BA 166 Small Business Management Exam #2 (Chapters 7 – 12) Fall 2008 Due Thursday, October 23, 2008
Name:____________________________________________
Multiple Choice: (2 points each) Select the best answer. 1.
A firm's marketing mix consists of ____ activities. a. pricing, promotion, and distribution b. product, pricing, and promotion c. product, promotion, and distribution d. product, pricing, promotion, and distribution Traditionally, marketing philosophies have been categorized as a. consumer-oriented and market-oriented. b. consumer-oriented, product-oriented, market-oriented, and volume-oriented. c. consumer-oriented, market-oriented, sales-oriented, and process-oriented. d. consumer-oriented, production-oriented, and sales-oriented.
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Every day, associates of Sewell Motors, a Dallas-based auto retailer, strive to exceed the company's expectations of treating the customer as its number one priority. Every action, policy, and ultimate sale is conducted professionally, with consumers' needs in mind. Sewell Motors subscribes to the ____ marketing philosophy. a. consumer-oriented b. market-oriented c. sales-oriented d. product-oriented
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Koldpak has focused principally on the development of revolutionary new ways of containerizing fresh produce for grocery stores. The firm’s marketing philosophy is a. consumer-oriented. b. market-oriented. c. production-oriented. d. sales-oriented.
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The description of potential customers in a target market is commonly called a a. customer profile. b. demographic detailing. c. Simpkins matrix. d. target picture.
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The key to strong management in a new firm is a. balance, with each member having competence in at least one area. b. financial competence of the chief executive. c. a strong marketing manager. d. close friendship among all members of the team. The most rudimentary form of business organization among small businesses is the a. corporation. b. general partnership. c. sole proprietorship. d. limited partnership.
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A corporation a. is chartered under state laws. b. is chartered under federal laws. c. remains in existence only as long as its owners are alive. d. shifts liability of its debts to its owners.
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A partner can purchase a new copier for the partnership without consulting the other partners because each partner has ____ power. a. agency b. purchasing c. separability d. fiduciary
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Max Baer chose to operate his production studio as a sole proprietorship even though his attorney cautioned that a. b. c. d. reducing its overall profit potential. increasing his taxable income. exposing himself to unlimited personal liability. violating an existing partnership agreement.
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For small service or retail businesses, the top priority in location decisions is a. personal preference. b. resource availability. c. customer accessibility. d. environmental conditions. Which of the following is not a potential advantage of establishing a small business in one's home community? a. Appreciation of the atmosphere of the community b. More extensive knowledge of consumer tastes c. Greater ability to establish favorable credit arrangements d. Increased stability of operations For many new firms, the most important reason to lease rather than buy a facility is a. avoidance of a large cash outlay. b. freedom in modifying the building. c. avoidance of interest payments. d. avoidance of liability lawsuits.
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Businesses that operate in the home a. can increase profits by decreasing costs. b. require customer traffic. c. are called family businesses. d. are less common today than they were 10 years ago. E-commerce refers to a. B2B models of doing business. b. the facilitation of business by making initial contact by electronic means. c. the paperless exchange of business information via the Internet. d. a form of business that involves online trades and auctions. Earnings before taxes are computed by deducting the firm's financing costs from its ____ income. a. Total b. Projected c. Net d. Operating An example of a current asset is a. land. b. inventories. c. equipment. d. buildings. The “bottom line” of the income statement is affected by all of the following EXCEPT: a. cost of good sold b. dividends paid to owners c. general and administrative costs d. marketing expenses
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Projected financial statements are also known as a. adjusted financial statements. b. pro forma financial statements. c. "predicting the unpredictable." d. cost of goods to be sold. The owners of small firms have a tendency to ____ the amount of capital their business requires. a. downplay b. ignore c. overestimate d. underestimate When entrepreneurs "bootstrap" their financing, this means that they are a. enhancing the "corporate image" of their enterprise by the way they raise capital. b. depending on their own initiative to come up with the capital necessary to start up and grow. c. subordinating future capital formation to short-term financial performance. d. waiting to establish a reputation in the marketplace before raising the bulk of their capital.
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Drawbacks of selling stock as a source of funds include a. enhanced corporate image. b. loss of voting control of the company. c. future financing. d. estate planning. Though not as common as using personal savings, one of the more often used sources of financing is a. asset-based lenders. b. personal charge card accounts. c. wealthy individuals. d. venture capitalists.
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Matt Townsend owns a car dealership that is very profitable. Since he plans to retire in 5-10 years, Townsend has decided to retain ownership for now, but without continuing to grow the business. This change would also allow him to invest for retirement some of the cash that the business is now generating. Which of the following harvesting methods does this illustrate? a. A delayed sellout b. A strategy to release the firm's free cash flows to the owners c. Offering stock to the public through an IPO d. Issuing a private placement of stock
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Which of the following best characterizes business valuation? a. Valuation is almost a perfect science. b. Since there are so many intangibles, valuation is mostly an art. c. The buyer determines the value of a business. d. Negotiation skills play an important part in valuation.
Short Answer (5 points)
List and briefly explain the four basic harvest strategies for the small business.
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Essay (3 situations each worth 15 points) Situation #1
Mary Wilson is a 31-year-old wife and mother who wants to start her own company. She has no previous business experience but has an idea for marketing an animal grooming service, with an approach similar to that used for pizza delivery. When a customer calls, she will arrive in a van in less than 30 minutes and will provide the grooming service. Many of her friends think the idea has promise but dismiss her efforts to seriously discuss the venture. However, Wilson is not discouraged; she plans to purchase the van and the necessary grooming equipment. Question 1 Question 2 Question 3 What target market or markets can you identify for Wilson? How could she forecast sales for her service in each market? What advantage does her business have over existing grooming businesses? What business name and promotional strategy would you suggest that Wilson use?
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Situation #2
Ted Green and Mark Stroder became close friends as 16- year-olds when both worked part-time for Green’s dad in his automotive parts store. After high school, Green went to college, while Stroder joined the National Guard Reserve and devoted his weekends to auto racing. Green continued his association with the automotive parts store by buying and managing two of his father’s stores. In 1995, Green conceived the idea of starting a new business that would rebuild automobile starters, and he asked Stroder to be his partner in the venture. Originally, Stroder was somewhat concerned about working with Green because their personalities are so different. Green has been described as outgoing and enthusiastic, while Stroder is reserved and skeptical. However, Stroder is now out of work, and so he has agreed to the offer. They will set up a small shop behind one of Green’s automotive parts stores. Stroder will do all the work; Green will supply the cash. The “partners” have agreed to name the business STARTOVER, and now they need to decide on a legal form of organization. Question 1 Question 2 Question 3 Question 4 How relevant are the individual personalities to the success of this entrepreneurial team? Do you think Green and Stroder have a chance to survive their “partnership”? Why or why not? Do you consider it an advantage or a disadvantage that the members of this team are the same age? Which legal form of organization would you propose for STARTOVER? Why? If Stroder and Green decided to incorporate, would STARTOVER qualify as an S corporation? If so, would you recommend this option? Why or why not?
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Situation #3
Entrepreneur Karen Moore wants to start a catering and decorating business to bring in money to help support her two young children. Moore is a single parent; she works in the banking industry but has always had the desire to start a business. She enjoys decorating for friends’ parties and is frequently told, “You should do this professionally. You have such good taste, and you are so nice to people.” Moore has decided to take this advice but is unsure whether she should locate in a commercial site or in her home, which is in rural central Texas. She is leaning toward locating at home because she wants more time with her children. However, she is concerned that the home-based location is too far away from the city, where most of her potential customers live. Initially, her services would include planning for wedding receptions and other special events, designing flower arrangements, decorating the sites, and even cooking and serving meals. Question 1 Question 2 Question 3 What do you see as potential problems with locating Moore’s new business at home? What do you see as the major benefits for Moore of a home-based business? How could Moore use technology to help her operate a home-based business?
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