MIE 201 Chapter 4-5

Jessica teaches business studies in a reputed college. As part of the curriculum, she needs to demonstrate to her students the steps involved in starting a business. She plans to introduce the steps in a sequential order, and it includes asking her students to present their views and provide examples with each step. As the first step of the learning activity, which of the following should Jessica ask the students to do? Come up with some kind of general idea for creating a new business. Devise a strategy to guide planning and development in a business. Decide the form of ownership each student would select for his or her new business. Assess the financial resources needed to start a new business. Decide whether to acquire an existing business, start a new one, or buy a franchise.

Come up with some kind of general idea for creating a new business.

_____ are a form of business organization that are expected to operate without profit or to create only enough profit to maintain an organization. Sole proprietorships Joint ventures Corporations Cooperatives General partnerships

Cooperatives

As a legal entity, a ________ has many of the rights, duties, and powers of a person, such as the right to receive, own, and transfer property. _______ can enter into contracts with individuals or with other legal entities, and they can sue and be sued in court.

Corporations

Nathan leased a small building in his neighborhood and converted it into a hotel. He had assumed that he could run a successful business if he had enough money to get started. However, his business faces seasonal variations in sales. He now finds it difficult to meet the day-to-day expenses of the business. Which of the following problems is Nathan's business facing? Competition Lack of startup capital Bureaucracy Inability to cope with growth Undercapitalization

Undercapitalization

Which of the following is a disadvantage of general partnerships? Unlimited liability Lack of combined skills Intense regulatory controls Double taxation Difficulty in organization

Unlimited liability

A _____ is owned and operated by the federal, state, or local government and focuses on providing a service to citizens rather than earning profits. private corporation quasi-public corporation sole proprietorship publicly-traded company C corporation

quasi-public corporation

In a limited partnership, the ______ partners receive a larger share of the profits after the _____ partners have received their initial investment back.

general, limited

In a __________, each partner has unlimited liability for the debts of the business.

general partnership

Mark wanted to start a business along with his friend. He prepared a document, which contained an explanation of the business, an analysis of the competition, and a projection of the business's income and expenses. When he presented this document to a panel of venture capitalists, they were impressed and agreed to fund his project. Which of the following documents did Mark prepare? A fund flow statement A promissory bill A conduct certificate A business plan A journal ledger

A business plan

Which of the following is the difference between a foreign corporation and an alien corporation? A foreign corporation does business outside the state in which it is chartered, whereas an alien corporation does business outside the nation in which it is incorporated. A foreign corporation does business outside the nation in which it is incorporated, whereas an alien corporation does business outside the state in which it is chartered. A foreign corporation does business outside the nation in which it is incorporated, whereas an alien corporation does business in the state where it is chartered. A foreign corporation does business in the state where it is chartered, whereas an alien corporation does business outside the nation in which it is incorporated. All foreign corporations are privately owned, whereas all alien corporations are publicly owned.

A foreign corporation does business outside the state in which it is chartered, whereas an alien corporation does business outside the nation in which it is incorporated.

Which form of business ownership involves a complete sharing in the management of a business, where all the owners have unlimited liability for the debts of the business? An S corporation A public corporation A limited partnership A sole proprietorship A general partnership

A general partnership

Which of the following strategies used by businesses to grow reduces the number of corporations competing in an industry and needs to be reviewed carefully by federal regulators? A vertical integration An equity carve-out A conglomerate diversification A divestment A horizontal merger

A horizontal merger

Which of the following forms of business is owned by just one or a few people who are closely involved in managing the business? A quasi-public corporation A cooperative An S corporation A private corporation A publicly-traded company

A private corporation

Which of the following techniques does a firm use to fend off a hostile takeover attempt if the firm's management requires a large majority of stockholders to approve the takeover? A poison pill A shark repellant A white knight A class action A leveraged buyout

A shark repellant

Which of the following statements accurately defines a small business? A small business is one that is owned by the federal government for the promotion of social welfare and not profits. A small business is a subsidiary of a large firm in a less-developed country or market. A small business is any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people. A small business is any firm that is owned by at least 5000 shareholders who have partial ownership of the business. A small business is one that operates to support a larger firm and not to directly meet the needs of ultimate consumers.

A small business is any independently owned and operated business that is not dominant in its competitive area and does not employ more than 500 people.

Karan is a software engineer who starts his own IT consulting firm. His friend, Catalina, is the owner of a store that sells office supplies. Karan designs a new inventory management software for Catalina's store in exchange for the necessary office supplies and equipment. Which of the following sources of business funding does this scenario best illustrate? Mortgaging Bartering Factoring Liquidating Equity financing

Bartering

Which of the following fields is best classified as a high-technology business? Tourism Genetic engineering Dairy farming Carpet weaving Printing and publishing

Genetic engineering

Which of the following is an advantage of corporations as a form of business ownership? Highest degree of secrecy Unlimited liability Lack of employee-owner separation Ease of transfer of ownership Double taxation

Ease of transfer of ownership

Which of the following is an implication of employee-owner separation in a corporation? Employees are not answerable to the owners of a business. Employees are not remunerated by the owners of a business. Employees are not stockholders of the company for which they work. Employees are exempted from paying taxes for working in a corporation. Employees cannot make decisions on behalf of the owners of a business.

Employees are not stockholders of the company for which they work.

Rachel started a chain of salons using the money accumulated in her life insurance policy. Which of the following sources of capital has Rachel used to start her business? Debt financing Equity financing Venture capital Crowdsourcing Initial public offering

Equity financing

Identify an advantage of sole proprietorships. Unlimited sources of funds Perpetual life of business Flexibility and control of the business Limited liability Diverse skills and knowledge

Flexibility and control of the business

Which of the following statements is true about high-technology businesses? Unlike retailing, high technology as an industry is not suitable for small businesses and entrepreneurs. Small businesses do not provide any employment opportunities to high-tech workers. High-technology businesses have low initial startup costs. High-technology businesses require greater capital than other small businesses. Small-business owners in the high-technology industry find it impossible to focus on specific groups of consumers.

High-technology businesses require greater capital than other small businesses.

Which of the following is a source of equity financing? Government loans Investors who are ready to buy stock in a business A line of credit from a bank A mortgage from a bank by providing some personal property as collateral Trade credit from suppliers

Investors who are ready to buy stock in a business

Which of the following is an outcome of small businesses focusing on narrow market niches or product needs? It helps firms develop enviable reputations for quality and service. It results in greater competition from larger firms. It reduces the uniqueness of a product or service sold by small businesses. It reduces the need for managerial experience and skills. It reduces their ability to adapt to changing market demands.

It helps firms develop enviable reputations for quality and service.

_____ are especially popular in situations that call for large investments and can even take place between businesses and governments. Sole proprietorships Cooperatives General partnerships Joint ventures Private corporations

Joint ventures

Karen quit her job as a marketing executive in a multinational company to start her own small business. She now runs a catering business with less than 25 employees. Which of the following statements is true of Karen's experience as the owner of a new small business? Karen experiences lower stress levels compared to her previous job as she need not worry about changing market demands, competition, and so forth. Karen has lesser autonomy and authority in the business compared to her previous job. Karen does not have much use for her decision-making skills, which she was required to exhibit quite often in her previous job. Karen has to multitask to manage the new business, which involves playing the role of an owner, manager, sales force, clerk, and bookkeeper. Karen need not worry about her income and expenses as the failure rate for small businesses is extremely low.

Karen has to multitask to manage the new business, which involves playing the role of an owner, manager, sales force, clerk, and bookkeeper.

Which of the following is one of the shortcomings experienced by franchisees in a franchise arrangement? Lack of management training and assistance Decentralized buying power Low chances for success Less freedom in business decisions Lack of financial assistance

Less freedom in business decisions

Which of the following is a source of debt financing? Reinvesting a small portion of profits back into a business Using personal assets like savings in a bank to start a business Obtaining a mortgage by providing some personal property as collateral Selling stocks of a company to friends and relatives Selling ownership interest or stock to people interested in funding a business idea

Obtaining a mortgage by providing some personal property as collateral

_____ are quasi-taxable organizations. This means that partnerships do not pay taxes when submitting the partnership tax return to the Internal Revenue Service.

Partnerships

Which of the following is one of the commonly reported advantages of franchising? Flexibility in decision making No restrictions on purchasing Proven products and business formats No standardized procedures of operations Decentralized buying power

Proven products and business formats

A(n) _____ is a form of business ownership that can have up to 100 shareholders, has limited liability, and is taxed as a partnership. S corporation limited liability company sole proprietorship C corporation amalgamated company

S corporation

Disadvantages of an ________ include restrictions on the number (75) and types (individuals, estates, and certain trusts) of shareholders and the difficulty of formation and operation.

S corporation

Public corporations must file reports related to stocks and bonds with the: Financial Accounting Standards Board. Federal Trade Commission. National Advisory Committee on Accounting Standards. Securities and Exchange Commission. Warren Commission.

Securities and Exchange Commission.

Which of the following statements accurately describes the difference between small businesses and larger firms? Small businesses require more money to start and maintain than do large ones. Unlike owners of large firms, small-business owners do not have to multitask. Decisions can be made and executed more quickly in larger firms than in small firms. Unlike small businesses, larger firms are not equipped to focus on mass markets or wide market segments. Small businesses can develop and introduce a new product in a much shorter time than do large ones.

Small businesses can develop and introduce a new product in a much shorter time than do large ones.

A _______ has complete control over the business and can make decisions on the spot without anyone else's approval. Other advantages of sole proprietorships are ease and cost of formation, secrecy, distribution and use of profits, government regulation, and taxation.

Sole proprietor

Richard runs a small convenience store in his neighborhood. He hires two part-time workers to help him with the day-to-day operations of the business. However, Richard alone is responsible for all the debts and liabilities of the business. Thus, Richard's business is an example of a(n) _____. cooperative sole proprietorship franchise S corporation joint venture

Sole proprietorship

_____ have the most freedom from government regulation. Limited liability companies C corporations S corporations Cooperatives Sole proprietorships

Sole proprietorships

Which of the following is best categorized as a small business? Evosa Corp. is a publicly traded company that has business operations in three countries. Story Bake is a home-based business that employs a total number of 17 people. LDC Inc. is a leading company in the consumer electronics industry with 250 employees in each of its subsidiary. State Bank of Margona is a company that is owned and run by the government of Margona Republic, and it employs at least 1500 workers. MF Cooperative is an organization formed and managed by traders of agro products.

Story Bake is a home-based business that employs a total number of 17 people.

Angela, a recent university graduate, wants to start a fashion boutique that will sell tailor-made garments and accessories. She plans to open stores in three different malls and employ about 30 people in total. Which of the following agencies should Angela approach for financial and managerial assistance? The Securities and Exchange Commission The Bureau of International Labor Affairs The Consumer Product Safety Commission The World Trade Organization The Small Business Administration

The Small Business Administration

Which of the following statements most accurately describes undercapitalization? The lack of funds to operate a business normally The process of selling a business at a price higher than its market value The lack of employee empowerment in a firm due to centralization The process of selling a firm's stocks at a price higher than its market value The loss of ownership and control arising from the sale of shares in a firm

The lack of funds to operate a business normally

Identify a true statement about common stockholders. They are the voting owners of a corporation. They constitute the board of directors of a corporation. They have a claim to profits before preferred stockholders do. They have unlimited liability for the debts of a corporation. They are prohibited from interfering in the operations of a corporation.

They are the voting owners of a corporation.

Gina and Celine want to start a business together in the women's apparel and accessories industry. While Gina thinks that they should hire designers and establish their own clothing brand from scratch, Celine believes that it will be easier to start the business by obtaining the franchise rights from an already established designer brand called Nava. Which of the following arguments made by Celine will be valid in convincing Gina to accept the idea of starting a business by obtaining the franchise rights of Nava? They will have greater freedom to make business-related decisions if they obtain the franchise. They will have greater flexibility to add or delete a product from the existing line if they obtain the franchise. They can effectively leverage the national and local advertising programs sponsored by the franchiser. They can earn good revenues without having to pay any fee or share profits with the franchiser. They can commercialize their creativity and ideas without facing any restrictions from the franchiser.

They can effectively leverage the national and local advertising programs sponsored by the franchiser.

How do small businesses in a country contribute to its economy? They reduce the exports of a country. They fuel job creation within a country. They reduce entrepreneurship within a country. They make a country less capitalistic. They prevent commercialization of innovations.

They fuel job creation within a country.

Which of the following is true of corporations? They are prohibited from entering into contracts with individuals. They are quasi-taxable organizations. They have the right to receive, own, and transfer property. Their assets and liabilities are not separate from that of their owners'. Their existence is affected by the death or withdrawal of any of the stockholders.

They have the right to receive, own, and transfer property.

Which of the following is an advantage of small businesses? The owners experience insignificant levels of stress. The owners do not need to multitask. They have an extremely low failure rate. They provide freedom and flexibility to their owners. They are adequately equipped to cope with growth.

They provide freedom and flexibility to their owners.

Which of the following statements is true of general partners in a limited partnership? They have limited liability for the debts of the business. They do not accept the risk of loss associated with the business. They invest money in the business but do not participate in its management. They receive a larger share of profits after the limited partners have received their initial investment back. They pay taxes when submitting the partnership tax return to the Internal Revenue Service.

They receive a larger share of profits after the limited partners have received their initial investment back.

Which of the following is a disadvantage of being small-business owners? They cannot focus on narrow niches. They will not have the opportunity to multitask. They tend to be victims of physical and psychological stress. They will lack freedom and flexibility. They tend to lack the opportunity to innovate or create job for others.

They tend to be victims of physical and psychological stress.

How are the millennials different from their previous generations? Millennials solely focus on money, while those from previous generations focus on recognition and advancement. Working remotely is more acceptable to millennials than to those belonging to previous generations. Unlike previous generations, millennials tend to avoid frequent and direct feedback. At work, millennials prefer a more formal training session than their counterparts from previous generations. Millennials as a demographic market lack the potential to attract small businesses, while previous generations have a huge market potential.

Working remotely is more acceptable to millennials than to those belonging to previous generations.

To efficiently manage its working capital, DV Pharma Inc. has a business arrangement with the suppliers of its raw materials, packaging material, and machinery. These suppliers allow DV Pharma Inc. to take possession of the required goods and services and pay for them at a later date or in installments. In this scenario, DV Pharma Inc. has obtained funding in the form of _____. equity financing initial public offering a mortgage venture capital a trade credit

a trade credit

A(n) ______ is the purchase of one company by another, usually by buying its stock. It sometimes involves the purchase of a division or some other part of a company rather than the entire company.

acquisition

Huechi Inc., a mobile phone manufacturer, purchases its direct competitor, OnePhone Inc., by buying most of its stocks. In this scenario, Huechi is involved in a(n) _____. equity swap acquisition vertical merger leveraged buyout franchise

acquisition

If a corporation does business outside the nation in which it is incorporated, it is called an ____ corporation.

alien

A _______ is an organization composed of individuals or small businesses that have banded together to reap the benefits of belonging to a larger organization.

cooperative (co-op)

A _____ is a form of business ownership that can be subjected to double taxation. sole proprietorship corporation partnership limited liability company cooperative

corporation

A ________ is a form of business ownership that is a legal entity with any number of shareholders who have limited liability.

corporation

A(n) _____ is a legal entity whose assets and liabilities are separate from that of its owners'. It can also enter into contracts with individuals or with other legal entities. proprietorship corporation limited partnership cartel general partnership

corporation

A __________ involves a complete sharing in the management of a business.

general partnership

Intrapreneurs are individuals who: work for the government to ensure that businesses implement the necessary regulatory controls. indulge in the illegal act of insider trading. fund a new business idea in return for an ownership share in the new company. develop innovations within the organization in which they are employed. implement the complete business plan of a company on a contract basis.

develop innovations within the organization in which they are employed.

If a corporation does business in the state in which it is chartered, it is known as a ____ corporation.

domestic

Maya, a certified yoga instructor, owns and manages a yoga training academy. She charges a reasonable fee to conduct classes for both working women and homemakers. Thus, Maya is regarded as a(n) _____. shareholder entrepreneur trade creditor intrapreneur inventor

entrepreneur

Retailing and wholesaling, services, manufacturing, and high technology are especially attractive to __________.

entrepreneurs

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

entrepreneurship

The difference between a horizontal merger and a vertical merger is that: companies operating at different but related levels of an industry merge in a horizontal merger, whereas firms that make and sell similar products to the same customers merge in a vertical merger. two firms in unrelated industries merge in a horizontal merger, whereas firms that make and sell similar products to the same customers merge in a vertical merger. companies operating at different but related levels of an industry merge in a horizontal merger, whereas two firms in unrelated industries merge in a vertical merger. one corporation merges with one of its customers or suppliers in a horizontal merger, whereas a firm merges with its direct competitor in a vertical merger. firms that make and sell similar products to the same customers merge in a horizontal merger, whereas companies operating at different but related levels of an industry merge in a vertical merger.

firms that make and sell similar products to the same customers merge in a horizontal merger, whereas companies operating at different but related levels of an industry merge in a vertical merger.

In other states where the corporation does business, it is known as a _____ corporation.

foreign

To avoid the difficulties involved in starting a business from scratch, Sana decides to obtain the rights to operate an outlet of a popular spa and salon chain. This business arrangement requires Sana to pay an annual fee to the owner of the chain. In this scenario, Sana is a(n) _____. trade creditor franchisee category captain intrapreneur venture capitalist

franchisee

In a _________ merger, firms that make and sell similar products to the same customers merge.

horizontal

When firms that make and sell similar products to the same customers merge, it is known as a ___________.

horizontal merger

Selling a corporation's stock in public markets for the first time is called: leveraged buyout. vertical integration. initial public offering. seasoned equity offering. stock depletion.

initial public offering

A private corporation that needs more money to expand or to take advantage of opportunities may have to obtain financing by "going public" through an _______, that is, becoming a public corporation by selling stock so that it can be traded in public markets.

initial public offering (IPO)

In a _____, a group of investors borrows money from banks and other institutions to acquire a company or a division of one, using the assets of the purchased company to guarantee repayment of the loan. horizontal merger vertical merger leveraged buyout conglomerate merger poison pill

leveraged buyout

In a limited partnership, _________ do not participate in the management of the business but share in the profits in accordance with the terms of a partnership agreement.

limited partners

In comparison with large companies, small businesses are more likely to have: a bureaucratic decision-making process. lower initial startup costs. a greater focus on mass markets. a lower degree of flexibility. greater regulatory controls.

lower initial startup costs.

In order to start a new restaurant, Mei borrows $10,000 from a bank by providing her house as collateral. The type of financing obtained by Mei is called a _____. mortgage trade credit mutual fund subsidy dividend

mortgage

Common stockholders are the voting owners of a corporation. They are usually entitled to _____ vote per share of common stock.

one

Ease of organizing, availability of capital and credit, combined knowledge and skills, and quasi-taxable systems are typical characteristics of a(n): partnership. S corporation. cooperative. sole proprietorship. limited liability company.

partnership

The characteristics of a _________- are ease of organization, availability of capital, combined knowledge and skills, fewer regulatory controls, unlimited liability, business responsibility, limited sources of funds, and division of profits.

partnership

When a firm allows stockholders to buy more shares of stock at prices lower than the current market value, the firm is using a _____. poison pill shark repellant white knight tender offer leveraged buyout

poison pill

_________, because of their capacity to focus on narrow niches, can develop enviable reputations for quality and service. By targeting small niches or product needs, _________________ can sometimes avoid competition from larger firms, helping them to grow into stronger companies.

small businesses

In the context of the different forms of business ownership, unlimited liability, limited skills, lack of qualified employees, and lack of continuity are all disadvantages of a(n) _____. limited partnership joint venture public corporation S corporation sole proprietorship

sole proprietorship

The most common form of business organization in the United States.

sole proprietorship

Justin and Laura have a business idea that they plan to commercialize. They have approached an independent investor to raise funds for their business. If they can impress the investor with their business idea, the investor will agree to provide the necessary amount of money in return for some ownership share in the company. The independent investor that Justin and Laura are banking on is referred to as a _____. debt financier contract manufacturer category captain trade creditor venture capitalist

venture capitalist

In a _________ merger, companies operating at different but related levels of an industry merge.

vertical

GL Inc., a firm facing a threat of bankruptcy, did not want to be acquired by Red Phoenix Inc. Thus, the management of GL Inc. approached Fortium Inc., which was willing to acquire GL Inc. In this scenario, Fortium Inc. is referred to as a _____. poison pill shark repellant proxy investor white knight preemptive investor

white knight

To head off a hostile takeover attempt, a firm can seek a ________, which is a more acceptable firm that is willing to acquire the threatened company.

white knight