FIN310 Exam 2

________ is referred to as the extent to which employees, investors, and family members involved in the business know the business's purposes and operations.

Internal understanding

Discounted cash flows have been reduced in value because they:

are to be received in the future.

Which statement is true of an elevator pitch?

The goal of an elevator pitch is to sell the idea of a business to another.

Connie plans to open "Connie's Corner Café" and approaches her banker for funding. In Connie's business plan, which business component is most likely to be of interest to her banker?

cash flow and cash cycle

Which of these scenarios is most likely to increase the odds of successes for a start-up?

choosing a business that produces high margins

Which of these is commonly used to estimate the value of a business?

comparable sales of other firms

A law firm needs to present a business plan to government officials. Which scenario is most likely to be expected by the officials in the business plan?

compliance with regulations and laws

A(n) __________ is a one-page document on letterhead that introduces the business plan and owner to the recipient and indicates why the recipient is being asked to read the plan.

cover letter

The market section of a business plan primarily focuses on:

customers

When a corporation is taxed on its income at the corporate rate, and shareholders are taxed on dividends at their individual rate, this is called:

double taxation

The process of investigating a business to determine its value is called:

due dilligence

Which component of the business plan gives an overview of the business, its business model, market, expectations, and immediate goals?

executive summary

Research into the indicators of successful start-ups shows that one of the best predictors of success is the level of:

experience of the founders

The extent to which a small business is taken for granted, accepted, or treated as viable by organizations or people outside the small business is referred to as:

external legitimacy.

"The ask" paragraph typically talks about how much money is needed and how the funds will be used and included in the __________ section of the business plan.

financial summary

Which scenario is the primary goal for performing due diligence?

finding any inefficiencies, unnoticed opportunities, waste, and mismanagement

A legal agreement that allows a business to be operated using the name and business procedures of another firm is referred to as a:

franchise

In a(n) _________, all partners are equally and fully responsible for the business's obligations.

general partnership

Which answer option is most likely to be a business plan concern for silent partners/angel investors?

growth rate

Which of these is a disadvantage of purchasing an existing business? no immediate sales a greater cash outlay having to hire employees having to update equipment

having to update equipment

The single greatest hurdle to a successful start-up is obtaining and maintaining sufficient cash to support both operations and growth. Which answer option is needed by a successful start-up to overcome this hurdle?

high margins

Which of these is most likely to be achieved as the result of starting a business with established customers?

immediate cash flows

Which answer option is most likely to be the key information that joint venture partners seek in a business plan?

intellectual property protection

Securing outside investment accomplishes two things: it ensures your business will be critically examined and:

it provides legitimacy.

The primary advantage to a buyout is:

its simplicity.

A _____________ is a unit recognized as having rights and duties apart from the owners of the company.

legal entity

Sam intends to present a business plan to his potential key employees. The employees would most likely expect to know about the __________during the presentation.

long-term prospects

In the __________ section of a business plan, the sales plan, competitive plan, and growth plan are discussed.

market

Some franchisors, such as Subway, sells __________ that require opening multiple stores within a specified area.

master franchises

Which term refers to a paragraph that describes the firm's goals and competitive advantages?

mission statement

The amount for which an asset would sell, less the costs of selling the asset is called:

net realizable value.

Which of these is an excellent way to find businesses for sale?

networking

Your friend Sarah tells you she is thinking about buying the dog grooming business you both take your dogs to, as the owner just announced it was for sale. The groomer is always busy and it is best to have a standing monthly appointment, as the shop is often booked solid. The groomer is currently open limited hours as the owner is wishing to get out of the business, and Sarah thinks services (and profits) can be improved with longer hours. As Sarah's friend, what should your response be?

"It is very difficult to place a value on an existing company. How will you know if they are asking a fair price?"

Which statement is true of a vision statement?

A tagline or a slogan is a good way to present vision statements.

Which statement is true of business plans?

External legitimacy for a firm is best established by creating business plans.

Which of these is a disadvantage of a start-up? no existing rules, processes, or culture no revolving credit from suppliers or banks no "legacy" locations, buildings, equipment, or software no proven products or services

no revolving credit from suppliers or banks

A(n) _________refers to a contract among LLC members outlining how the LLC will conduct itself.

operating agreement

Which scenario is a disadvantage of sole proprietorships?

owner has unlimited liability for the firm's debt

In _________, the earnings of the business are distributed to the business owners and those owners pay individual tax on the earnings.

pass through taxation

When a product or service is new to the industry or is itself creating a new industry, it is referred to as a(n) __________ business.

pioneering

Service or product quality is most likely to be crucial in a business plan for:

potential customers.

Which step in a negotiation process is considered to be the most difficult?

propose

When Naja opened her craft store, her yarn supplier allowed her to charge up to $1000 in merchandise with no set payment amounts due. Naja paid off the balance as she sold the yarn and was then able to order more yarn on credit, up to her $1000 limit. This arrangement is considered a form of:

revolving credit

Which form of business requires no government permission to set up?

sole proprietorship

Which type of business form is the most popular for start-ups?

sole proprietorship

Except for _________, business forms are types of separate, legal entities.

sole proprietorships

Employees take on significant risks when they work for a start-up business so many offer:

stock options

Formal or informal relationships with customers, vendors, or mentors to ensure the success of an entrepreneurial venture is called

strategic partnerships

A(n) __________ may be called a mantra as it is brief and memorable.

tagline

In a __________, the buyer seizes control of the business without the permission of all owners.

takeover

Seizing of control of a business by purchasing its stock to be able to select the board of directors refers to a:

takeover

When a product or service is sold in a limited area, for a limited time, it is referred to as:

test marketing.

The sales plan of a marketing strategy focuses on:

the day-to-day specifics of how sales are achieved.

A good marketing strategy is most likely to focus on:

the longer-term competitive plan.

Which section of a classic business plan mentions the legal structure, key personnel, key partners, key activities and operations, and business location?

the organization section

The price at which a buyer is unconcerned about buying or not buying the business is called:

the point of indifference.

There are two points in the presentation where your listeners will be giving you value. Which answer option contains both of those two points?

the questions they ask and the feedback they give

Which scenario is an advantage of corporations?

they are better equipped in raising large amounts of money

What is the goal of appendixes?

to provide supporting information that helps detail the key selling points of a plan

In many franchises the franchiser oversees (or even manages) the selection of location, the construction of facilities, the acquisition and installation of necessary equipment, and the initial inventory with which to open business. Which of these terms best represents this type of franchising?

turnkey

Which of these is an advantage of sole proprietorship?

unique tax advantages

A(n) __________ is a very simple 5-10 word sentence that expresses the fundamental idea or goal of the firm

vision statement

Consider how business plans get used. The most common use of business plans is:

when you are raising money for your business.

A(n) __________ plan is a document designed to detail the major characteristics of a firm—its product or service, its industry, its market, its manner of operating and its financial outcomes with an emphasis on the firm's present and future.

business

___________ are associated with economic development agencies, don't take equity in your business and are integrated into the community.

business incubators

Which statement about the market section of the classic business plan is not true? Marketing plans remain the same across any multiple target audiences. Target audiences are also called customer segments. The market section builds on material you may have developed in the IDEO, business model canvas, and feasibility analyses done earlier. Some people prefer to relocate the competition and competitive advantage section from the market section to the industry section.

Marketing plans remain the same across any multiple target audiences.

Which answer option is the first step for performing due diligence?

Conduct extensive interviews with the sellers of the business.

Which statement is true of an executive summary?

An executive summary is the single most widely distributed written description of a business.

Which answer option is one important advantage of key resource allocation?

As only assets are acquired, a subsequent business, regardless of its legal form, is not responsible for any of the acts or transactions made prior to purchasing the business.

________analysis is based on the concept that the longer you have to wait to receive money, the less valuable it is right now.

Discounted cash flow

Which statement is true of the financial statements and reports found in a business plan?

For all types of business plans, a set of financial reports or projections are the central component of the appendix.

Which of these is a disadvantage of a corporation?

It incurs relatively high incorporation fees and high taxes.

________ are the only form of legal corporation that can seek 501(c)(3) from the IRS, which permits donations to the organization and considered as tax deductible to the donor.

Nonprofit corporations

Which answer option is the last step for performing due diligence?

Obtain sufficient capital to purchase and operate the business.

_________ plans are designed to be used internally for management purposes.

Operational

Which of the following statements about professional management is not true?

Professional managers are easy to find.

What would happen when a small business that is growing becomes too great to be handled alone by an individual owner?

Professional managers are hired to share the management load.

Which scenario is most likely to be an advantage of buying an existing business? It is easy to find an appropriate existing business for sale given the technology today. Purchasing a business often requires less cash outlay than creating a start-up. The company's established reputation will aid future success. Facility and equipment needs are eliminated when buying an existing business.

Purchasing a business often requires less cash outlay than creating a start-up.

__________ is an estimate of what an identical asset would cost to be acquired and readied for service.

Replacement value

One day Tonya noticed a new coffee shop and bakery tucked into a small store front on her walk to work. There were several other coffee shops she passed on the way to work each day and she wondered if this one would last. Within a week, there was a line waiting to get in the door every single day. Within a year, the shop had taken over the neighboring store front and was a thriving business. The sole owner was a pleasant man who initially spent his time behind the counter, but now roamed the business filling coffee and schmoozing. Which of the following statements about this successful start-up is most likely true?

The owner has at least one failed start-up under his belt.

Which statement is not true of target customers? Target customers are described in terms of demographics. What target customers are looking for should be based on discussions with potential customers. Hopefully the desires of your target customers closely match the value benefits your product offers .Usually you only have one type of target customer.

Usually you only have one type of target customer.

Document setting forth information about a limited liability company that is filed with the state to establish an LLC is referred to as:

articles of organization.

Which of these is a disadvantage of buying a franchise?

You give up creative control and have greater reliance on your parent company's financial status.

Which of these is most likely to be an advantage of a brand new start-up? a "clean slate" name recognition positive cash flow access to revolving credit

a "clean slate"

Tony was considering buying a franchise that included the right to use the company's trade name, specifications of the product to be sold, operating methods, marketing plans, and national advertising. Which of the following types of franchising does this situation illustrate?

a business format franchising

A person who opens multiple businesses throughout his or her career is referred to as:

a serial entrepreneur.

Which answer option is a disadvantage of choosing an LLC as a business form?

adding or reducing members requires consent from all other members

This privately owned organization provides financial, technical, and managerial help to start-up businesses, and take an equity stake in your business in return for a small amount of your stock.

an accelorator

Which type of investor is also called an angel?

an informal investor