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Chapter 05

Multiple Choice Questions

26. _____ is the process of creating and managing a business to achieve desired objectives.

A. Entrepreneurship

B. Bootstrapping

C. Intrapreneuship

D. Innovation

E. Brainstorming

.

27. A _____ is best described as any independently owned and operated business that is not

dominant in its competitive area and does not employ more than 500 people.

A. publicly owned business

B. limited liability company

C. small business

D. publicly traded company

E. for-profit corporation

28. A small business is any independently owned business that employs not more than _____ people.

A. 100

B. 500

C. 300

D. 200

E. 20

29. Vernon runs Buzz, his own event management company, which frequently organizes large

corporate events. Vernon has established a good reputation for organizing corporate events with a

fair degree of professionalism at reasonable costs. Vernon works out of his old house with a staff

of about 55 employees. Vernon's company is most likely to be categorized as a(n):

A. multinational corporation.

B. limited liability company.

C. franchise.

D. public sector holding.

E. small business.

30. The Small Business Administration (SBA) is a(n):

A. body established by the U.S. Chamber of Commerce to encourage the intrapreneurial spirit in

small businesses.

B. independent agency of the federal government that offers managerial and financial assistance

to small businesses.

C. independent agency created under the GATT to protect small businesses against competition

from larger companies.

D. division of the federal government that is responsible for ensuring that newly formed

businesses adhere to the law.

E. U.S. Congressional agency that regulates the issue of stocks by small businesses.

31. Which of the following is an advantage for small businesses that choose to enter the retailing

industry?

A. Retailing is relatively difficult field to gain entry.

B. Retailing requires a large capital investment in the initial stages.

C. Retailing allows small business to focus on specific groups of consumers.

D. Retailing requires sophisticated machinery and technical expertise.

E. Retailing suffers from heavy competition and losses only in the initial stages.

32. Which of the following reasons makes retailing an attractive industry for small businesses?

A. Retailing eliminates the need for any entrepreneurial skills.

B. Retailing offers high barriers to entry.

C. Retailing eliminates the need to engage in active interactions with the final customers.

D. Retailing requires low initial financing.

E. Retailing limits a firm's need to focus on specific groups of consumers.

33. Which of the following best illustrates a small business operating in a retail industry as opposed to

wholesaling its products?

A. Janet bakes cakes and sells them to other restaurants and cafes in malls.

B. BC Inc. manufactures stationery and sells it in bulk to book shops and supermarkets.

C. Pink Cult, an apparel company, sells its merchandise through OMG!.com.

D. Neon Love Inc. imports candles and directly sells them to customers through kiosks.

E. Auto Line Inc. manufactures component parts of cars and sells them to automobile companies.

34. Many service providers are considered retailers because they:

A. require a high initial start-up cost.

B. provide their services directly to ultimate consumers.

C. sell their services from a single store location.

D. focus on large market segments and institutional buyers.

E. employ only a small number of people.

35. Which of the following traits will help entrepreneurs succeed?

A. Risk aversion

B. Intolerance

C. Frugality

D. Impulsivity

E. Neuroticism

36. One of the major reasons people want to own and operate their own business is to:

A. avoid the risk of competition.

B. be their own boss.

C. avoid multi-tasking.

D. reduce stress levels.

E. avoid direct responsibility of the operations.

37. Which of the following is an advantage of a small business?

A. Greater adaptability to changing market demands

B. Highly trained and competent staff

C. Low levels of stress in managing the business

D. Diverse and large workforce

E. High success rates

38. Red Carpet Inc. is a small apparel store started by an aspiring designer. The store needs to

compete against larger, well-established multinational brands. Which of the following strategies

will most help Red Carpet Inc. avoid competition from larger firms?

A. Red Carpet Inc. should have multiple levels of management like the larger firms.

B. Red Carpet Inc. should target large market segments that the competitors serve.

C. Red Carpet Inc. should expand the scale of production to enjoy greater economies of scale.

D. Red Carpet Inc. should start to work with customers only when the products are ready for sale.

E. Red Carpet Inc. should focus on and target small market niches or product needs.

39. Small businesses usually have only one layer of management. Which of the following is an

implication of this?

A. Small businesses face a low risk of failure.

B. Small businesses have great flexibility to adapt to changing market conditions.

C. The decision-making process is lengthy in small businesses.

D. Small businesses have better access to managerial experience and skills than larger firms.

E. Small business owners have a limited amount of direct authority.

40. Which of the following is a disadvantage of small-business ownership?

A. High cost of formation

B. Bureaucratic decision-making process

C. Ability to focus upon specific groups of customers

D. Worries about employee problems or competition

E. Limited scope for innovation

41. Which of the following is a reason behind the failure of small businesses?

A. Overcapitalization

B. Reputation

C. Managerial experience

D. Poor business concept

E. High costs of start-up

42. Carol has recently opened a restaurant in her neighborhood. Which of the following is NOT likely

to be a source of stress?

A. Competition

B. Reputation

C. Rent increases

D. Employee issues

E. Changing market demand

43. _____ is best described as the lack of funds to operate a business normally.

A. Debt financing

B. Trade credit

C. Franchising

D. Trade deficit

E. Undercapitalization

44. Gerald started a business using the savings from his previous job. He planned to run his business

on the revenue generated from sales. However, a few months later, Gerald found it difficult to pay

his staff, rent, and other expenses. Seasonal sales and inability to secure sufficient credit from

local banks made it difficult for Gerald to operate the business normally. Which of the following

causes of small business failure does this scenario best illustrate?

A. Undercapitalization

B. Trade credit

C. Economies of scale

D. Debt financing

E. Debt factoring

45. Which of the following is the shortest path to business failure?

A. Overcapitalization

B. Undercapitalization

C. Rent increases

D. Competition

E. Changing market demand

46. The principal immediate threats to small and mid-sized businesses include:

A. rapidly advancing technology.

B. rising entrepreneurial spirit.

C. reducing imports.

D. escalating costs.

E. increasing exports.

47. A business plan should do all of the following EXCEPT:

A. provide the rationale for the business.

B. include estimates of income and expenses.

C. establish a strategy for acquiring sufficient funds.

D. include an analysis of the competition.

E. limit the business's flexibility and decision-making ability.

48. Arnold approached a bank to get a loan for a business he planned to launch later in that year. He

explained his business idea and its capital requirements to the bank manager. The manager

listened to the plan and asked Arnold to provide a formal document that included a rationale for

the business, an explanation of how it will achieve its goals, an analysis of the competition, and

estimates of income and expenses among other information. Which of the following documents

does the bank expect from Arnold in this scenario?

A. A business plan

B. A cash flow statement

C. A promissory note

D. A balance sheet

E. A marketing plan

49. In the process of starting a business, the step that immediately succeeds the development of a

business plan involves:

A. organizing resources like labor and supplies.

B. developing some general business ideas.

C. deciding an appropriate legal form of business ownership.

D. promoting the business to the customers.

E. filing for tax returns for the business with the Internal Revenue Service.

50. To make profits from a small business, the owner must first provide or obtain _____ to start the

business and keep it running smoothly.

A. products

B. employees

C. profits

D. supplies

E. capital

51. Which of the following is NOT a source of equity financing?

A. Reinvesting profits into the business

B. Selling personal assets to raise funds

C. Bringing in useful personal assets such as a computer into the business

D. Securing long-term loans from a family member

E. Selling stock in the business to family members or friends

52. Walter sold a piece of land he inherited from his grandparents and started a business with the

proceeds. Which of the following sources has Walter used to raise funds for his business?

A. Equity financing

B. Debt financing

C. Venture capital

D. Initial public offering

E. Angel Investment

53. Janice works in a factory that manufactures decorative accessories for office spaces, hotels, and

designer homes. She wants to start her own business because she believes that the market for

decorative products has a great growth potential. However, she does not want to depend on

anyone else for the procuring the initial capital and would like to raise the amount herself. In this

scenario, which of the following methods would Janice adopt to raise funds through equity

financing?

A. Janice would secure a mortgage from a family member or friend.

B. Janice would secure a loan from the Small Business Administration (SBA).

C. Janice would ask for a line of credit from her previous bank.

D. Janice would invest her savings in the new business.

E. Janice would ask suppliers for a longer trade credit.

54. Jacob and Harry are business partners in a company that manufactures portable solar panels.

They initially started the business with their savings. However, now the company plans to expand

its operations and the required amount of capital cannot be raised through savings or by

reinvesting profits. Thus, the partners have decided to sell stock in their business to family

members, friends, and employees. Which of the following sources of capital have Jacob and Harry

planned to use for the expansion of their business?

A. Debt financing

B. Bootstrapping

C. Equity financing

D. Mortgaging

E. Factoring

55. Persons or organizations that agree to provide some funds for a new business in exchange for

ownership interest or stock are called ____.

A. intrapreneurs

B. category captains

C. venture capitalists

D. trade debtors

E. franchisers

56. Securing a mortgage from a bank for a new business venture is an example of:

A. equity financing.

B. venture capitalism.

C. debt financing.

D. trade credits.

E. collaterals.

57. When an entrepreneur takes out a loan from a bank, the bank will require him to put up _____,

which is a financial interest in the property or fixtures of the business, to guarantee payment of the

loan.

A. collateral

B. venture capital

C. trade credit

D. business plan

E. cash flow statement

58. Lara, a single mother, borrowed some capital for her business from Women Progress Council

(WPC) at an extremely low rate of interest. Which of the following forms of funding a new small

business does this scenario best illustrate?

A. Trade credit

B. Equity financing

C. Venture capital

D. Debt financing

E. Crowdsourcing

59. Andrew, a pharmacist, realized that he should stock extra supplies of a particular medicine to

respond to an outbreak of a particular infection in the city. Lacking sufficient capital to purchase

the extra inventory, he turned to his bank and asked to borrow a predetermined sum of money.

Which of the following sources of funding does this scenario best illustrate?

A. Trade credit

B. Initial public offering

C. Venture capital

D. Equity financing

E. Line of credit

60. A license to sell another's products or to use another's name in business, or both, is called a ____.

A. franchise

B. cartel

C. collateral

D. mortgage

E. collusion

61. Since Eva Carl has decided to use her savings to purchase the rights to own and operate a

McDonald's fast-food restaurant rather than starting her own restaurant, she is probably a(n)

____.

A. trade creditor

B. franchisee

C. franchiser

D. intrapreneur

E. venture capitalist

62. Nathan started the first outlet of Dynamix Gym in New York City in 1995. The business expanded

over time, and Nathan became the owner of a chain of gyms in New York State. Though the

business had potential to expand outside New York, Nathan did not want to take the risk or

responsibility. Hence, he decided to sell the license to own and operate gyms in the name of

Dynamix Gym to independent owners. In return, he charged them an initial fee and a small share

in the monthly profits. In this scenario, Nathan is a(n) ____.

A. franchisee

B. intrapreneur

C. angel investor

D. franchiser

E. venture capitalist

63. Which of the following statements accurately brings out the difference between franchising and

building an independent business from scratch?

A. The time required to set up an independent business is much lower than obtaining a franchise.

B. A franchise outlet often reaches the break-even point faster than an independent business

would.

C. A franchisee would experience more flexibility in decision making than the owner of an

independent business.

D. The quality of goods and services needs to be more standardized and uniform in independent

business than in franchises.

E. Access to managerial and financial assistance is more limited in franchises than in

independent businesses.

64. Which of the following is an advantage that purchasers of a popular franchise experience?

A. They get access to the already established brand name or brand equity.

B. They have great flexibility to make decisions for their individual franchise outlets.

C. They can enjoy their total profits without having to share anything with the franchisers.

D. They can easily add or delete a good or service from the existing product line.

E. They are free to vary their operational processes based on their needs and constraints.

65. One of the main drawbacks of franchising is that it requires the franchisee to:

A. invest a lot of time and effort in setting up the business.

B. take sole responsibility for all decisions in the business.

C. share the profits of the business with the franchiser.

D. build the brand appeal for the franchise outlet on his or her own.

E. invest considerable capital in national and local advertising programs.

66. Paul has recently quit his job as an investment banker. He plans to open a restaurant. He has two

options: he can either start his own new restaurant from scratch or purchase a franchise from an

already established restaurant or fast food chain. His wife, Lisa, supports the former plan. Which

of the following statements strengthens the argument in favor of Lisa's choice of opening a

restaurant independently?

A. It is easier and faster to build a business from scratch.

B. It is easier to reach the break-even point through an independent business.

C. It is more difficult to attract customers in a franchise business as the entrepreneur has to

personally build the brand appeal.

D. It is easier and more flexible to make and execute decisions in an independent business.

E. It is easier to succeed in a business built from scratch as the products and the business format

are already proven.

67. Millennials number around 75 million and represent a huge business opportunity in the United

States. Which of the following is a defining feature of the millennials?

A. Baby boomers above the age 50

B. First generation immigrants

C. People born at the turn of the millennium between 1999 and 2001

D. People from immigrant communities who migrated to U.S. between 1946 and 1964

E. People born between 1977 and 1994

68. Sally is a human resource manager at a company. A survey of the company's employees revealed

that more than 80 percent of the employees belonged to the demographic segment Generation Y.

In this scenario, which of the following HR strategies should Sally implement in order to best serve

the needs of the employees?

A. Sally should solely use financial rewards to motivate the employees to improve their

productivity.

B. Sally should keep the training sessions highly formal with no scope for entertainment.

C. Sally should restrict the employees from using work from home or telecommuting options.

D. Sally should avoid giving regular, direct feedback to the employees.

E. Sally should use recognition and advancement as the driving forces to motivate employees.

69. Which of the following demographic segments should small retailers specializing in ethnic

products and small service providers target?

A. Immigrants

B. Echo boomers

C. Baby boomers

D. Generation X

E. Drivers

70. Which of the following demographic trends has made health care and financial planning industries

attractive for small businesses in the United States?

A. Decreasing population of millennials

B. Increasing income among generation X

C. Aging baby boomers who are wealthy

D. Reducing entrepreneurial spirit among young generations

E. Increasing imports into the economy

71. Which of the following is an implication of technological advances to small businesses?

A. It fails to make any significant changes as small businesses cannot afford to use sophisticated

technology in their operations.

B. It reduces a small business's ability to adapt to changing trends and market demands.

C. It increases the ratio of baby boomers as employees in small businesses.

D. It provides new opportunities for small businesses to expand their operations abroad.

E. It reduces a small company's ability to customize their services and products.

72. Norton is a human resource manager at a large multinational company. After a drastic drop in

revenue, his company is thinking of ways to correct the situation. At a meeting with the top

management, the CEO suggested that 20 percent of the employees should be eliminated. This

move would help the company cut costs and continue functioning on the current projects. In this

scenario, which of the following strategies is this MNC planning to use?

A. Debt financing

B. Intrapreneruship

C. Crowdsourcing

D. Franchising

E. Downsizing

73. Downsizing is an effective way to:

A. gain the advantages of small businesses.

B. increase organizational tasks.

C. reduce entrepreneurial spirit among employees.

D. increase the management layers.

E. gain employee trust.

74. Which of the following statements accurately describes intrapreneurs?

A. Employees who become a part of a company's board of directors through internal promotions

are referred to as intrapreneurs.

B. Entrepreneurs who sell the rights to use their products to independent owners are

intrapreneurs.

C. Entrepreneurs who are involved in international business are referred to as intrapreneurs.

D. Independent investors who help a company raise capital through internal financing are

intrapreneurs.

E. Individuals in large firms who take responsibility for the development of innovations within the

organizations are intrapreneurs.

75. Which of the following is an ineffective practice in making big businesses act small?

A. Encouraging a spirit of entrepreneurship within the organization

B. Increasing the layers of management within the organization

C. Downsizing to reduce work tasks

D. Keeping the growth vision long term

E. Focusing on current customers rather than looking for new customers

76. George is an employee at a company that provides information technology solutions to other

firms. He has been developing a new smart phone application from the resources of the company.

In this scenario, George best illustrates a(n) ____.

A. franchiser

B. venture capitalist

C. intrapreneur

D. entrepreneur

E. trade creditor

Chapter 8

Multiple Choice Questions

26. If an employee is involved with transforming resources into goods and services, then he is in:

A. marketing.

B. financing.

C. human resources.

D. operations management.

E. budgeting.

27. Irene is an employee associated with producing goods, services, and ideas that satisfy the needs

of customers. Thus, she works most closely with:

A. financing.

B. budgeting.

C. production.

D. human resources.

E. operations.

28. Operations management has the primary responsibility for:

A. employing computer-assisted manufacturing (CAM) exclusively for all transformations.

B. transforming goods and services into resources.

C. creating products that satisfy customers.

D. developing only such products which are intangible.

E. converting outputs into inputs.

29. Which of the following is true of the transformation process?

A. It is the development and administration of activities that transform resources into goods,

services, and ideas.

B. It is the conversion of human, financial, and physical resources into goods, services, and

ideas.

C. It involves the assigning of labor, energy, and money for the advertisement of services.

D. It is associated with the promotion and pricing of goods and services.

E. It deals with the distribution and logistics of products.

30. Viewed from the perspective of operations, the money used to purchase a carpenter's tools and

the electricity used to run his power saw are:

A. processes.

B. outputs.

C. stocks.

D. inputs.

E. maintenance costs.

31. Viewed from the perspective of operations, the furniture items produced by a carpenter are:

A. variations.

B. inputs.

C. equipment.

D. outputs.

E. processes.

32. From the perspective of operations, food sold at a restaurant and services provided by a plumbing

company are:

A. processes.

B. inputs.

C. outputs.

D. stocks.

E. costs.

33. How do operations managers ensure quality and efficiency during the transformation process?

A. They ensure that their products never use the modular design of transforming because this

process increases the cost of labor.

B. They always employ computer-assisted manufacturing (CAM) technologies to guide and

control the transformation processes.

C. They shift from material-requirements planning (MRP) to just-in-time (JIT) inventory

management.

D. They keep the work cycling between two different batches of labor in order to track any

loopholes.

E. They take feedback at various points in the transformation process and compare them to

established standards.

34. Money, employees, time, and equipment are examples of an airline's _____ to the transformation

process.

A. outputs

B. intangibles

C. products

D. services

E. inputs

35. Which of the following is true of the transformation process?

A. It does not occur in service companies.

B. It occurs in all organizations, regardless of what they produce or their objectives.

C. It occurs only in manufacturing companies because they use tangible inputs.

D. It excludes fund-raising and promoting a cause.

E. It is not a part of government agencies because they do not use machineries for mass

production.

36. Which of the following is NOT a point of difference between service providers and manufacturers?

A. Services are more labor-intensive.

B. Manufacturing has more uniform outputs.

C. Services do not undergo a transformation process.

D. Manufacturing productivity can be measured straightforwardly.

E. Service providers have less control over the variability of their inputs.

37. For most organizations, the ultimate objective is for produced outputs to be:

A. easy to develop.

B. tangible, hard goods.

C. inexpensive.

D. worth more than the cost of inputs.

E. equal to the costs of input.

38. The nature of the service provider's product requires:

A. fewer employee inputs.

B. a higher degree of customer contact.

C. delayed consumption.

D. more expensive inputs.

E. more standardization.

39. Actual performance of the service provider's product typically occurs:

A. several days after purchase.

B. outside the service provider's facility.

C. at the point of consumption.

D. in the buyer's home.

E. before the point of consumption.

40. To receive a haircut, you generally have to go to a salon. This information reflects the _____.

A. uniformity of inputs

B. uniformity of outputs

C. labor required

D. measurement of productivity

E. nature and consumption of output

41. The products of service providers tend to be more customized than those of manufacturers

because:

A. different customers have different needs.

B. the requirements of all customers are more or less the same.

C. technological innovations have reduced variability.

D. there is more capital required in service provision.

E. the specific needs of individual customers get incorporated.

42. The fact that a hairdresser gives each customer a different haircut relates to the difference

between service providers and manufacturers in terms of:

A. consumption of output.

B. uniformity of inputs.

C. labor required.

D. measurement of productivity.

E. uniformity of output.

43. When compared to service providers, the products of manufacturers are typically:

A. more labor-intensive.

B. less uniform.

C. more difficult to store.

D. more standardized.

E. cheaper.

44. Compared to service providers, manufacturers generally:

A. are more labor-intensive.

B. are more capital-intensive.

C. customize their outputs.

D. have difficulty measuring productivity.

E. produce intangible outputs.

45. Zedpro Computer Company is determining demand for its future products and how much

consumers are willing to pay. For this, Zedpro should rely on:

A. the economy.

B. marketing research.

C. its competitor's moves.

D. successful past experiences.

E. intuition.

46. As a manufacturing process, the term standardization means:

A. ensuring that each product is sold at the same price.

B. that similar products, manufactured by different companies, all operate in the same manner.

C. making identical, interchangeable components or complete products.

D. making the exact product a particular customer needs or wants.

E. making an item in self-contained units that can be interchanged to create different products.

47. A primary reason for using standardization is to:

A. reduce production costs.

B. increase consumer options.

C. reduce product quality.

D. increase variations.

E. foster creativity.

48. Building a computer so that the components can be installed in different configurations to meet

customers' needs is a result of:

A. flexible manufacturing.

B. modular design.

C. customization.

D. specialization.

E. varied engineering.

49. Facility location decisions are complex because:

A. all customers want plants nearby.

B. transportation costs are excessively high.

C. speed of delivery is not very important.

D. proximity to market or community characteristics are not important factors.

E. the firm must live with it once the decision has been made and implemented.

50. A company that manufactures large products, such as houses or bridges, may require that all

resources be brought to a central location during production. This type of facility layout is called:

A. fixed-position layout.

B. product layout.

C. line layout.

D. central control layout.

E. assembly line layout.

51. A company performing large, complex tasks such as construction or exploration is called a(n):

A. continuous manufacturing organization.

B. intermittent organization.

C. project organization.

D. exploration company.

E. survey company.

52. A metal fabrication plant with a cutting department, a drilling department, and a polishing

department would likely use _____ layout.

A. fixed-position

B. horizontal-position

C. process

D. geographical

E. customer-based

53. A hospital having an X-ray unit, an obstetrics unit, few emergency rooms, and other units would

best be classified as a(n):

A. intermittent organization.

B. project organization.

C. continuous manufacturing organization.

D. fixed organization.

E. assembly line organizations.

54. An organization that creates many products with similar characteristics, such as automobiles,

television sets, or vacuum cleaners, would most likely be categorized as a(n):

A. continuous manufacturing organization.

B. intermittent organization.

C. project organization.

D. process layout organization.

E. fixed-position organization.

55. Which of the following statements is true?

A. Organizations can start greening their supply chains by increasing resource consumption and

waste.

B. The adoption of 100 percent wind-powered electricity increases carbon emissions.

C. Aluminum cans can be recycled an infinite number of times.

D. It is mandatory for organizations to incorporate sustainability into their business models.

E. Balancing profitability and socially responsibility is impossible for corporate organizations.

56. Which of the following activities is NOT included in supply chain management?

A. Getting products to customers

B. …