BUS300 Online Test 2010 (with answers

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Note to 2011 students: There are a few differences between this test and the one you will have this term as follows: 1. The 2011 test will cover material from lectures AND the textbook (the 2010 test only covered material from the textbook, officially, even though much of that material was also presented in class). The mix will be approximately 60% class/40% textbook. 2. The 2011 test will also include questions about the guest speakers. These questions will be of a general nature but may involve questions about their business models, whether you would invest in their companies, how they compare to the other guest speakers and also how the material presented in the class relates to what they have done in their enterprises. 3. NPV (Net present value) will NOT be covered on the test (so the answers to that problem are not provided here). However, there may be a simple cash flow problem where you will be asked to work out things like break even points and ROI, given a certain set of income and expense data.

(p. 372) A franchisor is under no obligation to disclose remuneration gained from product purchases from designated suppliers. FALSE 7. (p. 383) In choosing a board of directors. venture capitalists and private placements). FALSE 6. that member is typically offered a percent of the money raised.TRUE/FALSE QUESTIONS (1 mark each) 1. FALSE 4. (p. 275) When speaking with venture capitalists. 495) Venture capitalists may dilute a founder's equity with each additional round of capital. 451) Angels or wealthy individuals are often sought because they are more easily sold than formal investors (i.e. FALSE 2. (p. (p. FALSE 9. 170) To gain market entry with high-value-added products or services in a growing market. it is best to price slightly below competitors. (p. 114) "Durability" refers to the market advantage a company can enjoy by developing proprietary barriers to entry. (p. 501) Entrepreneurs should rely on expert legal and accounting advice to protect them during the deal-making process. but they are not permitted to fire them. FALSE .. the entrepreneurial team should be prepared to provide details of ongoing talks with other venture capitalists. FALSE 8. FALSE 5. (p. 330) If one team member is principally responsible for preparing an acceptable business plan. entrepreneurs tend to value financial expertise over operating experience. (p. FALSE 3.

and less risky than high-potential ventures. FALSE . more manageable. 107) Small.10. less demanding. simple businesses are more affordable. (p.

Commercial banks C. (p. (p. 522) Which of the following is the most expensive source of financing? A. 381) Other people's resources do not include which of the following? A. (p. 433) Short-term debt is incurred within what time frame? A. 25 . Operational support D. Less than six months B. Material loaned or provided inexpensively or free by customers 4. Field support B. Depends on the deal 7. 326) Forming a team is most analogous to which of the following? A. Recruiting musicians for a symphony orchestra 3. 254) Why is access to capital an increasing challenge to social entrepreneurs? A. Service delivery system 5. One year or less C. 408) Which of the following is the most valuable asset in a franchise system? A. The draft in professional team sports D. Competition from other social ventures D. (p. Scalability issues C. Commercial finance companies D. Battlefield promotions C. All of the above 2. (p. Depends on the deal structure 6. Courtship and marriage B.MULTIPLE CHOICE QUESTIONS (1 mark each) 1. (p. Factors B. (p. B. Government-funded management assistance programs C. Advice from friends or relatives B. Trade name C. Free books and pamphlets D. Investors prefer more traditional venture models. One to two years D. 464) What is the average number of hours that a venture capitalist will spend conducting due diligence on a promising venture? A.

154) Thinking creatively and expansively about how new technology discoveries will drive the next new industries is a critical aspect of ________ recognition. (p. 637) Which of the following harvest options is most likely to produce the most cash for the founder at the time of sale? A. IPO B. FILL IN THE BLANK QUESTIONS (1 mark each) 1. 60 C. 104) A successful start-up venture. An assumption that a percentage of the business will become obsolete D. A willingness to leverage the business to grow and find higher returns. they take ________. Sea changes B. Management C. Competitive pressure 9. A commitment to generating next-generation entrepreneurship. (p. C. (p. Strategic alliance 10.B. (p. in addition to the strong leadership from the main entrepreneur. A willingness to stick with the existing business model. MBO C. 45) Successful entrepreneurs are not gamblers. Outright sale D. (p. 120 D. 400 8. 566) Which of the following is a primary cause of trouble in a company? A. (p. opportunity . Regulatory changes D. B. almost always involves building a team with________ complementary talent 3. calculated risks 2. 604) The financial mindset for enterprising does not include which of the following characteristics? A.

Due diligence 7. and therefore will know only after the fact how ________ a product is. (p. institutionalize . The result is they have no variance reporting. (p. line of credit 9. (p. energy. barrier to entry 5. profitable 10. (p. and entrepreneurial talent of a lead entrepreneur and a key team member or two. 519) A ________ is a formal or informal agreement between a bank and a borrower concerning the maximum loan a bank will allow the borrower for a one-year period. 566) Many emerging businesses have no standard costs against which they can compare the actual costs of manufacturing products.4. 602) Enterprising families ________ the opportunity seeking processes in the mindset and methods of both their family ownership group and their business organizations. 164) Price-cutting and other competitive strategies in highly concentrated markets can present a significant ________ for new entrants. (p. 272) The business plan becomes the point of departure for prospective investors to begin their ________ to ascertain potential and various risks of the venture. startup 8. 312) The _________ stage is by far the most perilous stage and is characterized by the direct and exhaustive drive. (p. (p. focused 6. 254) A venture firm that invests in early-stage companies operating in one of four areas of social concern would be called a ________ fund.

or designer. Mentioned in the text. In addition to the problems with cash flow. For a start-up. Mentioned in the text. 431) List two examples of important assets that would not appear on a balance sheet. greed. encouragement. especially one with no experience or success in raising money. the equity position of the founders may be unnecessarily diluted and the discipline instilled by financial leanness may be eroded inadvertently 3. trust. communication. impatience. the lack of planning implicit in waiting until there is a cash shortage can undermine the credibility of a venture's management team and negatively impact its ability to negotiate with investors. it is unwise to delay seeking capital because it is likely to take six months or more to raise money. an excellent management team. the opportunity cost associated with spending time and money fund raising. under-estimation of costs. technician. a top scientist. Explain why each of the assets is valuable and why potential investors should know about them. being too anxious. and failing to choose an investor based on criteria over and above the money. 452) Discuss how timing is a critical aspect of raising risk capital. 500-504) Identify four traps that an entrepreneur faces in the fund-raising process. . know-how and business skil 2.SHORT ANSWER & DISCUSSION QUESTIONS (10 marks each) 1. 4. (p. However. if a venture tries to obtain equity capital too early. (p. choosing legal/accounting professionals based on status and size. Consensus building. A venture should not wait to look for capital until it has a serious cash shortage. (p. Strategic and Legal circumference. (p. Mentioned in the text. 576) List and describe four key elements of effective entrepreneurial leadership. and development.

and the square root of (a + b) would be typed as (a + b)^(1/2).e.CASH FLOW QUESTION (NOTE: NPV will not be covered on 2011 test—this question is only included here so you can see the marks assigned) (a) A company seeks a return from its investment of 10%. [12 Marks] (b) Discuss the relative merits of selecting an opportunity based on the IRR or NPV.. You must type out any equations used for your calculations. The two projects under consideration are as follows (in £s): Capital Cost Project A Project B Year 500 Cash Flows 100 800 1000 0 800 1 700 2 Calculate the internal rate of return (IRR) and net present value (NPV) of the projects. Or. [14 marks] (c) Which of the above opportunities would you select and why? [4 marks] . i. a2 would be typed as a^2. you can simply use the ^ mark (above the 6 key on your keyboard) to indicate “raised to the power of”. You can use the "Insert equation" function which will appear below the answer box.

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