significantly participated in web-based online sales. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #34 Topic: Web-Based Businesses 35. (p. 155) The Internet provides a resource for entrepreneurs for information regarding the steps needed to take their business online. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #35 Topic: Web-Based Businesses 36. (p. 155) Web-based businesses avoid the risk of failure faced by traditional startup businesses. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #36 Topic: Web-Based Businesses 37. (p. 155) An intrapreneur is the creative person who starts and manages a nonprofit organization. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #37 Topic: Entrepreneurship within Firms 38. (p. 155) Creative people working as entrepreneurs within a large organization are called intrapreneurs. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #38 Topic: Entrepreneurship within Firms 39. (p. 155) Entrepreneurial spirit is unique to a small business environment. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #39 Topic: Entrepreneurship within Firms 40. (p. 155) Large organizations encourage intrapreneurship as a strategy to improve their profitability through new products. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #40 Topic: Entrepreneurship within Firms 41. (p. 156) By passing the Immigration Act of 1990, the U.S. government acted to encourage entrepreneurs to immigrate to the United States. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #41 Topic: Encouraging Entrepreneurship: What Government Can Do 42. (p. 156) The U.S. government offers "investor visas" to attract more entrepreneurs. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #42 Topic: Encouraging Entrepreneurship: What Government Can Do 43. (p. 156) The position of our government is to restrict foreign entrepreneurs from operating within the U.S. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #43 Topic: Encouraging Entrepreneurship: What Government Can Do 44. (p. 156) Business incubators provide assistance to established companies attempting to generate foreign sales. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #44 Topic: Encouraging Entrepreneurship: What Government Can Do 45. (p. 156) A National Business Incubator Association study indicates that over 80 percent of incubator graduates remain in business. 46. (p. 156) Enterprise zones offer lower tax rates and government assistance to attract private business investment. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #46 Topic: Encouraging Entrepreneurship: What Government Can Do 47. (p. 148) Independence, challenge, and opportunity are among the key reasons given by those who assume the risks of entrepreneurship. 48. (p. 148) Successful entrepreneurs are exclusively motivated by the desire to become rich. Entrepreneurs are often motivated by the challenges and opportunities of starting and operating a business, and by the chance to be independent. Thus, earning a profit is only one of the goals that motivate entrepreneurs. 49. (p. 148) Although corporate managers often exhibit the skills required of successful entrepreneurs, they seldom have the desire to give up the perks and fringe benefits of corporate life and start their own business. 50. (p. 148) To be successful, entrepreneurs are dependent on the support of others for encouragement. 51. (p. 150) Entrepreneurial teams increase the cooperation between marketing, production and other functional areas of a business venture. 52. (p. 156) State governments create new startup business organizations called enterprise zones that are later sold to private investors. 53. (p. 153) Small businesses have very few opportunities to outsource their business. With new technology, outsourcing opportunities for small businesses have increased. As indicated in the Reaching Beyond our Borders box, websites such as Elance provide small businesses with a central hub to offer their business services to others, as well as find services that they need. 54. (p. 146) The Spotlight on Small Business box featured several new entrepreneurs, some as young as 10 years old, proving "age is just a number" when it comes to having a vision for a business and bringing it to fruition. 55. (p. 148) Juanita wants to operate her own business. Although she admits it would be nice to earn a healthy profit, her primary motivation is the excitement and challenge of starting and running a business. Juanita's attitude is different from most small business owners, who usually focus solely on the earnings potential of their ventures, as well as the opportunity to acquire power and prestige. 56. (p. 148) Ramsey is a dreamer rather than a doer. This is an important attribute for an entrepreneur since their job is to be creative and develop new ideas that are then implemented by others. 57. (p. 149) Jacques has eliminated the risk of entrepreneurship by preparing a detailed business plan. 58. (p. 150) Jason, Robin, and Ian currently work in the marketing department of a large corporation. They have similar backgrounds and training and are thinking about leaving their company to start their own business. Successful entrepreneurial teams are comprised of these types of people because similarities in knowledge and skill ensure harmony and consistency in their new business. 59. (p. 150-152) Anthony is an employee of a textbook publisher. However, his desire is to establish a home-based business providing his services to a variety of publishers. Anthony's primary motivation is to escape the 9 to 5 world of corporate publishing and to enjoy the opportunity of working for himself. Anthony is an example of a micropreneur. 60. (p. 155) Kylie is employed by Street Wheels, a large corporation that produces accessories for scooters, bicycles, and other children's vehicles. She is a creative force within the company and has helped create and launch several new successful products. Kylie is an example of an intrapreneur. 61. (p. 154) Jon received a letter in the mail explaining that HE COULD EARN THOUSANDS!!!! by working just a few hours from home. Most likely Jon's letter was a work-at-home scam. 62. (p. 156) The United States government views entrepreneurship as a result of an individual's self-motivation. The government can do very little to encourage an individual to become an entrepreneur. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #62 Topic: Encouraging Entrepreneurship: What Government Can Do 63. (p. 156) When Kelsey began the Cookie Kitchen, she located the operation at a small business center to get help with accounting, legal advice, and secretarial help for a very low cost. Electing to join the incubator helped her company to survive because it provided assistance while her company was in its infancy. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #63 Topic: Encouraging Entrepreneurship: What Government Can Do 64. (p. 157) The principles of management of a large business are similar to the principles of management of a small business. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #64 Topic: Getting Started in Small Business 65. (p. 157) To be classified as a small business, a firm must have no more than 100 employees. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #65 Topic: Small versus Big Business 66. (p. 157) According to the Small Business Administration's definition, small businesses are independently owned and operated. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #66 Topic: Small versus Big Business 67. (p. 157) A business is considered small by comparing its size to others in the same industry. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #67 Topic: Small versus Big Business 68. (p. 158) Small businesses create 60 - 80% of the new jobs in the United States each year. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #68 Topic: Small versus Big Business 69. (p. 158) Small businesses account for over 50% of the U.S.'s gross domestic product (GDP). Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #69 Topic: Small versus Big Business 70. (p. 158) Upwards of 80% of all U.S. workers find their first job in small business. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #70 Topic: Small versus Big Business 71. (p. 157) Of all nonfarm businesses in the United States, almost 97 percent are considered small by the Small Business Administration (SBA) standards. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #71 Topic: Small versus Big Business 72. (p. 158) Compared to small businesses, large firms have a greater ability to provide personalized customer service. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #72 Topic: Importance of Small Business 73. (p. 158) Big businesses do not serve all the needs of a market. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #73 Topic: Importance of Small Business 74. (p. 158) Conventional wisdom reports that 56 percent of all small businesses fail in their first four years of operation. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #74 Topic: Small Business Success and Failure 75. (p. 158) Economist Bruce Kirchhoff contends that business failures are much lower than traditionally reported. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #75 Topic: Small Business Success and Failure 76. (p. 159) The most common small business failures occur in businesses that are the easiest to start. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #76 Topic: Small Business Success and Failure 77. (p. 157) Only about 10% of all businesses qualify as small businesses using the definition of the Small Business Administration. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #77 Topic: Small versus Big Business 78. (p. 159) The small business sector that has the best chance of significant growth is legal services. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #78 Topic: Small Business Success and Failure 79. (p. 158) Small businesses can often provide more personalized customer service than bigger rivals. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #79 Topic: Importance of Small Business 80. (p. 158) Recent evidence suggests that the small business failure rate is significantly much higher than previously reported. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #80 Topic: Small Business Success and Failure 81. (p. 159) Bad luck is the most often reported cause for small business failure. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #81 Topic: Small Business Success and Failure; Figure 6.3, Causes of Small Business Failure 82. (p. 159) The business opportunities with the greatest growth potential tend to be in the high technology industries. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #82 Topic: Small Business Success and Failure; Figure 6.4, Situations for Small Business Success 83. (p. 159) The easiest businesses to start are those that offer the greatest profit potential. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #83 Topic: Small Business Success and Failure 84. (p. 159) Most business opportunities offer entrepreneurs high levels of security and profits. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #84 Topic: Small Business Success and Failure 85. (p. 159) The easiest businesses to start also have the least growth potential and the greatest failure rates. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #85 Topic: Small Business Success and Failure 86. (p. 158) While the first job for many people is working for a small business, most of the permanent new jobs are created by larger corporations. Small businesses create 60 - 80 percent of the new jobs in the United States. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #86 Topic: Small versus Big Business 87. (p. 159) If you are trying to prevent failure, it is a good idea to go into the business with good record-keeping techniques. Lack of good record-keeping is one of the main causes of small business failure. Other common causes are listed in Figure 6.3. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #87 Topic: Figure 6.3, Causes of Small Business Failure 88. (p. 159) If you go through the exercise of preparing a business plan, only to determine that you need twice the amount of money to start the business than you have, the SBA and other expert organizations encourage you to go ahead with your plans because if you understand the market, you can use the revenues you accrue to make-up the short-fall. A major cause of small business failure is lacking the necessary capital to start the business. Creating a business plan is a good exercise for determining capital needs. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #88 Topic: Figure 6.3, Causes of Small Business Failure 89. (p. 158) Small businesses lack the resources to compete directly with big businesses. Small businesses can often compete successfully against big businesses because they are more able to quickly respond to business opportunities and able to offer more personalized customer service. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #89 Topic: Importance of Small Business 90. (p. 159) Because of their superior financial resources and specialized staffs, big corporations can almost always outperform small businesses. Small businesses have some advantages over big firms. They are often more flexible, and able to offer their customers more personalized service. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #90 Topic: Figure 6.4, Situations for Small-Business Success 91. (p. 158) Marina has just completed her business degree. She should focus her job search to only include large corporations. Since small businesses create 60-80 percent of the new jobs in the U.S. if Maria focuses on job opportunities with big firms, she is likely to limit her chances of finding employment. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #91 Topic: Small versus Big Business 92. (p. 157) Renee, a manager at a small manufacturing firm, has offered to help manage a local branch of the YMCA. Unfortunately, Renee will find that the skills acquired managing a small business will not be useful in managing a nonprofit organization. The skills needed to manage small businesses, big businesses, charities, churches, and government agencies are very similar. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #92 Topic: Getting Started in Small Business 93. (p. 158) Your brother, a family dentist, has opened a new office in your home town. As a business student you know that this type of business experiences low failure rates. Many of the businesses with the lowest failure rates require advanced degrees to start. This would include veterinary services and dentists' offices. However, while training and degrees may buy security, they do not tend to produce high growth rates. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #93 Topic: Small Business Success and Failure 94. (p. 159) Juanita wants to start a small business. If her primary goal is fast growth and high profits, her best chances would be in the manufacturing sector. Although manufacturing firms are difficult to start and keep going, they do have the greatest potential for the high rates of growth that Juanita needs to achieve her primary goal. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #94 Topic: Small Business Success and Failure; Figure 6.4, Situations for Small Business Success 95. (p. 159) While Jing wants to start a small business, she has not yet uncovered an opportunity that would offer her security and the likelihood of high profits. Jing will likely find that one must risk more in order to attain high profits. Firms that offer security seldom offer the potential for rapid growth and high profits, while firms that offer high profits tend to be associated with high levels of risk. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #95 Topic: Figure 6.4, Situations for Small-Business Success 96. (p. 160) The best way to learn about small business is to "bite the bullet" and start your own. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #96 Topic: Learn from Others 97. (p. 160) Individuals desiring to learn about small business operations are advised to learn from other entrepreneurs. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #97 Topic: Learn from Others 98. (p. 160) Many entrepreneurs got the idea for their own business from their experience of working for others. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #98 Topic: Get Some Experience 99. (p. 160) Since entrepreneurs are starting new businesses, experience gained from working for an established business isn't particularly helpful. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #99 Topic: Get Some Experience 100. (p. 160) Corporate management has been the training ground for many new entrepreneurs. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #100 Topic: Get Some Experience 101. (p. 161) Offering to manage an established business for a percentage of the profits plus a salary offers experience to the would-be entrepreneur and free time to the business owner. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #101 Topic: Take Over a Successful Firm 102. (p. 161) Entrepreneurs are well advised to avoid starting businesses in the same market in which they were previously employed. skills Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #102 Topic: Take Over a Successful Firm 103. (p. 161) You can negotiate a win-win situation by offering to manage an established small business. You win from the experience; the owner wins with free time. Often times it is difficult to start your own business when you lack the capital. One way to become an owner is to offer to manage a business that is already established. You gain experience and the owner gets free time. AACSB: Analytic Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #103 Topic: Take Over a Successful Firm 104. (p. 160) If you were to begin gathering information on a particular type of business, it is doubtful that a community college class would benefit your search because the information you would gain is too generic in nature. Many community colleges bring together would-be entrepreneurs from diverse backgrounds. These resources will often connect students with a network of other entrepreneurs and small business owners. However, many tips for prospective small business owners are universal in nature, such as keeping accurate financial records and finding out where to go to learn how to do these things. AACSB: Analytic Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #104 Topic: Learn from Others 105. (p. 161) There are several ethical considerations when starting a business, but competing against current and former work relationships is always fair game. Similar to managers who work for large organizations, small business owners/managers must consider ethics when making decisions. The Making Ethical Decisions box depicts a situation where two employees plan to quit their jobs and create a business that directly competes against their current employer. Although they have a right to create a business and compete, how do they ethically compete for the same customers that their former employer serves? AACSB: Analytic Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #105 Topic: Making Ethical Decisions box 106. (p. 160) Carlos hopes to start his own business. He needs to avoid talking to other small business owners about his plans because they might steal his ideas. Talking to small business owners is one of the best ways to learn how to start and run a small business. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #106 Topic: Learn from Others 107. (p. 160) Felicia decided to work for a floral design studio before opening her own shop. This approach to learning the business is okay, but her time would be put to better use starting her own business. Felecia will gain valuable training and insights into the floral design business by working for someone else. Her experience should reduce her risks and help her operate more efficiently when she starts her own business. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #107 Topic: Get Some Experience 108. (p. 161) As an employee of a small business, DeMonte has observed the owner's desire to retire. Since DeMonte would like to buy the business, he needs to determine how much the business is worth. In order to determine a fair price for the business, DeMonte should add up the market value of all of the firm's physical assets such as buildings, machinery, equipment, and inventory, and willingly pay this amount for the business. A fair value for a business depends not only on what the firm owns, but also on what it earns and what makes it unique. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #108 Topic: Take Over a Successful Firm 109. (p. 162) The two primary concerns of an entrepreneur starting a new business are planning and record keeping. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #109 Topic: Managing a Small Business 110. (p. 161) According to the Small Business Administration, poor management is the cause of the majority of small business failures. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #110 Topic: Managing a Small Business 111. (p. 162) Business plans are necessarily a bit vague since these are prepared prior to the beginning of business operations. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #111 Topic: Begin With Planning 112. (p. 162) A good business plan describes the nature of the proposed business, the target market, the competitive advantages, and the qualifications of the owners. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #112 Topic: Begin With Planning 113. (p. 162) Bankers and investors require entrepreneurs to present a well-conceived business plan. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #113 Topic: Begin With Planning 114. (p. 162) In discussions with bankers, entrepreneurs should be prepared to personally guarantee the loan for their business. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #114 Topic: Begin With Planning 115. (p. 162) An entrepreneur's personal financial position will have a minor impact on negotiations with bankers for a small business loan. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #115 Topic: Begin With Planning 116. (p. 164) Getting a business plan into the hands of the right people is nearly as important as getting the right information in the plan. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #116 Topic: Writing a Business Plan 117. (p. 162) The entrepreneur's integrity is not relevant to bankers when determining the credit worthiness of a business loan. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #117 Topic: Begin With Planning 118. (p. 162-164) Software designed to help create business plans has proven to be of little value because it is difficult to apply it to every business situation. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #118 Topic: Writing a Business Plan 119. (p. 162) Since creating a detailed business plan is almost impossible, entrepreneurs should focus on the other tasks needed to get their firm started. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #119 Topic: Writing a Business Plan 120. (p. 161-162) Management includes attention toward financing the business, hiring employees, marketing, and record keeping. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #120 Topic: Managing a Small Business 121. (p. 161-162) Identifying "poor management" as the cause of a small business failure likely covers a variety of problems. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #121 Topic: Managing a Small Business 122. (p. 164) Aside from personal savings, the only other viable source of financing for an entrepreneur would be funds available from friends and family. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #122 Topic: Getting Money to Fund a Small Business 123. (p. 164) Potential suppliers can be an excellent source of financing for a new business since lending money to a new customer may be very much in their own interest. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #123 Topic: Getting Money to Fund a Small Business 124. (p. 164) Angel investors are the government agencies that invest money in new companies before they go public. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #124 Topic: Getting Money to Fund a Small Business 125. (p. 165) Venture capitalists provide funds for startup businesses in exchange for part ownership in the new firm. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #125 Topic: Getting Money to Fund a Small Business 126. (p. 165) State and local governments often act as venture capitalists. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #126 Topic: Getting Money to Fund a Small Business 127. (p. 165) While the Small Business Administration provides management advice to new business owners, it is not empowered to provide financial assistance. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #127 Topic: Small Business Administration (SBA) 128. (p. 165) Venture capitalists provide funds for small businesses as part of their philanthropy programs. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #128 Topic: Getting Money to Fund a Small Business 129. (p. 165) Venture capitalists prefer investing in smaller start up businesses in order to reduce their overall risk. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #129 Topic: Getting Money to Fund a Small Business 130. (p. 165) The burst of the dot com bubble caused venture capitalists to limit their funding of new businesses. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #130 Topic: Getting Money to Fund a Small Business 131. (p. 166) The Small Business Administration's microloan program offers small businesses very small loans. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #131 Topic: Small Business Administration (SBA) 132. (p. 166) Small Business Administration microloans are based on the borrowers' integrity rather than collateral and credit history. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #132 Topic: Small Business Administration (SBA) 133. (p. 166) In order to qualify for a microloan from the SBA, an entrepreneur must have adequate collateral, and a proven track record of success. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #133 Topic: Small Business Administration (SBA) 134. (p. 166) Small Business Investment Companies (SBICs) are privately owned companies licensed by the Small Business Administration to lend money to small businesses. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #134 Topic: Small Business Administration (SBA) 135. (p. 166) The SBA may guarantee loans made by a financial institution and repay them if the borrowers stop making payments. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #135 Topic: Figure 6.5, Types of SBA Financial Assistance 136. (p. 166) Success in running a business depends on knowing your customers, managing your employees, and keeping efficient records. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #136 Topic: Small Business Administration (SBA) 137. (p. 166) In the business world, a market consists of those people who have a willingness to buy a particular product. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #137 Topic: Knowing Your Customers 138. (p. 166) Adequate funding for a small business venture insures its success. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #138 Topic: Small Business Administration (SBA) 139. (p. 166) One of the greatest advantages that small businesses have over larger ones is the ability to know their customers better and to adapt quickly to the customers' needs. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #139 Topic: Knowing Your Customers 140. (p. 167) Attracting qualified workers presents a problem for small businesses since they usually offer less money, fewer benefits, and less room for advancement than larger firms offer. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #140 Topic: Managing Employees 141. (p. 167) As their firms grow and prosper, busy entrepreneurs take pleasure in delegating authority to others. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #141 Topic: Managing Employees 142. (p. 167) Studies show that seniority is the most important criteria when selecting employees for promotion to management positions. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #142 Topic: Managing Employees 143. (p. 167) Compared to employees of large businesses, small business employees are less satisfied with their work because they see their jobs as less challenging. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #143 Topic: Managing Employees 144. (p. 167) Hiring family members offers the best answer to the problem of attracting qualified employees. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #144 Topic: Managing Employees 145. (p. 167) Questions about how much authority to delegate, and to whom, are easier issues for a family-run businesses since they "can't fire family." Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #145 Topic: Managing Employees 146. (p. 167) With fewer employees and less revenue, small businesses have less need for detailed records than do larger business organizations. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #146 Topic: Keeping Records 147. (p. 167) Many small business owners report that they needed assistance with accounting when they first started businesses. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #147 Topic: Keeping Records 148. (p. 168) Commercial loan officers and insurance agents offer expert assistance that can be valuable to small business owners. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #148 Topic: Looking for Help 149. (p. 168) One way to control the legal costs associated with operating a small business is to purchase a prepaid legal plan. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #149 Topic: Looking for Help 150. (p. 168) Commercial loan officers serve as a resource for small business owners for information regarding risk management. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #150 Topic: Looking for Help 151. (p. 168) A presence on the Internet can benefit a business even if their product can't be sold to customers from the Web. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #151 Topic: Looking for Help 152. (p. 168) The SCORE (Service Corps of Retired Executives) program, sponsored by the SBA, is designed to provide financial assistance to minorities and women. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #152 Topic: Looking for Help 153. (p. 162) Prior to creating a business plan, discussions with bankers and investors can help entrepreneurs determine the amount of financing available. Bankers and investors will want to look at an entrepreneur's business plan in order to determine whether they are interested in providing funds. Entrepreneurs who are unable to provide bankers and potential investors with a well-developed plan will appear disorganized and unprepared. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #153 Topic: Begin With Planning 154. (p. 162) An effective business plan analyzes the competition and identifies the resources required to profitably serve a target market. An effective business plan must consider all the aspects of operating a new business in detail. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #154 Topic: Begin With Planning 155. (p. 162) When writing a business plan, prospective entrepreneurs should remember to omit details regarding their experience and education since investors are only interested in the proposed business. A business plan should include information about the resources and qualifications of the owner. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #155 Topic: Begin With Planning 156. (p. 164-165) As opposed to venture capitalists, angel investors prefer to target their investments in new firms requiring large sums of money. Venture capitalists often invest in businesses in need of large sums of money. Angel investors are private individuals investing their own money. The amount of money invested by angel investors tends to be less than amounts invested by venture capital firms. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #156 Topic: Getting Money to Fund a Small Business 157. (p. 162) A major advantage of preparing a formal business plan is that prospective entrepreneurs must identify the resources and activities required to successfully operate their proposed venture. Developing a business plan forces an entrepreneur to think carefully about all aspects of the business he or she intends to start. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #157 Topic: Begin With Planning 158. (p. 165) Prospective entrepreneurs turned down by private lenders have little hope of getting financial help from the Small Business Administration, since the SBA's standards are even tougher than those of private lenders. The SBA offers a number of programs to help finance small businesses that have difficulty obtaining loans from private sources. Sometimes the SBA will offer direct loans, sometimes it will guarantee private loans, and other times it will combine both of these approaches. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #158 Topic: Small Business Administration (SBA) 159. (p. 162) If you plan to meet face-to-face with a banker or venture capitalist, it is not necessary to submit a business plan. A business plan is mandatory when talking to bankers and investors. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #159 Topic: Begin With Planning 160. (p. 165) As a prospective entrepreneur, Ebony considered a variety of financing sources. Her discussions with a venture capitalist revealed that this type of investor expects to receive a significant ownership interest in her firm. Venture capitalists sometimes ask for as much as a 60% stake in a business. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #160 Topic: Getting Money for Small Business 161. (p. 165) Hoping to qualify for a microloan from the Small Business Administration, Magdalena's business plan clearly identifies her strategy to profitably serve a target market. Unfortunately, her lack of business experience and limited collateral greatly reduce her chances of obtaining the microloan. Microloans are awarded on the basis of the integrity of the borrowers and the soundness of their business ideas. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #161 Topic: Small Business Administration (SBA) 162. (p. 165) Austin's interest in computers helped fuel his design of a new hard drive that is far superior to anything on the market. Austin's product and business plan will likely attract several sources of financing if he is willing to give up part ownership in his company. Venture capitalists are individuals or companies that invest in new businesses in exchange for partial ownership of those businesses. However, as a result of the bursting dot.com bubble, many venture capitalists have reduced how much they are willing to invest in a high tech venture and have increased their required rate of return. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #162 Topic: Getting Money for Small Business 163. (p. 166) Because college students realize the importance of nursing homes for our aging population, students comprise an attractive market for nursing home insurance policies. A market consists of people who have both a willingness to buy and the financial resources needed to make the purchase. College students may lack both of these attributes. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #163 Topic: Knowing Your Customers 164. (p. 167) In order to better serve their customers, small business owners should avoid delegating authority to their employees. Successful small businesses often grow beyond the ability of the entrepreneur. Empowering employees produces highly motivated workers with higher job satisfaction. This helps to improve customer service and reduces the wear and tear on the owner-manager. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #164 Topic: Managing Employees 165. (p. 167) Justin feels that his family-run business will be more likely to avoid the problems many growing businesses have with managing employees. His attitude will likely hinder the growth of his company. Attitudes such as "You can't fire family" or you must promote someone because "they're family" can be detrimental to family businesses. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #165 Topic: Managing Employees 166. (p. 167-168) Whitney wants to start her own business, but she is concerned about her limited financial resources. She would be well advised to save money by delaying her meeting with lawyers and accountants until the business has been operating for a few years. Consulting with lawyers, accountants, and loan officers may be expensive, but their advice may be invaluable. If Whitney waits for a few years before asking for legal and financial advice, the money she saves on consulting fees is likely to be more than offset by losses due to poor decisions and avoidable mistakes. AACSB: Analytic Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #166 Topic: Looking for Help 167. (p. 169) While only a small percentage of small businesses export, the number has increased dramatically in the last decade. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #167 Topic: Going International: Small-Business Prospects 168. (p. 169) Large multinational firms dominate the international market, leaving few opportunities for small businesses. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #168 Topic: Going International: Small-Business Prospects 169. (p. 170) One advantage enjoyed by small businesses in international markets is that overseas buyers like dealing with individuals rather than large corporate bureaucracies. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #169 Topic: Going International: Small-Business Prospects 170. (p. 169) Due in part to government support, the majority of U.S. small businesses are involved in exporting. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #170 Topic: Going International: Small-Business Prospects 171. (p. 169) Exporting offers small businesses opportunities to reduce their dependence on domestic sales and extend product lives. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #171 Topic: Going International: Small-Business Prospects 172. (p. 170) Small Business Administration loans help firms finance their domestic operations. These funds however, cannot be used to finance exports since the money is provided by U.S. taxpayers. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #172 Topic: Going International: Small-Business Prospects 173. (p. 170) Small businesses can provide more personalized service than a large corporation to overseas customers. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #173 Topic: Going International: Small-Business Prospects 174. (p. 169) The Internet has slowed small businesses participation in international markets. Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #174 Topic: Going International: Small-Business Prospects 175. (p. 170) As the owner of a small manufacturing business, Myles has an interest in exporting. However, he doesn't know how to get started. Fortunately, the government provides an abundance of information to encourage entrepreneurs like Myles. The Commerce Department's Bureau of Industry and Security and the Small Business Administration provide export information on the Internet. Bloom's: Comprehension Learning Goal: 06-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #175 Topic: Going International: Small-Business Prospects 176. (p. 170) From a competitive standpoint, small businesses cannot expect to successfully compete with large corporations in international markets. Small businesses have certain advantages over larger rivals in international markets. Overseas buyers often prefer to deal with individuals rather than corporate bureaucracies. Moreover, small businesses can often begin shipping faster and offer more personal service. Bloom's: Comprehension Learning Goal: 06-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #176 Topic: Going International: Small-Business Prospects 177. (p. 169) The only real barrier preventing small businesses from exporting is insufficient knowledge of the opportunities available. Although many small businesses could profit from going international, there are some serious barriers to small business exporting. Financing is often hard to obtain, dealing with the bureaucratic paperwork involved in international transactions can be daunting, and the need to adjust to cultural differences can complicate marketing efforts. Bloom's: Comprehension Learning Goal: 06-5 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #177 Topic: Going International: Small-Business Prospects 178. (p. 146) Entrepreneurship is: A. managing businesses for others. B. a controlling interest in the ownership of a corporation. C. managing businesses that operate in multiple countries. D. accepting the risk of starting and running a business. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #178 Topic: The Age of the Entrepreneur 179. (p. 146) Which of the following U.S. issues does entrepreneurship most directly affect? A. The political process B. The ability to create jobs for others C. Contributions of money to organizations that help people in need D. The ability to influence national macroeconomics polices Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #179 Topic: The Job-Creating Power of Entrepreneurship 180. (p. 148) Which of the following explains why individuals accept the risks of business ownership? A. The potential for learning how to be self-disciplined B. The sense of self-satisfaction and independence C. The challenge of seeking power D. The desire to work fewer hours Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #180 Topic: Why People Take the Entrepreneurial Challenge 181. (p. 148) Which of the following is a characteristic of successful entrepreneurs? A. Power-seeking B. Relies heavily on others who believe in the business C. Willingness and desire to follow others D. Action-oriented Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #181 Topic: What Does it Take to Be an Entrepreneur? 182. (p. 148) Which of the following best describes entrepreneurial personality traits? A. Tolerant of uncertainty and highly energetic. B. Risk averse and self-nurturing. C. Appreciate direction from others and risk averse. D. Prefer to work less hours and prefer to give directions and let others do the foot work. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #182 Topic: What Does it Take to Be an Entrepreneur? 183. (p. 150) A(n) ________________ is a group of experienced professionals from different areas of business who join together to develop, make, and market a new product. A. entrepreneurial team B. joint venture C. self-directed functional team D. managerial task force Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #183 Topic: Entrepreneurial Teams 184. (p. 150) An entrepreneurial team consists of: A. managers with similar skills, abilities, and interests. B. experienced professionals from different areas of business. C. a group of wealthy investors who share a vision for a product. D. representatives from management, labor, and the government who work together to solve a company's problems in a creative way. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #184 Topic: Entrepreneurial Teams 185. (p. 150) Business owners who prefer to maintain their businesses at a manageable size are called: A. macropreneurs B. intrapreneurs C. micropreneurs D. home workers Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #185 Topic: Micropreneurs and Home-Based Business 186. (p. 151) One of the challenges of running a home-based business is: A. an increase in business risk. B. managing the extra time on your hands. C. keeping work and family tasks separate. D. burdensome tax laws. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #186 Topic: Micropreneurs and Home-Based Business 187. (p. 155) A successful web-based strategy that helps a business spread the word about its web site and products is called ______________. A. wildfire marketing B. "its all about the buzz" C. social marketing D. affiliate marketing Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #187 Topic: Web-Based Businesses 188. (p. 155) Shopping widgets allow Internet users to become ____________ for e-retailers. A. peer to peer affiliates B. buyers C. sellers D. personal shoppers Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #188 Topic: Web-Based Businesses 189. (p. 155) A creative person working within a corporation to launch new products and generate new profits is known as a(n): A. arbitrator. B. micropreneur. C. macropreneur. D. intrapreneur. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #189 Topic: Entrepreneurship within Firms 190. (p. 155) The goal of an intrapreneur is: A. to improve quality control in a corporation's production process. B. to develop new products and generate new profits for the corporation. C. to implement cost control policies for existing products. D. to create smaller companies within larger companies. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #190 Topic: Entrepreneurship within Firms 191. (p. 156) The U.S. government's Immigration Act of 1990: A. encouraged entrepreneurs to come to the U.S. through "investor visas". B. established a government program to teach American workers displaced by immigration how to start their own businesses. C. established guidelines to help entrepreneurs recruit legal aliens as a source of low cost labor. D. proposed an exchange program for American and European entrepreneurs to temporarily live internationally in order to open up foreign branches for their businesses. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #191 Topic: Encouraging Entrepreneurship: What Government Can Do 192. (p. 156) Enterprise zones are specific geographic areas that: A. the government has set aside for major corporations that promise to spend at least $10 million to create new jobs. B. attract business investment by offering lower taxes and government support for development. C. the government has recognized as having the fastest growth rates in the country. D. are characterized by government ownership of small businesses. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #192 Topic: Encouraging Entrepreneurship: What Government Can Do 193. (p. 156) Business incubators are usually government-funded facilities intended to: A. provide health care benefits for small business owners and their families. B. offer startup firms low-cost office space and basic business services. C. help rebuild the nation's infrastructure. D. assist foreign investors in identifying business opportunities in the U.S. Bloom's: Knowledge Learning Goal: 06-1 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #193 Topic: Encouraging Entrepreneurship: What Government Can Do 194. (p. 148) Historically entrepreneurs in the U.S. A. created wealth for themselves, but have had a minor impact on the economy as a whole. B. started many small firms that later became major corporations employing thousands of workers. C. experienced success only when they worked in partnership with the federal government. D. played an important role, but are less important now in creating jobs and wealth. The history of the U.S. economy is full of examples of entrepreneurs that started small businesses that later became major corporations. Examples from the past include Henry Ford, George Eastman (who started Kodak) and William Procter and James Gamble (who founded Procter & Gamble). More recent examples include Steve Jobs (Apple Computer), Bill Gates (Microsoft), Chad Hurley and Steven Chen (YouTube) (CNN), and Jack Dorsey (Twitter). Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #194 Topic: The Job-Creating Power of Entrepreneurs in the United States 195. (p. 148) Which of the following statements explains one of the reasons that people in the U.S. take the entrepreneurial challenge? A. It's all about profits, and the chance to make a lot of money B. It's about independence and the opportunity to share in the American dream C. It's about power and fame D. It is about a lot of things, but it does not include personal achievement Although the opportunity to earn big profits is certainly attractive to most entrepreneurs, it is certainly not the only reason. Many entrepreneurs do not enjoy working for others and become entrepreneurs because of the opportunity for independence. Others want the opportunity to share in the American dream. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #195 Topic: Why People Take the Entrepreneurial Challenge 196. (p. 148) Successful entrepreneurs are self-nurturing. This means they: A. look to others for strength and encouragement. B. self-finance their business with no assistance from others. C. perform all business operations by themselves. D. believe in themselves and their ideas. Self-nurturing individuals have the ability to believe in an idea when no one else does, and to replenish their enthusiasm. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #196 Topic: What Does it Take to Be an Entrepreneur? 197. (p. 149) Which of the following statements is characteristic of entrepreneurs? A. They like certainty B. They have the ability to visualize a clear path C. They look at problems and see opportunities D. They prefer to be inventive rather than worry about whether the invention solves a customer need A common characteristic of entrepreneurs is that they like to solve problems. They view a problem or a need as an opportunity. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #197 Topic: Turning Your Passions and Problems into Opportunities 198. (p. 149) Although successful entrepreneurs are more tolerant of uncertainty, A. they seldom start another business after a failure. B. they develop mental games to see themselves through the risk game, especially. C. they always protect themselves from failure by taking-out lots of insurance. D. they strive to take calculated risks. Although tolerant of uncertainty, successful entrepreneurs prefer to take calculated risks. This means that they will explore environmental trends, and do their best to quantify opportunities before taking chances. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #198 Topic: What Does it Take to Be an Entrepreneur? 199. (p. 150) Effective entrepreneurial teams combine: A. creativity with marketing and production experience. B. venture financing, tax benefits, and production economies. C. scientific abilities, capital investment, and marketing skills. D. risk tolerance, debt financing, and international experience. The purpose of an entrepreneurial team is to bring together the skills needed to create, produce, and market a new product. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #199 Topic: Entrepreneurial Teams 200. (p. 150) Successful entrepreneurial teams: A. quickly organize themselves like large corporations. B. assign only one person to new product innovation. C. bring a variety of talent to the business venture. D. outsource most of the details of innovation. As its name implies, members of an entrepreneurial team operate as a team. Everyone works together to conceive, develop, and market the product. Team members can combine their talents and creative skills, and bring a variety of expertise to the team. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #200 Topic: Entrepreneurial Teams 201. (p. 152) One reason we have seen continued growth in home-based businesses is: A. the location offers a more secure operational environment. B. affordable computer and information technology makes it easier to compete. C. people need something to do while they wait to return to work for a large corporation. D. it is less risky to start a home-based business than other types of entrepreneurial ventures. Computer technology and information technology have helped level the playing field between large and small businesses. Entrepreneurs can now use affordable technology such as the Internet and PDA's, right at home. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #201 Topic: Micropreneurs and Home-Based Business 202. (p. 152-153) Which of the following statements is not a challenge for home-based businesses? A. Affordable technology such as the Internet B. Staying focused on the business and leaving home chores for after-business hours C. Using your time wisely D. Promoting your services Computer technology and information technology have helped level the playing field between large and small businesses. Entrepreneurs can now use affordable technology such as the Internet and PDA's, right at home. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #202 Topic: Micropreneurs and Home-Based Business 203. (p. 155) Affiliate marketing is a web-based business strategy that: A. relies on customers that enter the sites of large companies such as GAP™ and Nike™. B. asks you to offer the names and emails of ten of your friends who may be interested in the products or services the web-site is selling. C. currently illegal, but difficult to stop. D. rewards individuals who are willing to link a company's website to their blog or social network. Affiliate marketing is an internet-based marketing strategy where a business rewards individuals for each visitor or customer the affiliate sends to its web site. The affiliate gives the business permission to plant a widget on the affiliate's blog or social network Page. If a sale is created, the affiliate receives a commission on the sale. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #203 Topic: Web-Based Businesses 204. (p. 146; 155) Which of the following best describes the difference between an intrapreneur and an entrepreneur? A. Intrapreneurs start nonprofit organizations while entrepreneurs start profit-seeking businesses B. Intraprenuers are practical while entrepreneurs are creative C. Intrapreneurs work within existing corporations while entrepreneurs assume the risks of starting their own business D. Intrapreneurs limit their efforts to financial investments, while entrepreneurs are involved in the management of all areas of a business Intrapreneurs are creative people who work within a corporation to develop new products and generate new profits for the firm. Entrepreneurs start their own businesses, without any financial tie to a larger company. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #204 Topic: The Age of the Entrepreneur; Entrepreneurship Within Firms 205. (p. 155) Intrapreneurs make use of __________ to develop and launch new products and generate new profits. A. their employer's existing human, financial, and physical resources B. their own personal financial resources C. government-supplied physical and financial resources D. old ideas abandoned by entrepreneurs The idea behind intrapreneurship is to use a company's existing financial, human, and physical resources to launch new products and generate new profits. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #205 Topic: Entrepreneurship within Firms 206. (p. 156) Enterprise zones are: A. government owned properties that are available for entrepreneurial ventures at a reduced cost B. similar to incubator facilities but strictly run by city and state governments C. blighted areas that contained toxic materials making them unsuitable for business operations D. specific locations across the U.S. where entrepreneurs can set-up shop and receive tax breaks for operating in these areas Enterprise zones are geographic areas where the government would like to encourage business development. City and state governments will provide business owners tax concessions for developing businesses in these area. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #206 Topic: Encouraging Entrepreneurship: What Government Can Do 207. (p. 156) Enterprise zones and investor visas are examples of: A. government policies that favor large corporations rather than small businesses. B. government programs that encourage economic growth through entrepreneurship. C. government policies designed to encourage intrapreneurs. D. examples of private initiatives to reduce the government's role in the economy. Investor visas are designed to attract entrepreneurial immigrants, while enterprise zones are low tax areas where the government offers support services to help new businesses. While these are very different strategies, the purpose of both is to encourage entrepreneurial behavior. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #207 Topic: Encouraging Entrepreneurship: What Government Can Do 208. (p. 156) For the past twenty-five years, state and city governments have promoted facilities where new businesses can open-up shop and share common services such as secretarial, accounting, and legal services. Due to their remarkable success rate, _______________ continue to grow in popularity. A. enterprise zones B. incubators C. intrapreneurial development centers D. venture farms Incubator facilities offer new businesses low cost office space with shared receptionist/secretarial, legal, and accounting services. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #208 Topic: Encouraging Entrepreneurship: What Government Can Do 209. (p. 147) The Spotlight on Small Business box "You're Never Too Young to be an Entrepreneur", features young people who A. directed inheritance money they received into profitable business ventures. B. turned a social passion into a business opportunity. C. realized the American dream at a very young age, and now run multi-million dollar companies. D. convinced banks to fund their business ideas. The Spotlight on Small Business box features several young persons who turned a passion or a problem into a business opportunity, including medical students who started manufacturing eco-friendly t-shirts; a young Nashville teenager that created a pie business in her quest to help raise funds for kids in crisis, and, a young person who helped her mother make natural hair care products and later created a business doing the same. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #209 Topic: Spotlight on Small Business box, "You're Never Too Young to Be an Entrepreneur" 210. (p. 149) In the Thinking Green box, "Socially Responsible Entrepreneurship",: A. Gary Hirshberg explains how he turned Kraft Foods into an eco-friendly company. B. Gary Hirshberg explains the difficulties that companies experience in their attempts to be socially responsible, and talks about what he learned from his business failures. C. Gary Hirshberg explains that environmentalism and business still don't mix due to the high investment costs in re-tolling manufacturing sites to be more eco-friendly. D. Gary Hirshberg proves that environmentalism and business can cohabitate and even turn a profit. Gary Hirshberg started Stonyfield Farms, a company that makes natural yogurt products. As an eco-friendly company, Hirshberg offset all of his company's carbon dioxide emissions. Stonyfield operates on solar power. Hirshberg says the firm's "green attitude saves the company millions of dollars a year." Furthermore, Stonyfield Farms is a profitable business, even surpassing a large competitor in yogurt sales, proving that you can serve society and get rich off of it. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #210 Topic: Thinking Green box, "Socially Responsible Entrepreneurship" 211. (p. 153) According to the Reaching Beyond our Borders box, how do small business owners use technology to keep their labor costs down? A. They have purchased accounting and bookkeeping software like, Quickbooks™ B. Most have gone in debt to retrofit their manufacturing facilities to include robots on the production lines C. They only do business with sweat shops D. They solicit the services of Elance.com and other online services to contractually hire graphic designers and other virtual assistants from around the globe Small businesses are reaching beyond international borders for professionals willing to work for hire at significantly reduced wages than what a full-time employee would cost them. Using a company such as Elance's extensive database of persons willing to work virtually, they contract out work that would cost much more if they had to hire an employee. Bloom's: Comprehension Learning Goal: 06-1 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #211 Topic: Reaching Beyond our Borders box, "Outsourcing Your Small Business" 212. (p. 146) Kenya recently quit a job with a large corporation to start her own business. While she realizes that her decision comes with risk, she is excited for the chance to be independent and by the challenges of running her own firm. Kenya is an example of a(n): A. intrapreneur. B. entrepreneur. C. venture capitalist. D. raconteur. An entrepreneur is someone who accepts the risks of starting and running a business. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #212 Topic: The Age of the Entrepreneur 213. (p. 148) Erin developed a new type of exercise equipment she calls the Tush N' Tone. After unsuccessfully searching for potential investors, she arranged a personal loan and borrowed additional money from her parents. Her willingness to continue believing in her idea and remain enthusiastic shows that Erin is: A. characteristically self-nurturing. B. better suited to managing a nonprofit organization. C. unaware of the risks she was taking. D. not a entrepreneur. Self-nurturing individuals are able to continue believing in an idea and are able to replenish their enthusiasm even when others do not offer support. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #213 Topic: What Does it Take to Be an Entrepreneur? 214. (p. 150) Apple Computer's "smart team" is an example of a firm that succeeded by: A. encouraging each manager to focus on a well defined area of the business and build his own specialized department. B. bringing together a group of talented and experienced managers to conceive, develop, and market products. C. emphasizing a low price and low cost strategy right from the beginning. D. assembling a group of employees whose inexperience was a plus, because they did not come with the baggage and institutional ideas of larger companies. Apple's "smart team" is an example of an entrepreneurial team--a group of experienced managers who worked together to conceive, develop, and market products. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #214 Topic: Entrepreneurial Teams 215. (p. 152) Anna recently left a large insurance firm and opened a home-based business preparing medical transcriptions for doctors. Based on recent statistics, she can expect: A. a negative reaction from friends and family who wonder when she will get a "real" job. B. the emergence of affordable technology will make it less challenging for her to compete with larger firms offering the same service. C. the government will discourage her attempts to create a home-based business in the hopes that she will opt for locating in an enterprise zone. D. to find security, routine and a paycheck from her new enterprise. Computer technology has leveled the competitive playing field enabling home-based businesses to look and act as big as their corporate competitors. Web-based business activities allow small firms to reach new markets. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #215 Topic: Micropreneurs and Home-Based Business 216. (p. 155) Jake is an innovative engineering graduate who works for a large company that makes adhesive products for commercial and consumer use. One of his primary responsibilities is to initiate and develop new products to complement the firm's current product line. Jake's company is ___________. A. intrapreneurial B. entrepreneurial C. an outside consultant for other firms D. at a disadvantage because it is trying to operate like a small business Intrapreneurs are creative people who work as entrepreneurs within corporations to create new products that will provide returns on investment. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #216 Topic: Entrepreneurship within Firms 217. (p. 156) Southwest College received a government grant to establish a business incubator. This facility will offer: A. local government agencies assistance in obtaining funds for urban renewal. B. area businesses advice on employee benefits and ways to reduce taxes. C. venture capitalists an opportunity to identify new entrepreneurs. D. new businesses low-cost office space with basic business services. Incubators are created to reduce the start-up capital needed by new firms. Incubators offer assistance in the critical stage of early development with services such as accounting, legal advice, and secretarial help. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #217 Topic: Encouraging Entrepreneurship: What Government Can Do 218. (p. 155) Ketan is an intrapreneur for a multinational electronics company. As an intrapreneur Ketan: A. is expected to recruit new managerial talent for his firm. B. will use the firm's existing resources to develop new products. C. is concerned mainly with improving the firm's public image. D. will concentrate on creating new ventures that can be spun off to become independent firms. An intrapreneur uses a firm's existing financial, human, and physical resources to create new products and generate new profits. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #218 Topic: Entrepreneurship within Firms 219. (p. 150-152) Pete inherited a thriving dry cleaning business from his father and mother. He continued the tradition of offering quality service to the customers he served. As the surrounding towns expanded, several people suggested that Pete expand the business to offer service in new locations. He chose to maintain only one operation, so as not to lose control and to keep his work life and home life balanced. Pete is a good example of a(n) ______________. A. small business affiliate B. intrapreneur C. micropreneur D. enterprise zone participant Micropreneurs are interested in a balanced lifestyle. They generally like what they are doing and do not aspire to grow the business. They know they can be content remaining small and producing quality products and services to their limited market. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #219 Topic: Micropreneurs and Home-Based Business 220. (p. 156) Located on Monsanto's world headquarters campus, the Nidus Center is a unique ___________ facility. The tenants are biotechnology companies who are at various stages of product development. The agricultural giant, Monsanto, the Danforth Foundation, Washington University St. Louis, St. Louis University, and several venture capital firms contribute seed money for these small start-up ventures that receive approval to further develop their ideas at the Nidus Center. A. incubator B. intrapreneurial C. enterprise zone D. micropreneurial Incubator facilities offer new businesses in the critical stages of early development low-cost offices, and in this case, laboratory space and shared business services. AACSB: Analytic Bloom's: Application Learning Goal: 06-1 Nickels - Chapter 06 #220 Topic: Encouraging Entrepreneurship: What Government Can Do 221. (p. 157) Small businesses: A. deal with similar management issues that large companies face. B. deal with very different management issues due to the very different management challenges experienced by small businesses. C. do not seek government funding due to the fact that the federal government has made it very clear that it must support large operations before small operations. D. concern themselves with state-of-the-art information and accounting technology but not employee relations due to their challenge to financially support employee benefits programs. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #221 Topic: Getting Started in Small Business 222. (p. 157) The Small Business Administration defines a small business as a firm that: A. has fewer than 100 partners. B. is independently owned but not dominant in its industry. C. is dominant in its industry, but small in the number of workers it employs. D. has annual receipts of more than a specified amount depending upon the industry. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #222 Topic: Small versus Big Business 223. (p. 158) Small businesses create about __________ percent of the new jobs in the United States. A. 5-10 B. 25-35 C. 60-80 D. 100 Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #223 Topic: Importance of Small Business 224. (p. 157) A business's size is measured: A. in relation to the number of competitors in its industry. B. in relation to other firms in its industry. C. in relation to the number of dominant competitors in its sector. D. as small, if it participates in the services sector. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #224 Topic: Small versus Big Business 225. (p. 158) According to economist Bruce Kirchhoff, small business failures are: A. lower than traditionally reported. B. understated to keep small business creation enthusiasm. C. accurate and alarming. D. inconclusive. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #225 Topic: Small Business Success and Failure 226. (p. 158) When comparing small businesses to their larger competitors, it is clear that: A. bigger is always better. B. small firms can always outperform big firms on a level playing field. C. small firms often can offer more personalized customer services than big firms. D. small firms are slower to respond to opportunities than are large firms. Bloom's: Knowledge Learning Goal: 06-2 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #226 Topic: Importance of Small Business 227. (p. 159) Which of the following is not a reason stated for small business failure? A. Managerial incompetence B. Inadequate financial planning C. Buying too little on credit and not being lenient enough with your credit paying customers D. Borrowing money without a plan of how and when you will repay the debt Figure 6.3 lists several reasons that small business fail, but they do not fail because the owner did not buy enough on credit, nor do they fail because the owner was not lenient to credit paying customers. They do fail due to managerial incompetence, inadequate financial planning, and borrowing too much money without a plan for repayment. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #227 Topic: Figure 6.3 228. (p. 159) Which of the following will not help your small business succeed? A. Services you perform are easily replicated by larger companies, such as online banking B. You provide a unique service that requires a significant amount of personal attention such as a service that provides in-home care for seniors C. Investing in a franchise D. Your product is not easily mass produced, like professional photography If your services are easily replicated by large companies, your chance of success is suspect. However, if you provide a unique service that is labor intensive and requires a lot of personal attention, it has a better chance of success. If you provide an artistic endeavor such as musicians, writers, and photographers, your uniqueness may be difficult to replicate. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #228 Topic: Figure 6.4, Situations for Small-Business Success 229. (p. 158) Small businesses are important to the U.S. economy because: A. they fill-in the gaps when large businesses want to let workers go on vacation; or when large businesses want to temporarily cease production B. banks and other financial services companies would not have borrowing customers, because small businesses borrow more than large businesses C. they pay most of the tax revenue collected by the U.S. government D. they create over 60% of new jobs each year and generate over 50% of the U.S. GDP According to the textbook, small businesses contribute to a significant amount of yearly job creation and account for more than 50% of the U.S. gross domestic product. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #229 Topic: Small versus Big Business 230. (p. 158) Using the analogy of boulders vs. sand for filling a hole, the textbook points out that: A. small businesses are employing a record number of employees because they have to work twice as hard at producing the same amount of output as a large competitor. B. small businesses can serve niche markets that larger firms do not serve well. C. the sand represents the small businesses that start and fail each year, while the boulders represent the large companies whose resources permit them to stay the course. D. large companies serve market niches so much better than small companies. There are lots of opportunities and plenty of room for small companies to serve small underserved markets. The boulders represent large firms, who leave a lot of space in the hole which smaller firms represented by grains of sand can fill. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #230 Topic: The Importance of Small Business 231. (p. 158) Which of the following employment statistics about small businesses is ? A. Small businesses create about 15% of all new jobs in the U.S. B. The number of women owning small businesses has remained constant C. A great majority of American workers find their first jobs with a small business D. Growth of minority-owned businesses in the U.S. is declining Small businesses create about 75% of all new jobs in the U.S. The number of women and minorities owning small business has increased rapidly. About 80 percent of Americans find their first jobs in small businesses. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #231 Topic: Small versus Big Business 232. (p. 157) According to SBA guidelines, a manufacturing firm with 1,000 employees: A. would be classified as a large firm in the industrial sector. B. may be classified as a small business depending upon the size of other firms in the industry. C. is too small to achieve the efficiencies of large scale production. D. is classified as an S corporation. The criteria used by the SBA differ according to the type of firm. In manufacturing, a firm can have up to 1,500 workers and still be classified as a small business. However, the SBA classifies a firm as small only in relation to other businesses in its industry. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #232 Topic: Small versus Big Business 233. (p. 159) Entrepreneurs looking for a business that gives them the best opportunity to get rich should consider starting a business in: A. the manufacturing sector. B. the food service industry. C. a low risk industry. D. the agriculture sector. Businesses with the greatest potential to make the owner rich are those that are both hard to start and hard to keep going (manufacturing). Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #233 Topic: Small Business Success and Failure 234. (p. 159) A review of small business successes and failures indicates that the: A. businesses that are easiest to start offer the greatest potential for long term growth and profits. B. restaurant industry offers the least risk for entrepreneurs. C. businesses with potential of high profit levels tend to be difficult to start and hard to keep going. D. reason the service sector is rapidly growing is that these firms are easy to start and keep going, and offer high levels of security and growth potential. Firms that offer growth, and the potential for high profits, are often the same businesses that are hard to start and hard to keep going. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #234 Topic: Small Business Success and Failure 235. (p. 157-158) After graduation, Manny focused his attention on finding full time employment. He has decided to narrow his job search to jobs with a major corporation. His job search strategy: A. makes sense because managerial skills are best developed by working for big firms. B. is smart because major corporations represent the most important source of employment growth in the United States. C. indicates that Manny's passion is to fulfill his dream of owning his own business. D. will likely limit his job prospects since most new jobs are with small businesses. In recent years many major corporations have downsized. The text identifies statistics that small businesses create 75 percent of new jobs and 80% of Americans find their first jobs in small businesses. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #235 Topic: Small versus Big Business 236. (p. 157) After several years of working as a regional manager for a nationally known nonprofit, Janelle landed a management position with an innovative small business. If she accepts the job offer, she is likely to find that: A. due to the significant differences in large and small firms, her previous experience will be of little value in her new position. B. the principles of management are much the same at large and small firms. C. nonprofit organizations are motivated by their desire to help people and so financial management is of little concern. D. planning is more important to a nonprofit organization and less important to a small business so she will need to adjust the time she spends on the planning function. The principles of managing a small business are very similar to those needed to manage a large corporation or a nonprofit organization such as a charity. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #236 Topic: Getting Started in Small Business 237. (p. 159) As a result of corporate downsizing, Alex lost his job as an information systems manager for a large telecommunications company. A bonafide computer geek in his own right, Alex knew that several of his past company contacts often outsourced their computer problems. He decided it was a good time to test the waters and see if he could secure enough computer clients to be in business for himself. His success demonstrated that: A. starting your own business can quickly provide security and profits. B. people always tend to hire people they know from past associations. C. the service sector is not an area of significant growth. D. successful big businesses often create profitable opportunities for small businesses. As big businesses downsize, they often find that they do not always have the staff they need and are increasingly contracting with small companies to temporarily fill their needs through outsourcing. Big businesses don't serve all the needs of the market. There is plenty of room for small companies to make a profit filling those niches. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #237 Topic: The Importance of Small Business 238. (p. 158) After selling his software business for a sizeable profit, software engineer Gus Greene decided to try something different. He would become a general contractor on a large condo development in an upcoming area of Atlanta, Georgia. He invested several million and then borrowed another $30 million (or 75% of the project cost) from a lending institution. He based his borrowing risk on the assumption that the housing market would continue to appreciate for several years to come. As the housing market began a free-fall in early 2008 and continued into 2009, Gus saw his business crashing around him. Sales were very meager and the bank wanted its money back. Which of the following statements might best describe the reason Gus' business failed? A. Although Gus took some risk, it wasn't enough. In business, it is "more risk, more expected reward!" B. The bank let Gus down. It should not have lent him that much money. C. He should have designated himself as a passive investor. Therefore, his investment would not be in jeopardy D. Gus went into the business with very little knowledge about the industry or the market. One reason that we experience business failure is that the management has little experience in the industry, and/or knowledge of the market and market conditions. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #238 Topic: Figure 6.3, Causes of Small Business Failure 239. (p. 159) Jennifer, a talented photography major started a corporate photography business. She planned to solicit jobs from large corporations who needed pictures for their annual reports and websites. Although filling a unique niche, Jennifer needed the security that the business would thrive and that she would earn enough to support herself and her child. She also hoped that she would spend less time each day calling on potential clients and more time doing the actual shoots. As her small business consultant, which of the following suggestions would you have for Jennifer? A. Jennifer should either take the risk necessary to develop a small business, or go to work for someone else. B. In the beginning, it's doubtful that Jennifer will realize ease of entry, security, and good profits. She needs to make plans in the event that one or more of these does not materialize quickly. C. Photographers can take pictures of a multitude of things. It's probably not good strategy to limit her business to only photographing the needs of large corporations. D. Jennifer should definitely make time for herself each day so that she does not experience burn-out. If she plans well, leaping into her own business will provide with her several hours of unstructured time each day where she can perfect her craft even more. Prospective small business owners should be aware that it is unlikely that easy of entry into a market, security, and reward will come all at once. At least in the beginning, if you need security, you may have to pursue the business idea on the side. However, the trade-off is that you will probably have to forego rapid rewards since you are spending only part of your time in developing the business. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #239 Topic: Small Business Success and Failure 240. (p. 158) Dr. Smiley White just graduated from dental school. He is hoping to acquire the necessary funding to start his own dental practice. One advantage of this type of business is: A. above average opportunity to borrow funds at a high interest rate B. nearly unlimited growth potential C. the service is individualized and not easily mass-produced D. very low startup costs Healthcare businesses that require advanced technical degrees get licensed generally have a good chance of success due to the individualized attention necessary to perform the service. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #240 Topic: Small Business Success and Failure 241. (p. 159) When Krystal Ginger graduates from culinary school she dreams of opening her own Asian fusion restaurant. Her other passion is skiing in Colorado, where she schedules four or five trips each year. As her small business advisor, you believe it necessary to provide her with information that will help her make good business decisions. Which of the following would be helpful for Krystal to know? A. Restaurants are relatively easy businesses to start, but are labor intensive and also have the greatest failure rate. B. Restaurants are not the easiest type of business to start, but once you get it going, you will have plenty of time for skiing. C. Most restaurant owners get rich if they open their own, independent restaurant as opposed to starting a franchised operation. D. Franchised operations will take less time on the part of the owner than a regular independently owned operation. If she opens a franchise, she will have more time for creativity in the business, and more time for skiing too. Restaurants fall into the category of a relatively easy business to start, but with not much growth rate, and a high risk of failure. Businesses with the highest profit potential are also those that are more difficult to start. Usually the start-up funds are prohibitive for many entrepreneurs. AACSB: Analytic Bloom's: Application Learning Goal: 06-2 Nickels - Chapter 06 #241 Topic: Small Business Success and Failure 242. (p. 160) A small business management course at a community college may offer entrepreneurs an opportunity to: A. meet with experienced entrepreneurs and learn from their advice. B. try out ideas on a computer simulation before risking real time and money. C. listen to a qualified instructor solve all of the problems of small business owners. D. be part of a group that will include angel investors. Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #242 Topic: Learn from Others 243. (p. 161) One way to get into business is to buy an existing company. The value of the business used to determine a fair purchase price is based on: A. the prospects for business competition. B. the current owner's retirement plan. C. the amount of government contracts the company has. D. the value of what the business owns, what it earns, and what makes it unique. Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #243 Topic: Take Over a Successful Firm 244. (p. 160) Conversations with people who start their own business often reveal that: A. many small business owners got their entrepreneurial idea from a previous job. B. it is unusual for experienced corporate managers to start their own businesses. C. the most successful entrepreneurs often start their business ventures right after high school. D. most small business owners begin with significant personal wealth. Bloom's: Knowledge Learning Goal: 06-3 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #244 Topic: Get Some Experience 245. (p. 160) For prospective entrepreneurs, enrolling in an introduction to business or small business management course offered through their community college: A. is likely to be wasted time since college courses tend to be too theoretical. B. can be helpful by offering them an opportunity to meet experienced small business owners. C. serves as supplementary information, only after starting their business venture. D. seldom provides you with information to help make small business decisions. One of the best things about small business courses offered by community colleges is that they can bring together entrepreneurs. The advice experienced entrepreneurs can share with those just getting started can be invaluable. Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #245 Topic: Learn from Others 246. (p. 160) Which of the following suggestions would an experienced business owner offer to help someone who is thinking about starting a business venture? A. Avoid the temptation of buying an existing firm. Build your own reputation and make your own mistakes. B. Gain experience by working for a successful businessperson. C. Postpone consulting with an accountant or lawyer until you can afford their services. D. Jump in quickly, before the market conditions change and opportunities are lost. Experienced entrepreneurs regularly state that there is no better way to learn small business management than by working for a successful businessperson. Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #246 Topic: Get Some Experience 247. (p. 160) Successful small business owners are: A. not good sources for information on starting your own business because they generally do not understand failure. B. valuable sources for information since you can learn from their experiences. C. good but risky since their keen sense of sniffing-out something with potential will tempt them to steal your ideas. D. valuable sources of information, but you should proceed with caution because talking with someone who could eventually be your competitor may cross the line due to federal trade commission laws. An excellent way to learn how to run a small business is to talk to others who have already done it. Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #247 Topic: Learn from Others 248. (p. 160) When starting a small business, it's important to remember: A. an affinity for taking large amounts of risk is the critical factor in achieving small business success. B. doing things differently from previous entrepreneurs is the real key to success. C. learning from others and gaining relevant business experience improves the odds for success. D. to avoid burnout, limit the number of hours you work each week as you adapt to the rigors of self-employment. Learning from others and getting some experience are two keys to achieving success in small business. Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #248 Topic: Learn from Others 249. (p. 161) The Making Ethical Decisions box, "Going Down with the Ship" addresses a dilemma worthy of consideration. It describes: A. an unethical situation where the business owner's need for capital causes him/her to delay all payments to suppliers for 120 days, forcing several of his close business relationships, out-of-business. B. the slow death of a business and how important it is to delay payments, sell-off assets and do everything possible to save a failing business except dismissing employees who need their jobs for survival. C. ethical decisions that need to be considered when employees leave a faltering business to start their own, eventually competing against their previous employer. D. the unethical and disloyal decision to leave your family business and start your own, taking with you all the family business's trade secrets. The box describes a situation where employees have ideas of how to make a failing business model successful. They choose to leave the faltering company and go out on their own. As competitors, do they seek to communicate directly with their previous employer's loyal customers; or, is this strategy unethical? The box asks the student to explore the alternatives and the consequences. Bloom's: Comprehension Learning Goal: 06-3 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #249 Topic: Making Ethical Decisions box 250. (p. 161) Motivated by his desire to operate his own business, Nick considers purchasing an existing business. As he carefully weighs this option, he is likely to find that: A. very few owners of small businesses have any interest in selling. B. his potential for success would greatly improve if he started his own new firm. C. the value of an existing business is determined by what the business owns, what it earns, and what makes it unique. D. any entrepreneur willing to sell his/her business is experiencing serious financial problems. The value of a firm is based on three things: what it owns, what it earns, and what makes it unique. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #250 Topic: Take Over a Successful Firm 251. (p. 160) Carrie, a student at Metropolitan Community College, dreams of starting her own business. In an effort to learn as much as she can about small business management, she talked to four friends who each offered their advice. Which of these suggestions is likely to help Carrie the most? A. The best way to learn about running a business is by getting hands-on experience. You should quit school and put your dream into action. B. Take courses related to small business management and look for a job with a successful businessperson, preferably in your field of interest. C. Since every business is unique, don't worry about advice from others. Go to a bank, get a business loan, and live your dream. D. Starting and managing a small business requires little more than common sense. If your idea is unique, hard work will guarantee your success. College courses will allow Carrie to interact with others interested in small businesses, including experienced entrepreneurs, whose advice can be invaluable. Perhaps the best way to learn about running a small business is to get some experience by serving as an apprentice for a successful business. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #251 Topic: Learn from Others 252. (p. 161) Greg benefited from his experience working for an established private company that provided innovative lighting for large music venues. Although confident that he could start his own lighting business, he had limited capital to buy the necessary equipment needed to successfully compete with established companies. Which of the following strategies would best help Greg achieve his goal of business ownership? A. Begin by offering to take over management of his employer's business, allowing the owner to enjoy some leisure time B. Consider working for a major corporation, live modestly, and save until he has sufficient funds to start his business C. Enroll in the closest university and apply for student loans D. Open his business and trust that his work experience will bring him success even with insufficient capital Small-business owners work long hours and rarely take vacations. After many years, they may want to enjoy some leisure time, but feel trapped by the need to always be there. This offers an opportunity for aspiring entrepreneurs to learn all about a particular business and perhaps share in the profits while at the same time help the owner realize a better work - life balance. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #252 Topic: Take Over a Successful Firm 253. (p. 161) As a young boy, Drew remembers his grandfather telling him, "Son, if you can find something you like to do, and somebody is willing to pay you to do it, well, that's the secret to a great life." The way Drew saw it, this was his big break. For the past five years, he split his time between school and working for a local tree farm/nursery business. The owner recently announced he was ready to retire. As Drew began creating a business plan, he contemplated what the business might be worth? How much will he need to buy this business? For starters, Drew A. needs to find a government data base that outlines what nursery businesses are worth, on average, across the country. B. should speak with the current owner and determine the total value of assets (what the business owns), its earning potential, and its unique advantage. C. will want to determine the assessed value of the acreage that the business owns, and then bid competitively. D. needs to understand that it's difficult to buy an existing business, rather than start your own. The key will be to meet with the company's accountant, and explain your interest. The accountant will have all the answers. When preparing to buy an existing business, a good start is to determine the total value of what the business owns; what the business earns and future potential earnings, and what makes the business unique in its industry. AACSB: Analytic Bloom's: Application Learning Goal: 06-3 Nickels - Chapter 06 #253 Topic: Take Over a Successful Firm 254. (p. 162) Two key management functions that need particular attention when starting a business are: A. human relations and accounting B. planning and financing C. marketing and public relations D. staffing and controlling Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #254 Topic: Managing a Small Business 255. (p. 162) A __________ is a written document that details the business idea, the target market and the business's competitive advantage, financial resources available for the business, and the qualification of the management. A. feasibility product B. marketing plan C. business plan D. statement of intent Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #255 Topic: Begin With Planning 256. (p. 162) The business plan will include ______________. A. an analysis of the competition B. names of banks the owner plans to visit C. import/export information D. names of employees Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #256 Topic: Begin With Planning 257. (p. 162) A detailed written statement that describes the nature of the business, the target market, the firm's competitive advantages, as well as the owner's resources and qualifications is a: A. business plan. B. entrepreneurial mission statement. C. profit and loss statement. D. professional action plan. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #257 Topic: Begin With Planning 258. (p. 162) Entrepreneurs seeking financial support from bankers and potential investors should: A. be vague regarding their creative business plan to avoid having their idea stolen. B. seek the bankers' and investors' assistance in developing their business plan. C. create a detailed business plan to help the bankers and investors understand why this business will succeed. D. ask for a relatively small amount of capital initially, postponing a full funding request until the investors better understand the business concept. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #258 Topic: Begin With Planning 259. (p. 162) Bankers and potential investors are likely to read ___________ first. A. the executive summary B. the marketing plan C. the qualifications of the management team D. the analysis of the competition Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #259 Topic: Writing a Business Plan 260. (p. 164) After personal savings, the next largest source of capital for entrepreneurs is from: A. large multinational banks. B. the Small Business Administration. C. state and local governments. D. friends and family. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #260 Topic: Getting Money to Fund a Small Business 261. (p. 164) ________ are private individuals who invest their own money in potentially hot new companies before these firms become larger, publicly traded companies. A. Leveraged buyout specialists B. Angel investors C. Venture investors D. Corporate raider investors Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #261 Topic: Getting Money to Fund a Small Business 262. (p. 165) Due to the credit crunch during the recession of 2008, many small businesses found that _____________ were more willing to lend money to smaller operations. A. large corporations B. credit card companies C. international banks D. smaller, community banks Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #262 Topic: Getting Money to Fund a Small Business 263. (p. 165) A firm or individual providing financial capital to small businesses in exchange for an ownership stake in the company is called a(n): A. corporate raider. B. takeover specialist. C. financial capitalist. D. venture capitalist. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #263 Topic: Getting Money to Fund a Small Business 264. (p. 165) Which of the following government agencies is responsible for encouraging the development of small business? A. Small Business Administration B. Federal Trade Commission C. Entrepreneur Assistance Center D. Federal Microloan Authority Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #264 Topic: Small Business Administration (SBA) 265. (p. 165) Which of the following sources of investment is the least likely type available to entrepreneurs? A. Angel investors B. Small Business Administration loans C. Venture capitalists D. Family and friends Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #265 Topic: Getting Money to Fund a Small Business 266. (p. 165) The Small Business Administration's microloan program awards loans to entrepreneurs based primarily on their: A. collateral. B. credit history. C. previous business success. D. integrity and sound business idea. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #266 Topic: Small Business Administration (SBA) 267. (p. 165) A Small Business Investment Company (SBIC) is a(n): A. agency of the federal government that loans money to high tech firms. B. private investment company that is licensed by the SBA to make loans to small businesses. C. private firm that offers loans to small businesses in return for a share of ownership in the firm. D. agency set up by state governments to provide managerial advice and support to small businesses. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #267 Topic: Small Business Administration (SBA) 268. (p. 165) One of the best places for young entrepreneurs to start shopping for a SBA loan is a(n): A. Small Business Development Center. B. financial institution specializing in business loans. C. college or university financial aid office. D. the Internet web Page: of the Venture Capitalists Association. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #268 Topic: Small Business Administration (SBA) 269. (p. 166) A ________ refers to people with unsatisfied wants and needs who are willing and able to buy a product or service. A. market B. consumer cooperative C. consumer collective D. buyer's cooperative Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #269 Topic: Knowing Your Customers 270. (p. 167) To be considered part of a market, an individual must: A. be a registered buyer. B. have made a purchase within the past 30 days. C. know the names and addresses of two or more sellers. D. have both a willingness to buy and the financial resources needed to buy. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #270 Topic: Knowing Your Customers 271. (p. 167) Small business owners often struggle in attracting qualified workers. Which of the following contributes to this problem? A. Bosses in small firms tend to be disrespectful to the workers B. Owners will not often listen to ideas suggested by the workers C. Employee relations are especially poor in small firms D. Many jobs in small firms have low pay and few benefits Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #271 Topic: Managing Employees 272. (p. 167) Employees of small businesses often have greater job satisfaction than do employees of larger firms. One reason for this difference in job satisfaction is that employees of small businesses often: A. earn higher wages. B. receive more vacation time. C. get more respect from their bosses. D. have more job security and better fringe benefits. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #272 Topic: Managing Employees 273. (p. 167) A new business that sets up a(n) _____________ from the start is saving itself time and grief later. A. angel investment network B. good accounting system C. detailed supplier network D. vertical marketing system Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #273 Topic: Keeping Records 274. (p. 167-168) Small businesses must seek advice from outside experts. In order to put together official documents such as leases, contracts, and partnership agreements, it is important to seek the advice of __________. A. a friend who has already started a business B. a competitor in a similar business C. an attorney D. a marketing expert Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #274 Topic: Looking for Help 275. (p. 168) A(n) ____________ is a valuable source of information regarding techniques to reduce a firm's exposure to risk. A. insurance agent B. accountant C. liability assessor D. union business agent Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #275 Topic: Looking for Help 276. (p. 168) Similar to how large businesses proceed, small businesses make marketing decisions ______________. A. after the product or service is developed B. before the business is funded C. at the same time that they hire employees, research for an accountant, and prepare the business plan D. before a product is developed or store is opened Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #276 Topic: Looking for Help 277. (p. 168) Most entrepreneurs and small business owners agree that a small business' marketing effort should include: A. a web presence B. a list of competitor products C. a pro forma income statement D. a complete product lifecycle Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #277 Topic: Looking for Help 278. (p. 168) The Small Business Administration sponsors volunteers from industry, trade associations, and education who offer advice to small business owners. These volunteers are called: A. the Small Business Council of Volunteers. B. Partners in Service and Economic Progress. C. Small Business Counselors Incorporated. D. the Service Corps of Retired Executives. Bloom's: Knowledge Learning Goal: 06-4 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #278 Topic: Looking for Help 279. (p. 162) Entrepreneurs applying for a bank loan should realize that bankers will: A. expect to receive a share of ownership in the business in exchange for their loan. B. expect the entrepreneur to provide a business plan. C. generally make loans only to small businesses in dot.com related industries. D. offer only short-term financing. A well-prepared business plan is mandatory when seeking financial assistance from a bank or other investors. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #279 Topic: Begin With Planning 280. (p. 162) A good business plan will: A. focus on the big picture and omit the small details of operating the business. B. describe all aspects of the business, including product, the target market, the nature of the competition, any financial resources, and the owner's qualifications. C. be purposefully vague, since specifics can restrict creativity and flexibility. D. focus on the nature of the business and the target market, omitting personal information about the owner in order to avoid personality issues. A business plan is a detailed written statement that describes the nature of the business, the target market, the advantages the business will have relative to competitors and the resources and qualifications of the owner. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #280 Topic: Begin With Planning 281. (p. 162) The executive summary section of the business plan contains: A. computerized information that readers can access interactively. B. information that will capture the attention of bankers and other investors who receive many business plans every day. C. qualifications, experience, and education of the entrepreneur and prospective employees. D. a financial summary prepared by the business' accountant. The executive summary must grab the reader's attention. In some cases, it is the only part that some decision makers will read. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #281 Topic: Writing a Business Plan 282. (p. 165) When seeking financial backing from a venture capitalist, a small business owner should realize that the venture capitalist will: A. charge an interest rate that is much higher than any other lender. B. not be interested in the management of the business. C. expect an ownership stake in the company in exchange for financial backing. D. demand that the money be repaid within 90 days or less. Venture capitalists often ask for a hefty ownership stake in a business in exchange for the cash needed to get that business started. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #282 Topic: Getting Money to Fund a Small Business 283. (p. 166) A market consists of potential buyers of a good or service. However, for a market to exist: A. the business requires wholesalers and retailers. B. one firm must dominate in sales and product development. C. people must have unsatisfied wants and needs as well as a willingness and ability to buy. D. the product must be laboratory tested and approved by the Food and Drug Administration (FDA). A market consists of people who have unsatisfied wants and both the willingness and the resources necessary to buy the good or service. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #283 Topic: Knowing Your Customers 284. (p. 167) Small business employees: A. usually dislike their jobs and look forward to finding employment with major corporations. B. find their jobs less challenging than a similar job in a large corporation. C. usually get paid higher wages than workers in large corporations. D. often find more job satisfaction than their counterparts in big business. Employees in small businesses are often more satisfied with their jobs than their counterparts in big business because their jobs are more challenging, their ideas are more accepted, and their bosses are more respectful. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #284 Topic: Managing Employees 285. (p. 167-168) Entrepreneurs learn that there are many legal and financial issues involved in starting their business. The best way for the small business owner to resolve these issues and protect the firm's resources is: A. for the owner(s) to trust his/her common sense. B. to hire a full-time lawyer and accountant who work exclusively for the small business. C. defer making decisions regarding these issues until the company is bigger. D. seek and pay for expert guidance and assistance. Legal and accounting issues are often too complex to trust to instinct and too important and immediate to defer to a later date. Unfortunately, most small businesses cannot afford to hire lawyers and accountants as employees. Thus, the best approach is to consult with professional accountants, lawyers, loan officers, and insurance agents outside the business. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #285 Topic: Keeping Records; Looking for Help 286. (p. 168) Which of the following is not a recommended source of small business advice for persons contemplating a new business? A. Successful small business owners B. University internship programs C. Other prospective small business owners D. SCORE [Service Corps of Retired Executives] SCORE volunteers, successful small business owners, and university and college internship programs will often work with entrepreneurs and prospective small business owners. Generally, other persons contemplating the same thing are not the best source of information because they are learning and gathering information too. Bloom's: Comprehension Learning Goal: 06-4 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #286 Topic: Looking for Help 287. (p. 162) In order to finance The Shortbread Shack, a mobile bakery business that services several large Silicon Valley companies, Marcy demonstrated her steadfast desire to get her bakery off the ground by visiting several bankers with _____________. A. her insurance agent B. her business plan C. her venture capitalist D. her idea A business plan provides a detailed written statement of the nature of a firm, its target market, its competitive advantages, and the resources and qualifications of its owner. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #287 Topic: Begin With Planning 288. (p. 162) In order to improve his chances of small business success, Demitri prepared a business plan. Most often, a positive outcome of this exercise is: A. the plan will meet federal reporting requirements of the Internal Revenue Service. B. the plan ensures financing will be available from the Small Business Administration. C. the plan enables Demitri to think carefully about all aspects of his business idea. D. the plan will protect Demitri from failure. A business plan is a detailed written statement that describes the nature of a business. Writing a plan forces the entrepreneur to look closely at all areas of the proposed business. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #288 Topic: Begin With Planning 289. (p. 168) Justin's favorite part of Introduction to Business class was marketing. As he brainstorms about starting a car detailing business, he recalls that it is important to: A. open for business and start collecting information about what customers want. B. find the most affordable location for the business. C. only agree to serve a high-end market. D. analyze the market before making the service available. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #289 Topic: Looking for Help 290. (p. 164) As a high net worth individual, Allison searches for growth firms in need of additional funding to achieve their goals. In return for this ____________, Allison expects to assume ownership in the business. A. analysis B. venture capital C. corporate loan D. securities investment A venture capitalist is an individual or firm that provides startup capital in exchange for a stake in the ownership of the business. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #290 Topic: Getting Money to Fund a Small Business 291. (p. 164) Chris is an angel investor. This means that he: A. invests his money in new businesses with potential for growth, hoping for a good return on his investment if they go public. B. creates business incubators for startup Web-based firms. C. invests in non-profits that plan to change their status when they double in size. D. he comes to the rescue of firms who default on their bank loans. Angel investors are private individuals who invest their own money in potentially hot new companies before they go public. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #291 Topic: Getting Money to Fund a Small Business 292. (p. 165) Samantha recently applied for a microloan from the SBA. Although several criteria are important, the Small Business Administration's decision to grant or deny the loan will largely depend upon A. her credit history and the collateral she can offer. B. her age, since microloans are only available to senior citizens. C. her previous record of business success. D. the soundness of her business plan, and her integrity. Microloans are awarded on the basis of the borrowers' integrity and the soundness of their business ideas. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #292 Topic: Small Business Administration (SBA) 293. (p. 168) Bing came to the U.S. on a swimming scholarship. After a few months of frustration with trying to find swim goggles like he used in his native country, he started a web site that offered specialty goggles for swimming, skiing, and snowboarding. Before launching the web site and filling orders, Bing spent a few months going to swim meets and gathering preferences about goggles from other swimmers. Bing's actions: A. showed that he had a ready market for this product. B. demonstrated that he had little experience with this product. C. showed that he was promoting the web site before it launched. D. demonstrated his need to better understand the market. Bing understands that identifying the market and its needs must occur before you begin to sell product. To be part of a market, consumers must have both the willingness and the resources needed to make a purchase. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #293 Topic: Looking for Help 294. (p. 166) Ben got a phone call from one of his regular customers asking if he had time to repair a couple of broken sprinkler heads on the customer's underground sprinkling system. Although it was already 6:00 p.m. and Ben had put in a full day of work, he turned his car around and headed for the customer's house. As a small business owner, Ben demonstrates: A. his need for additional cash flow. B. his ability to easily adapt and respond to his customer's needs. C. the fact that it is difficult to find employees willing to go the extra mile for a small business because benefits are non-existent. D. that considering the fact that sprinkler heads are constantly breaking and need repair, his service is overpriced. Small businesses have the ability to know their customers better and adapt quickly to their every-changing needs. Customers will appreciate the prompt service that a small business can provide. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #294 Topic: Knowing Your Customers 295. (p. 167) Ming's three employees have been with her since she started Employment Recruiters, Inc., nearly 10 years ago. As she contemplates the staffing for her new branch office, she senses that none of these three are ready to manage the office. Faced with this difficult situation, she should: A. appoint one of the three anyway to show that she appreciates their loyalty and commitment. B. run the new branch herself and appoint one of the three to take over the original office. C. hire a new employee to manage the office since this could be detrimental to the business. D. appoint all three to the new branch and let them run it using a "team" approach. Appointing unqualified people to management positions can be a serious business mistake. As difficult as it may be, the entrepreneur best serves him/herself and the business if they gradually recruit and groom employees for management positions. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #295 Topic: Managing Employees 296. (p. 167) After Kate graduated from college, her grandfather created a bookkeeping position for her in his furniture retail business. Her older brother is in charge of purchasing inventory for the stores, yet often the store runs out of popular furniture or become overstocked with pieces that must be marked down to be sold. Kate is confident that her brother is more suited for handling accounting and finance, and she has a pulse on what sells and how much sells. Although she has spoken with her grandfather about it a couple of times, he seems reluctant to change. As the founder of the business, he may: A. find it difficult to remove family members from positions, even if it is not good for the business. B. find it difficult to retrain Kate for the job, and even though his business is losing opportunities, he will stay the course. C. he knows that profit margins have declined, and he doesn't care. D. have a bigger picture of things, and not feel the need to respond to a family member's request. Attitudes such as "You can't fire family" or "You must hire them because they're family" can frustrate all employees, family and non-family. A business is best served if the best workers are recruited and groomed for management positions. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #296 Topic: Managing Employees 297. (p. 167) As a small business owner, Tanika can't afford to provide her employees with the high wages and benefits offered by big corporations. One way to retain her employees and create a high level of motivation would be to: A. constantly communicate with them that "at least they have a job." B. adopt a policy of promoting workers who have been employed the longest. C. empower her employees to develop their own ideas. D. hire only family members, since they are more loyal. Many small firms motivate workers by creating challenging jobs and treating them respectfully. Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #297 Topic: Managing Employees 298. (p. 168) After retiring as a telecommunications executive, Chad joined SCORE. As a SCORE counselor Chad will: A. provide venture capital funds for aspiring small businesspeople. B. visit high schools to advise students who are thinking about starting their own business. C. help in the research and development of new products for entrepreneurs to market. D. provide consulting services to small businesses for free. An important source of information for small businesses is the Service Corps of Retired Executives (SCORE). This SBA office has volunteers from industry, trade associations, and education who counsel small businesses at no cost (except for expenses). Bloom's: Application Learning Goal: 06-4 Nickels - Chapter 06 #298 Topic: Looking for Help 299. (p. 169) The size of the world market is: A. 500 million B. 6.7 billion C. 5 million D. 10 trillion Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #299 Topic: Going International: Small-Business Prospects 300. (p. 169) According to the U.S. Department of Commerce, a ________ of small businesses export their goods. A. small percentage B. large percentage C. decreasing number D. decreasing percentage Bloom's: Knowledge Learning Goal: 06-5 Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #300 Topic: Going International: Small-Business Prospects 301. (p. 169) Increased participation in small business exporting owes credit to _________. A. political constituents who have made in-roads abroad B. large events such as the Olympics that have brought attention to the potential in world markets C. technological advances such as the Internet and PayPal for safely fulfilling orders D. partnerships that small businesses have formed with large businesses 302. (p. 169) One of the hurdles small businesses face when deciding to export is: A. financing is often difficult to find. B. overseas buyers prefer dealing with large corporations. C. smaller companies must wait in line after large companies to qualify for tariffs. D. American products are perceived as inferior. 303. (p. 169) One reason why many U.S. small businesses are not involved in exporting is: A. there is a limited market for their products. B. the government's new homeland security programs limit opportunities for small businesses. C. many of these firms do not know how to get started. D. U.S. products are perceived as inferior. 304. (p. 170) The SBA's ________ program provides export financing opportunities for small businesses. A. global trade funding B. Homeland security funding C. Export Express loan D. International Monetary Funding 305. (p. 170) Small business owners interested in finding out more about exporting will find that: A. there is very little information on exporting relevant to small businesses. B. the single best resource is the International Monetary Fund. C. the most valuable information costs more than it is worth. D. there is an abundance of inexpensive information from a variety of sources. 306. (p. 169) Which of the following best describes the outlook for small businesses in international markets? A. the world is a larger, and potentially a more lucrative market than the U.S. domestic market B. the threat of terrorist activities prevents small businesses from competing internationally C. most foreign buyers prefer to deal with large, well-known corporations rather than small businesses D. higher business costs eliminate the profit opportunities in global markets The U.S. has only about 5% of the world's population, and there is a growing demand for American goods and services. The Commerce Department reports that while only a small percentage of small businesses export, the number of small businesses involved in exporting has tripled in the last decade. 307. (p. 170) Small businesses often have advantages in international markets. One advantage is: A. a greater expertise in managing the paperwork required to sell goods in international markets. B. a better understanding of the cultural differences involved. C. individualized customer service as opposed to impersonal corporate bureaucracies. D. the ability to obtain financing through the International Monetary Fund. Small companies can give more personal service and more undivided attention, because each overseas account is a major source of business to them. 308. (p. 170) Labels Plus, LLC, exports specialty printing equipment for the labeling, flexible packaging, and carton industry. Due to increased support from ________, this company's sales to Brazilian companies and other global opportunities have significantly increased. A. its newly revised web site B. Department of Commerce's Bureau of Industry and Security C. the FDA D. local politicians The Department of Commerce's Bureau of Industry and Security contains a wealth of information for small businesses interested in going global. 309. (p. 169) Jake wants to sell his workout DVDs in European, Asian, and Latin American countries. _______________ will help him reach vendors abroad, without the expense of traveling to meet them face-to-face. A. A web site and other technological advances B. Partnering with a large U.S. recording studio C. The SBA (Small Business Administration) D. An incubator facility Technological advances such as the Internet, web sites, and fulfillment technology such as PayPal make it easier for companies to connect with customers abroad. 310. (p. 169) Luis is a partner in a firm that specializes in producing vitamins and health food products. While the business is considered small by U.S. standards, he is attempting to persuade his partner to expand internationally. Luis would list which of the following as an advantage of going international? A. Exporting can help sell excess inventory B. Marketing programs benefit from the cultural similarities in prospective markets C. Financing can easily be obtained to expand internationally D. Selling your products in other markets reduces their life cycle, making them more attractive Small businesses that make the effort to export have the advantage of selling excess inventory abroad. 311. (p. 170) Antoine is considering marketing his bicycles in Brazil. If he enters the Brazilian market, he is likely to learn that ____________. A. some cultures like dealing with individuals from smaller companies rather than large companies B. he will not be able to keep up with demand C. most foreign cultures prefer large company relationships to small company relationships D. there is strong resistance of Brazilian firms with respect to American products Although some foreign buyers may prefer doing business with major corporations, many actually enjoy dealing with individuals rather than with big corporate bureaucracies. Moreover, foreign buyers may appreciate the fact that the smaller firms often provide personalized service and may be able to begin shipping more quickly. The main problem he will face is adapting to the cultural differences between the U.S. and Brazil. 312. (p. 148-149) Not everyone dreams of owning their own business. Identify and describe at least three attributes of successful entrepreneurs. While students will likely identify managerial skills and leadership abilities, these are not unique to entrepreneurs. Entrepreneurs also need to be: • Self-directed. They should be self-disciplined and comfortable with taking responsibility for success and failure. • Self-nurturing. Entrepreneurs must be able to believe in their own ideas even when others don't. • Action-oriented. Entrepreneurs aren't satisfied with a dream, they want to make the dream a reality. • Highly energetic. They are willing to work hard to sustain their efforts over long hours. • Tolerant of uncertainty. Entrepreneurs can accept the risks and uncertainties inherent in running a business. 313. (p. 150) What is an entrepreneurial team? What benefits does a team offer compared to an individual entrepreneur? a. Entrepreneurial teams bring experienced people from different areas of business that join together to form a managerial team with the skills needed to develop, make, and market a new product. A team may be better than an individual entrepreneur because it provides a combination of creative skills with production and marketing skills right from the start. b. Another benefit is the concept of shared planning and decision making. Everyone works together to conceive, develop, and market products. This results in better coordination and cooperation among functions. 314. (p. 159) List and discuss at least three causes of small business failure. (Answers will vary, however, the student should include the information found in Figure 6.4, "Causes of Small Business Failure.") Plunging in without first testing the waters on a small scale. • Underpricing or overpricing goods or services. • Underestimating how much time it will take to build a market. • Starting with too little capital. • Starting with too much capital and being careless in its use. • Going into business with little or no experience and without first learning something about the industry or market. • Borrowing money without planning just how and when to pay it back. • Attempting to do too much business with too little capital. • Not allowing for setbacks and unexpected expenses. • Buying too much on credit. • Extending credit too freely. • Expanding credit too rapidly. • Failing to keep complete, accurate records, so that the owners drift into trouble without realizing it. • Carrying habits of personal extravagance into the business. • Not understanding business cycles. • Forgetting about taxes, insurance, and other costs of doing business. • Mistaking the freedom of being in business for oneself for the liberty to work or not, according to whim. Bloom's: Comprehension Learning Goal: 06-2 Level of Learning 2: Understanding of concepts and principles Nickels - Chapter 06 #314 Topic: Causes of Small Business Failure; Figure 6.3 315. (p. 169-170) Discuss the benefits exporting offers to small businesses. Given these benefits, why don't more small firms sell in international markets? a. The world market is potentially a much larger and more lucrative market for businesses than the United States. Moreover, selling in the world market can absorb excess inventories, soften downturns in the U.S. market, and extend product lives. It can also add variety and make managing the business more interesting (and perhaps more challenging). b. There are many barriers that discourage small businesses from exporting their products. These barriers include: • difficulties in arranging financing. • uncertainties about how to get started in foreign markets. • ignorance of cultural differences. • extensive bureaucratic paperwork that can practically bury a small business. Bloom's: Application Learning Goal: 06-5 Nickels - Chapter 06 #315 Topic: Going International: Small-Business Prospects 316. (p. 165-166) Discuss several ways the Small Business Administration assists entrepreneurs. a. The SBA is a valuable source of information and advice for small businesspeople. It has published a variety of booklets and pamphlets that cover all areas of managing a small business. b. The SBA also provides financial assistance to small businesses through a variety of programs. The SBA will sometimes provide direct loans to firms that have difficulty securing conventional loans from private sources. The SBA also provides programs to help minorities and women obtain funds. c. The SBA licenses SBICs, which are private investment companies that loan money to small businesses. d. The SBA operates SCORE, the Service Corps of Retired Executives. This group provide counseling and advice to small business owners. Bloom's: Application Learning Goal: 06-4: Analyze what it takes to start and run a small business Nickels - Chapter 06 #316 Topic: Small Business Administration (SBA) Mini-Case Peppy Roaney believes that pizza is a much more versatile dish than most people realize. As the national marketing manager for Pizza Guys, he observed how consumers were delighted with barbecue pizza, Hawaiian pizza, Mexican pizza and other unique combinations. His suggestions for other unusual pizzas, however, were met with a negative response by his superiors. Even some of his colleagues laughed at his ideas. Peppy's confidence in his ability to understand the market has led him to focus on planning a business of his own. Peppy realizes that he will take a risk when he leaves his job with Pizza Guys and embarks upon a new venture: Peppy's Pizzazzeria. Peppy is excited about the potential of profitably catering to the unmet desires of pizza consumers. Nickels - Chapter 06 317. (p. 146) Given Peppy's willingness to accept the risks of opening and running Peppy's Pizzazzeria, he is clearly an example of a(n): A. arbitrageur. B. intrapreneur. C. gambler. D. entrepreneur. An entrepreneur is someone who accepts the risks of starting and managing a business. Bloom's: Knowledge Learning Goal: 06-1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home-and Web-based businesses. Level of Learning 1: Knowledge of key terms Nickels - Chapter 06 #317 Topic: The Age of the Entrepreneur 318. (p. 148-149) Peppy remains confident and enthusiastic even though his colleagues have poked fun at his ideas. This shows that Peppy is: A. self-disciplined. B. self-nurturing. C. self-generating. D. auto-inspirational. People who are self-nurturing are able to believe in their own ideas, even when others do not, and to re-fuel the fires of their own enthusiasm. AACSB: Analytic Bloom's: Application Learning Goal: 06-1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home-and Web-based businesses. Nickels - Chapter 06 #318 Topic: What Does it Take to Be an Entrepreneur? 319. (p. 162) Peppy is confident that Peppy's Pizzazzeria will be a success, but only if he has enough money to do things right. Since Peppy has very little personal wealth, he knows he must obtain financial assistance. In order prepare for meetings with bankers and potential investors, Peppy should: A. hire a public relations firm to develop promotional materials. B. develop a business plan. C. read a book on entrepreneurship. D. create a partnership contract. A business plan, which provides a detailed description of the new business, is mandatory when meeting with bankers and investors. Bloom's: Application Learning Goal: 06-4: Analyze what it takes to start and run a small business Nickels - Chapter 06 #319 Topic: Begin With Planning 320. (p. 165) Peppy has inquired about the possibility of obtaining a microloan from the SBA. This type of loan is awarded primarily on the basis of the: A. borrower's integrity and the soundness of the business idea. B. amount of collateral the borrower can pledge. C. borrower's credit history and record of previous business success. D. age of the borrower, since only senior citizens qualify. A microloan from the SBA is awarded on the basis of the borrower's integrity and the soundness of the borrower's business idea. AACSB: Analytic Bloom's: Application Learning Goal: 06-4: Analyze what it takes to start and run a small business Nickels - Chapter 06 #320 Topic: Small Business Administration (SBA) 321. (p. 167-168) Peppy knows a lot about marketing, but not much about the legal or financial aspects of starting a new business. He wants to consult with a lawyer and accountant, but his budget is tight with all of the expenses involved in getting Peppy's Pizzazzeria up and running. Peppy should: A. delay talking with a lawyer and accountant until the business has established a positive cash flow for at least one year. B. trust his basic instincts and try to put it together without the advice of lawyers and accountants. C. consult with a lawyer and accountant even though the budget is tight. D. immediately hire full time lawyers and accountants for his staff. Entrepreneurs starting new businesses seldom can afford to have full time lawyers and accountants as employees, but it is critical that they obtain professional legal and accounting advice. AACSB: Analytic Bloom's: Application Learning Goal: 06-4: Analyze what it takes to start and run a small business Nickels - Chapter 06 #321 Topic: Keeping Records; Looking for Help 322. (p. 150) Due to the fact that Peppy has worked in the field of marketing for a large corporation, A. there is no need to consider an entrepreneurial team for start-up due to the fact that all other management functions are served by marketing. B. he can skip any marketing research steps that the SBA recommends. C. he knows that the type of business he wants to start may be difficult to develop, but it has a tremendous amount of security due to its promise of long term survival. D. he plans to put together an entrepreneurial team of experts that will complement his expertise. An entrepreneurial team is a group of experienced professionals from various business disciplines. Team members bring different skills to the entrepreneurial venture. Their skills usually complement each other. AACSB: Analytic Bloom's: Application Learning Goal: 06-1: Explain why people take the risks of entrepreneurship; list the attributes of successful entrepreneurs; and describe entrepreneurial teams, intrapreneurs, and home-and Web-based businesses. Nickels - Chapter 06 #322 Topic: Entrepreneurial Teams 323. (p. 159) As a former classmate of Peppy's at the nearby university, you remind him what you both learned in your small business management class several years ago: A. restaurants are easy to start-up, but difficult to keep going. B. restaurants are probably the most difficult type of business to start-up, due to the labor intensive aspects of the business. C. experts believe that restaurants have a high profit potential, due the fact that there is not much direct competition. D. restaurants are easy to start-up and have great profit potential. The easiest businesses to start (like restaurants) have the greatest potential for failure. The easiest to keep alive are difficult to get started (like manufacturing) [Show More]

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