Quiz 4 : Entrepreneurship

Acme Company sells windshield wiper blades and has fixed costs of $5,000. The price of each wiper blade is $10 and the cost to produce (variable cost) is $5 per wiper blade. What is the Contribution Margin for Acme Company? a. $10 b. $15 c. $5 d. $20

$5

Which of the following would be most commonly used for short-term financing? a. Insurance companies b. Trade Credit c. Federal government d. RETS

b. Trade Credit

Which of the following terms is not synonymous with social lending? a. Peer to peer lending b. Commercial lending c. Crowd funding d. Banking 2.0

b. Commercial lending

Breakeven is defined as the point where a. Only variable costs are paid by the income from sales. b. Total costs are paid by the income from sales. c. Only fixed costs are paid by the income from sales. d. Total costs are paid and 10% profit is generated from sales income.

b. Total costs are paid by the income from sales.

Which of the following is an advantage of debt financing? a. Regular interest payments are required. b. Heavy use of debt can inhibit growth and development. c. No relinquishment of ownership is required. d. Cash-flow problems can intensify because of payback.

c. No relinquishment of ownership is required.

One of the disadvantages of equity financing is: a. The entrepreneur doesn't have a legal obligation to repay the principal amount. b. None of the selections are correct. c. Requires sharing the ownership and profits with the funding source. d. The entrepreneur doesn't have a legal obligation to pay interest on the principal.

c. Requires sharing the ownership and profits with the funding source.

_________________ is one of the disadvantages of going public: a. Liquidity b. Proxy statements c. Shareholder pressure d. Form 8-K

c. Shareholder pressure

If Return on Investment is negative in year one, what does this tell you about the investment? a. The gain must be greater than the costs b. None of the selections are correct c. The costs must be greater than the gain realized in year one d. There is a profit

c. The costs must be greater than the gain realized in year one

Which of the following is not a characteristic of a Venture Capitalist? a. They provide contacts with customers, suppliers and businesspeople. b. They assist in negotiating technical agreements. c. They only invest in businesses in their local geographical area. d. They assist by providing Market research and strategy.

c. They only invest in businesses in their local geographical area.

Contribution Margin is Select one: a. What is left of the price to pay for variable costs after paying salaries b. What is left of the price to pay for fixed costs after paying salaries c. What is left of the price to pay for fixed costs after paying variable costs d. What is left of the price to pay for variable costs after paying fixed costs

c. What is left of the price to pay for fixed costs after paying variable costs

Of the following, which is more likely than the others to be deemed a potential danger of social lending? a. Potential tax advantage b. High funding success rate c. Regulatory certainty d. Business plan disclosure

d. Business plan disclosure

Which of the following is not a question commonly asked by banks of entrepreneurs? a. How much money do you need? b. How will you repay the loan? c. What do you plan to do with the money? d. Do you plan to leave the country soon?

d. Do you plan to leave the country soon?

If the Return on Investment (ROI) ratio is negative, the cost of the investment a. Is equal to the gains. b. Is less than the gains. c. Is meaningless. d. Is greater than the gains.

d. Is greater than the gains.

Equity capital is often raised through: a. Option sales b. Preferred issues c. Donations d. Public stock offerings

d. Public stock offerings

Which of the following is not a danger of social lending? a. Low funding success rate. b. Cost and complexity of setting up the solicitation site. c. Potential tax liability. d. Uncertain regulatory environment.

b. Cost and complexity of setting up the solicitation site.

One of the advantages of public offerings is: a. Cost b. Regulatory Requirements c. Disclosure d. Liquidity

d. Liquidity

Many new ventures find that debt financing is: a. Their major source of funds b. A waste of time c. Not an important consideration d. Necessary

d. Necessary

Any time one has money, there is a cost that corresponds with the decisions of how to spend the money. This cost is called a. Entrepreneurial cost. b. Venture cost. c. Pathway cost. d. Opportunity cost.

d. Opportunity cost.

Finance companies are asset-based lenders who lend money against all of the following assets except: a. Receivables. b. Inventory. c. Equipment. d. Real estate.

d. Real estate.

Under a conservative break-even strategy a. The company uses tight fiscal policy to operate. b. None of the selections are correct. c. The company uses borrowed money to help pay for regular operating expenses. d. The company uses its equity to help pay for regular operating expenses. Feedback

d. The company uses its equity to help pay for regular operating expenses.

Arrowhead Inc. sells hatchets and has fixed costs of $12,000. The price of each hatchet is $13 and the cost to produce (variable cost) is $7 per hatchet. What is the Break-even Quantity for Arrowhead Inc.? a. 1,000 b. 3,000 c. 6,000 d. 2,000

d. 2,000

Abby runs a coffee shop and needs a new all-in-one drink machine to replace her aging equipment. She calculates that she will be able to offer more types of drinks with the new machine, increasing her sales, and can eliminate the repair costs she currently has with her old equipment. The cost of the new machine is $10,000 and she determines that her benefits in the first year will be $15,000 between increased sales and decreased repair costs. What is the Return on Investment (ROI) in the first year? a. 5% b. -5% c. -50% d. 50%

d. 50%

The most common source of debt financing is: a. Family members b. Loan sharks c. Crowd Funding d. Commercial banks

d. Commercial banks

The Handy Doll Manufacturing Company has the following information. The average doll sales price is $12.00, raw materials for a doll are $4, and it takes 15 minutes to assemble a doll. Production labor is paid at $8.00 per hour, therefore the labor cost per doll is $2. Operating expenses are as follows: salaries, $10,833.33 per month; insurance, $400 per month; rent, $1,500 per month; and utilities, $800 per month. How many dolls must be sold per month to break even? a. 2,256 b. 13,533 c. 6

a. 2,256

Which is an important question for the entrepreneur to ask when evaluating the venture capitalist? a. Is the person someone with whom the entrepreneur can work? b. Is the person a close relative? c. Is the person a college graduate? d. Is the person wealthy?

a. Is the person someone with whom the entrepreneur can work?

Venture capitalists are experienced professionals who provide a full range of service including: a. Management consulting b. Labor supply c. Advertising campaigns d. The idea.

a. Management consulting

Which of the following are not capital assets? a. Perishables. b. Buildings and equipment. c. Land. d. Goods.

a. Perishables.

A disadvantage of debt financing is: a. Regular interest payments b. Relinquishment of ownership c. Possible cash flow enhancement d. Inhibition of growth & development due to equity investments

a. Regular interest payments

Opportunity Cost is a. The highest value surrendered when a decision to invest is made b. The net value surrendered when a decision to invest is made c. The lowest value surrendered when a decision to invest is made

a. The highest value surrendered when a decision to invest is made

Factoring is: a. The sale of accounts receivable at discounted values. b. The sale of accounts payable at discounted values. c. The sale fo accounts payable at a premium. d. The sale of accounts receivables at a premium.

a. The sale of accounts receivable at discounted values.

Which of the following statements is not true of venture capitalists? a. They are interested in taking over the firm and managing it b. They expect high return on investments c. They want the entrepreneur & management to run the company d. They take a long time to raise venture capital

a. They are interested in taking over the firm and managing it

Which of the following is not a characteristic of an Angel Investor? a. They invest only in high tech industries. b. They prefer seed stage or start-up stage investments. c. They are located in the local geographical area of the entrepreneur. d. Wealthy individuals who are looking for investment opportunities.

a. They invest only in high tech industries.

Which of the following is not a myth about Venture Capitalists? a. Venture Capitalists are satisfied with a reasonable rate of return on investments b. Venture Capitalists need only basic summary information before they make an investment c. A good management team is more important than a good idea to a Venture Capitalist d. Venture Capitalists are quick to invest

c. A good management team is more important than a good idea to a Venture Capitalist

An informal risk capitalist is referred to as: a. A retiree b. Someone with money, but not interested in entrepreneurship c. Angel Investor d. Your neighbor

c. Angel Investor

When accounts receivable are bought from a company for capital funding it is called: a. Leasing b. Financing c. Factoring d. Trade credit

c. Factoring

Cash Flow measures what activity in a business? a. Capital and debt repayment b. Capital and depreciation c. Income and expenses d. None of the selections are correct

c. Income and expenses

The use of debt to finance a new venture involves a payback of the funds plus _______________? a. Royalties b. Application fees c. Interest d. Rent

c. Interest

Using a leveraged break-even strategy, higher debt means that a. None of the selections are correct. b. It won't make a difference in how long it takes to break-even. c. It will take longer to break-even. d. It will take less time to break even.

c. It will take longer to break-even.

Which of the following is not a disadvantage of debt financing? a. Cash flow problems can intensify due to payback responsibilities b. Heavy use of debt can inhibit growth and development c. Low interest rates reduce the opportunity cost of borrowing d. Regular monthly interest payments are required

c. Low interest rates reduce the opportunity cost of borrowing

Vegan Steaks had the best year ever, with sales of $4,500,000 and operating profit of $950,000. The previous year's operating profit was $900,000. They contributed their success to the purchase of a new machine. That machine was purchased for $20,000 the year before and cost Vegan Steaks $5,000 to operate. The balance sheet at the end of the year showed accumulated depreciation of $4,000. Calculate the ROI for the year. HINT: Depreciation (when you have it) is a gain as it lowers the tax liability of the business. a. 1.4% b. 1.6% c. 1.2% d. 1.8% e. 1.5% f. 1.7% g. 1.3%

f. 1.7%