CHAPTER 1: ENTREPRENEURSHIP: EVOLUTIONARY DEVELOPMENT-

REVOLUTIONARY IMPACT

True/False:
1.
2.
3.
4.

1. Entrepreneurs are aggressive catalysts for change within the marketplace.

ANS: T
2. During the past ten years, new business incorporations averaged nearly 600,000 per year.

ANS: T
3. A “gazelle” is a business establishment with at least 20 percent sales growth every year for five
years.

ANS: T
4. Gazelles are almost always high tech.

ANS: F
5. The word entrepreneur is derived from the Spanish word entreprendre, meaning “to undertake.”

ANS: F

6. Entrepreneurs are high risk takers.

ANS: F
7. Entrepreneurs always start their business at a young age.

ANS: F
8. Entrepreneurs are born not made.

ANS: F
9. The “corridor principle” states that entrepreneurs often get stuck on one idea.

ANS: F

10. The macro view of entrepreneurship includes external processes that are sometimes beyond the
control of the entrepreneur.

ANS: T
 Multiple Choice:

1. Entrepreneurs and gazelles have been credited with making disproportionate contributions to all but which of
the following?
a. innovation
b. job creation
c. economic renewal
d. unemployment
ANS: D

2. Which of the following statements best describes a “gazelle?”

a. a business with at least 20 percent growth every year
b. a business with no sales growth
c. a business that has acquired numerous firms
d. an inventor who turned business person
ANS: A

3. The word entrepreneur is derived from the French entreprendre, which is translated as
a. to apprehend
b. to undertake
c. to compete
d. to enter and dare

ANS: B

4. Throughout the years, many myths have arisen about entrepreneurship as a result of?
a. a lack of research about entrepreneurship
b. a lack of interest in the field
c. a total disregard for the truth
d. a destructive attitude by government
ANS: A

5. The “corridor principle” is best described by which of the following statements?

a. If at first you don’t succeed, try, try, again.
b. Being in the right place at the right time.
c. With every new venture launched, new and unintended opportunities arise.
d. Luck happens when preparation meets opportunity.
ANS: C

6. Which of the following is not a common myth about entrepreneurs?

a. Entrepreneurs are academic and social misfits.
b. Entrepreneurs are doers, not thinkers.
c. Entrepreneurs today are considered heroes.
d. All you need is money to be an entrepreneur.
ANS: C
7. Which of the following statements is true?
a. Entrepreneurship is the ability to create and build a vision from practically nothing.
b. Entrepreneurship is pure luck.
c. Entrepreneurship is simply obtaining financing and starting a business.
d. Entrepreneurship has nothing to do with creating incremental wealth.
ANS: A

8. Michael Gerber, the author of The E-Myth, explains that the failure of most small businesses is due to:
a. owners being more technical rather than entrepreneurial
b. owners being more managerial rather than technical
c. owners being more entrepreneurial rather than managerial
d. owners being more entrepreneurial rather than technical
ANS: A

9. The statement, “with every new venture launched, new and unintended opportunities often arise,” would be
associated with:
a. the entrepreneurial principle
b. the opportunity principle
c. the corridor principle
d. the Dilbert principle
ANS: C

10. The macro view of entrepreneurship presents factors exhibiting a strong

a. internal locus of control
b. external locus of control
c. environmental locus of control
d. contemporary locus of control
ANS: B

11. The macro view can be broken down into which three areas?
a. environmental, financial, and displacement
b. financial/capital, strategic, and opportunity
c. displacement, trait, and financial
d. entrepreneurial trait, opportunity, and strategic
ANS: A

12. The displacement school of thought can be divided into which three groups?
a. political, cultural, environmental
b. cultural, environmental, and financial
c. environmental, financial, and economic
d. economic, cultural, and political
ANS: D
13. The micro view is divided into which three theories?
a. entrepreneurial, financial, displacement
b. venture opportunity theory, entrepreneurial, strategic
c. strategic, environmental, and opportunity
d. environmental, financial, and displacement
ANS: B

14. Mountain gap strategies refer to:

a. unique resources
b. unique locations
c. unique resources
d. unique markets
ANS: D

15. The process approach to entrepreneurship seeks to

a. explain the process of obtaining patents
b. model the various factors that characterize the entrepreneurial process
c. explain intrapreneurship
d. explain the process of obtaining venture capital
ANS: B

CHAPTER 2: THE ENTREPRENEURIAL MIND-SET IN INDIVIDUALS:

COGNITION AND ETHICS

True/False

1. The generation of the twenty-first century may become known as generation E because it is becoming the
most entrepreneurial generation since the Industrial Revolution.

ANS: T

2. Entrepreneurial cognition is, in part, about understanding how entrepreneurs use simplifying mental
models to make assessments, judgments, and decisions about opportunities.

ANS: T

3. Commitment, determination, and perseverance are the only characteristics one needs to become a
successful entrepreneur.

ANS: F
 4. There is a certain psychic risk involved with entrepreneurship.

ANS: T

5. The “dark side” of entrepreneurship refers to the stress that entrepreneur’s experience.

ANS: F

6. According to the Model of Entrepreneurship Motivation, the entrepreneur’s expectations are not
compared with the actual or perceived outcomes of the firm.

ANS: F

7. A loss orientation toward grief recovery in dealing with failure can sometimes lessen negative emotional
reactions.

ANS: F

8. Today’s entrepreneurs are faced with few ethical decisions because the legal system imposes greater
penalties on wrongdoers.

ANS: F

9. Ethics represents a set of principles prescribing a behavioral code that does not include moral duty and
obligations.

ANS: F

10. A code of conduct is a statement of ethical practices or guidelines to which an enterprise adheres.

ANS: T

Multiple Choice

1. Every person has the _____ and _____ to pursue a career as an entrepreneur
a. stubbornness; stupidity
b. potential; free choice
c. rights; regulations
d. obligation; duty
ANS: B

2. Entrepreneurs
a. are driven by intense commitment and perseverance.
b. are egomaniacs.
c. loners who never fit in to typical firms.
d. are never satisfied.
ANS: A
3. Characteristics often attributed to the entrepreneur include:
a. Commitment, determination, and perseverance
b. Prefers to be a loner
c. Power hungry
d. Ability to be indecisive
ANS: A

4. Which of the following is not a trait of successful entrepreneurs?

a. initiative
b. frustration
c. perseverance
d. strategic thinking
ANS: B

5. When entrepreneurs believe that their accomplishments and setbacks are within their own control and
influence, they are exhibiting
a. persistent problem-solving.
b. internal locus of control.
c. external locus of control.
d. opportunity orientation.
ANS: B

6. Areas of risk to the entrepreneur include

a. career, family, psychic.
b. family, business, social.
c. psychic, social, physical.
d. financial, product, market
ANS: A

7. Which of the following may be the greatest risk to the well-being of the entrepreneur?
a. social risk
b. financial risk
c. psychic risk
d. family risk
ANS: C

8. Generally, entrepreneurial stress is due to

a. being surrounded by incompetents.
b. fear of failure.
c. the discrepancy between the entrepreneur’s expectations and the ability to meet demands.
d. caused by a big ego.
ANS: C
 9. Entrepreneurial stress can be caused by having a type A personality which can be defined as
a. having a chronic sense of time urgency
b. taking too little responsibility
c. getting away from business
d. taking things personally
ANS: A

10. The entrepreneurial ego can cause the entrepreneur to

a. have a sense of pessimism.
b. take characteristics that usually lead to success to the extreme.
c. ignore government regulations.
d. take too few risks.
ANS: B

11. Which of the following is not characteristic of the “dark side” of entrepreneurship?
a. an external optimism
b. a desire for success
c. knowing when to take a vacation
d. a sense of distrust
ANS: C

12. The decision to behave entrepreneurially is the result of the interaction of:
a. the individual’s personal entrepreneurial mind-set and an opportunity
b. the existence of a viable business idea
c. the relevant business environment
d. a new market
ANS: A

13. A decision to sell pharmaceuticals that have not been cleared with the Federal Drug Administration is an
example of a(n)
a. illegal and ethical decision.
b. legal and unethical decision.
c. illegal and unethical decision.
d. legal and ethical decision.
ANS: C

14. A decision to sell toys that pass minimum safety standards but can often result in minor accidents to
children is an example of a(n)
a. illegal and ethical decision.
b. legal and unethical decision.
c. illegal and unethical decision.
d. legal and ethical decision.
ANS: B
 15. A __________ is a statement of ethical practices or guidelines to which an enterprise adheres.
a. code of conduct
b. code of ethics
c. code of honor
d. code of silence
ANS: B

CHAPTER 3: THE ENTREPRENEURIAL MIND-SET IN ORGANIZATIONS:

CORPORATE ENTREPRENEURSHIP

True/False:

1. One reason that corporate entrepreneurship has become popular is because it allows corporations to tap
the innovative talents of the personnel.

ANS: T

2. Clever bootlegging of ideas refers to secretly working on new ideas on company time as well as on
personal time.

ANS: T
3. Individuals may avoid corporate entrepreneurial behavior due to the impact of traditional management
techniques.

ANS: T

4. Skunk works are project groups that work within the traditional lines of authority.

ANS: F

5. Firms do not need to alter management techniques to encourage corporate entrepreneurship since it tends
to occur naturally.

ANS: F

6. The first step in planning a strategy of corporate entrepreneurship is sharing the vision of innovation that
executives wish to achieve.

ANS: T

7. Systematic evolution of a product or service into newer or larger markets is referred to as radical
innovation.

ANS: F
 8. Researchers have identified specific factors that organizations can concentrate on in helping individuals
develop more entrepreneurial behavior.

ANS: T

9. The resources of the organization are irrelevant to the ability of the corporate entrepreneur to implement
an idea.

ANS: F

10. In the model of sustained corporate entrepreneurship discussed in the text, a transformational trigger can
be internal or external to the company.

ANS: T

Multiple Choice:

1. The major thrust of corporate entrepreneurship is to

a. encourage greater risk taking.
b. raise profitability.
c. encourage innovation.
d. increase morale.
ANS: C

2. All of the following are reasons for the growth of corporate entrepreneurship except
a. a desire to dramatically increase profitability.
b. a rapidly growing number of new and sophisticated competitors.
c. a sense of distrust in the traditional methods of corporate management.
d. an exodus of some of the best people out of corporations.
ANS: A

3. Which of the following helps account for the rise of interest in corporate entrepreneurship?
a. A decrease in the number of sophisticated competitors.
b. An increase government regulation of small entrepreneurs.
c. An increase in corporations losing some of their best people.
d. A general increase in the number of competitors.
ANS: C

4. Which of the following is an obstacle to corporate entrepreneurship?

a. orientation to the market
b. a system of feedback and positive reinforcement
c. traditional management techniques
d. rewards based upon results
ANS: C

5. In restructuring corporate thinking, top management should

 a. identify potential entrepreneurs after an innovation program is in operation.
b. make the entrepreneur follow strict corporate guidelines.
c. promote entrepreneurship through experimentation.
d. create diversity and order in strategic activities.
ANS: C

6. Secretly working on new ideas on company time as well as on personal time is referred to as
a. skunk works.
b. champion.
c. bootlegging.
d. interactive learning.
ANS: C

7. Groups that function outside traditional lines of authority permitting rapid turnaround of new ideas as
well as instilling a high level of group loyalty are called:
a. skunk works.
b. multiple approaches.
c. champions.
d. strategic innovators.
ANS: A

8. Which of the following would not be considered as encouraging to an entrepreneurial environment?

a. uniform compensation
b. identifying potential entrepreneurs
c. top management sponsorship of entrepreneurship
d. promotion of entrepreneurship through experimentation
ANS: A

9. The first step in planning a strategy of entrepreneurship for enterprise is

a. identifying specific objectives.
b. sharing the vision of innovation.
c. applying the exact tools of the entrepreneur.
d. developing radical innovation.
ANS: B

10. The second step in planning a strategy of entrepreneurship for the enterprise is
a. identifying specific objectives.
b. sharing the vision of innovation.
c. applying the exact tools of the entrepreneur.
d. developing and encouraging innovation.
ANS: D
 11. Which of the following terms refers to the systematic evolution of a product or service into newer or
larger markets?
a. radical innovation
b. incremental innovation
c. collective entrepreneurship
d. strategic management
ANS: B

12. Which of the following terms refers the inaugural breakthroughs launched from experimentation and
determined vision?
a. radical innovation
b. incremental innovation
c. collective entrepreneurship
d. strategic management
ANS: A

13. Which of the following are specific factors identified by researchers, that organizations can concentrate
on in structuring an entrepreneurial climate.
a. radical innovation, incremental innovation, and vision
b. skunk works, multiple approaches, and vision
c. top management support, time, resources, rewards, and organizational boundaries
d. rewards, resources, innovation, and vision
ANS: C

14. Transformational triggers in a corporate entrepreneurial environment initiates the need for
a. laying off workers.
b. strategically adapting to change.
c. changing company location.
d. achieving higher productivity standards.
ANS: B

15. Collective entrepreneurship, as a concept, refers to

a. the collective spirit of innovation that resides in the firm’s founder
b. the joint recognition of the CEO and CFO as champions of innovation
c. entrepreneurial thinking that is diffused throughout the company
d. socialist enterprising
ANS: C

CHAPTER 4: SOCIAL ENTREPRENEURSHIP AND THE GLOBAL ENVIRONMENT

FOR ENTREPRENEURSHIP

True/False:
 1. Social responsibility consists of those obligations that society has to businesses.

ANS: F

2. Social obligation, social responsibility, and social responsiveness are all ways firms view their
interactions with society.

ANS: T

3. Social entrepreneurs are known to combine resources to exploit opportunities to create social value.

ANS: T

4. Ecopreneurship is a combination of ecologically and economically sustainable development.

ANS: T

5. The triple bottom line is an accounting framework that focuses on optimizing short-term financial
performance.

ANS: F

6. The three Ps of the triple bottom line are people, planet, and profits.

ANS: T

7. Purpose, accountability, and transparency are characteristics associated with socially sustainable
enterprises.

ANS: T

8. Successful global start-ups, or entrepreneurial businesses that are “born global,” surprisingly often lack
internationally experienced management.

ANS: F

9. International alliances rarely require the exchange of proprietary knowledge.

ANS: F

10. Licensing agreements can involve patents, trademarks, and technical know-how.

ANS: T

Multiple Choice:

1. One researcher established a framework that classified social actions of corporations into distinct
categories that included
a. social obligation.
 b. social responsiveness.
c. social action.
d. a and b only.
ANS: D

2. The most pro-active position for a corporation to take regarding social responsibility would be termed
a. social obligation.
b. social intensity.
c. social responsiveness.
d. social decisiveness.
ANS: C

3. Which of the following designations is not synonymous with social entrepreneur?

a. social innovator
b. public entrepreneur
c. civic entrepreneur
d. social impersonator
ANS: D

4. Which of the following statements about social entrepreneurship is not true?

a. Social entrepreneurship is limited to the world of not-for-profit corporations.
b. Social entrepreneurship is about having a heightened sense of accountability
c. Social entrepreneurship has, in recent years, been the subject of widespread media
attention.
d. Social entrepreneurship adopts some of the same principles that have been effective in
successful entrepreneurship.
ANS: A

5. If we accept the argument that social entrepreneurship is a continuum, at one extreme would be social
entrepreneurs driven exclusively by producing social benefits; at the other, would be
a. social entrepreneurs motivated by the environment with social benefits being the means
b. social entrepreneurs motivated by profitability with social benefits being the means
c. social entrepreneurs motivated by income from their beneficiaries
d. social entrepreneurs motivated by income with entrepreneurial means
ANS: B

6.Examples of social enterprise obligations to the environment include all of the following except
a. pollution control
b. restoration of the environment
c. recycling efforts
d. support for minority-own businesses
ANS: D
 7. Corporate social responsibility refers to
a. the enhancement of global competition
b. environmental entrepreneurship in the United States
c. actions that further some social good beyond the interests of the firm
d. the affect of ecopreneurship only on some industries
ANS: C

8. Ecopreneurs are concerned

a. only with ecologically sustainable development
b. only with economically sustainable development
c. both ecologically and economically sustainable development
d. neither ecologically nor economically sustainable development
ANS: B

9. Key elements in plans to create a sustainable future are likely to include which of the following?
a. eliminating the concept conservation
b. eliminating the concept of waste
c. eliminating the concept of “price”
d. eliminating the concept of accountability
ANS: B

10. An account framework that goes beyond the traditional measures of profit, return on investment, and
shareholder value to include environmental and social dimensions is called
a. the shared bottom line
b. the value proposition
c. the triple bottom line
d. the twin bottom line
ANS: C

11. Bottom-line measures of economic performance include all of the following except:
a. global competition
b. personal income
c. cost of underemployment
d. job growth
ANS: A

12.An L3C is a new legal form for social enterprises known as

a. limited liability corporations
b. low-profit, limited liability companies
c. long-term, low-profit, low-liability companies
d. limited liability laborers
ANS: B
 13. Among the advantages for global entrepreneurs of diaspora networks is
a. the speed with which information flows across borders
b. the distrust among traditional trading partners
c. the creation of places where anything can happen
d. the decline in political risks across ethnic communities
ANS: A

14. Methods for going international include all of the following except
a. importing
b. exporting
c. licensing
d. foreign reclamation
ANS: D

15. The first of five steps for entering the international marketplace is
a. securing adequate financing
b. filing the proper documents
c. conducting research
d. preparing a feasibility study
ANS: C

CHAPTER 5: INNOVATION: THE CREATIVE PURSUIT OF IDEAS

True/False:

1. Innovation is the process by which entrepreneurs convert opportunities into marketable ideas.

ANS: T

2. The four basic types of innovation are invention, extension, duplication, and synthesis.

ANS: T

3. The cognitive ability of entrepreneurs to acquire and transform information has yet to be studied.

ANS: T

4. Creativity, in the entrepreneurial context, is the generation of ideas that result in the improved efficiency
or effectiveness of a system.

ANS: T

5. Many inventions and innovations are a result of inventors seeing new and different relationships among
objects, processes, materials, technologies, and people.

ANS: T
 6. The four phases of the creative process are knowledge accumulation, incubation, idea experience, and
evaluation.

ANS: T

7. The left hemisphere of the brain is responsible for logical and analytical skills.

ANS: T

8. Incongruities are gaps or differences between expectations and reality.

ANS: T

9. Synthesis is the combining of existing concepts into a new formulation.

ANS: T

10. One of the most helpful avenues for developing one’s own creative talents is to be aware of the habits and
mental blocks that stifle creativity.

ANS: T

Multiple Choice:

1. Which of the following statements is true?

a. Innovation is the specific function of entrepreneurship.
b. Innovation is the process by which entrepreneurs consume marketable ideas.
c. Innovation does not involve change.
d. Innovation is the government’s responsibility.
ANS: A

2. The incubation process involves which of the following?

a. working harder
b. letting the subconscious work
c. talking with friends
d. changing jobs
ANS: B

3. Which of the following statements is true?

a. The right brain helps people analyze and verbalize.
b. The right brain helps people understand analogies and imagine things.
c. The left brain helps people understand analogies and imagine things.
d. Right and left brain concepts are meaningless.
ANS: B

4. Which of the following is a characteristic of creative people?

a. bright but not necessarily brilliant
 b. poor image of themselves
c. rigid and dogmatic
d. unmotivated by challenging problems
ANS: A

5. Which of the following statements is true?

a. The right brain is more important in the creative process than the left brain.
b. The left brain is more important in the creative process than the right brain.
c. Both sides of the brain are important to the creative process.
d. Motivation, not the brain is the key to the creative process.
ANS: C

6. Which of the following mental habits inhibit creativity and innovation?

a. either/or thinking, stereotyping
b. functional perspective, mind-sets
c. security hunting, risks
d. stereotyping, incubation
ANS: A

7. Which of the following is not one of the phases in the creative process?
a. background or knowledge accumulation
b. evaluation and implementation
c. the incubation process
d. preliminary investigation
ANS: D

8. Logical and analytical skills are developed in the

a. left hemisphere of the brain.
b. right hemisphere of the brain.
c. central hemisphere of the brain.
d. anterior hemisphere of the brain.
ANS: A

9. Looking for different or unorthodox relationships among elements and people is one way to develop
creativity. How might a person develop this capacity?
a. by perceiving in a relational mode
b. by perceiving in a restraining mode
c. by perceiving in a restructured mode
d. by perceiving in a retinal mode
ANS: A

10. The four phases in the creative process in order are

a. background or knowledge accumulation, incubation, idea experience, and evaluation and
implementation.
 b. idea experience, background or knowledge accumulation, incubation, and evaluation and
implementation.
c. incubation, background or knowledge accumulation, idea experience, and evaluation and
implementation.
d. evaluation and implementation, idea experience, incubation, and background or
knowledge accumulation.
ANS: A

11. What are the four types of innovation?

a. invention, extension, synthesis, duplication
b. extension, retention, analysis, duplication
c. synthesis, extension, retention, analysis
d. analysis, synthesis, duplication, retention
ANS: A

12. Which of the following are sources of innovation?

a. unexpected occurrences and incongruities
b. duplication and processes
c. synthesis and technology
d. industry changes and extension
ANS: A

13. The combination of existing concepts and factors into a new formulation would define which of the
following terms?
a. synthesis
b. extension
c. invention
d. analysis
ANS: A

14. The phase of the creative process when the idea or solution the individual is seeking is discovered is the
a. background or knowledge accumulation.
b. incubation process.
c. idea experience.
d. evaluation and implementation.
ANS: C

15. Overnight package delivery is illustrative of which source of innovation?

a. incongruities
b. unexpected occurrences
c. process needs
d. change in perception
ANS: A
CHAPTER 6: ASSESSMENT OF ENTREPRENEURIAL OPPORTUNITIES

True/False:

1. The entrepreneurial motivations of individuals relate to the entrepreneur, the environment, and the
venture.

ANS: T

2. There is a great abundance of reliable data concerning the start-up, performance, and failure of new
ventures.

ANS: F

3. Most entrepreneurs are objective when they evaluate their new idea.

ANS: F

4. Most entrepreneurs are well schooled in the technology associated with their ventures.

ANS: F

5. Surprisingly, growth of sales is generally not considered a critical factor in assessing new ventures.

ANS: F

6. The decision of an entrepreneur to ignore the market is a safe one if he or she is sure that the idea will be
a success.

ANS: F

7. Obtaining external financing is considered one of the major types of problems for a new venture during
its first year.

ANS: T

8. Solid analysis and evaluation of the feasibility of the product/service idea are critical tasks in starting a
new business.

ANS: T

9. Overall market understanding rather than a time-consuming focus on market niches is sufficient for an
evaluation.

ANS: F

10. Feasibility analyses include technical, market, financial, organizational, and competitive analyses.

ANS: T
Multiple Choice:

1. The entrepreneurial motivations of individuals usually relate to which of the following factors?
a. the environment
b. the entrepreneur
c. the venture
d. all of the above
ANS: D

2. Many entrepreneurs lack _____ for their new venture.

a. innovation
b. intelligence
c. objectivity
d. both a and b
ANS: C

3. Which of the following is critical to a product’s success?

a. timing
b. marketing approach
c. objectivity
d. all of the above
ANS: D

4. A common pitfall in selecting a new venture is

a. poor financial understanding.
b. proper objective evaluation.
c. real insight into the market.
d. none of the above.
ANS: A

5. Name the pitfall described by the statement, “Engineers and technically trained people are particularly
prone to falling in love with an idea for a product or service.”
a. inadequate understanding of technical requirements
b. lack of venture uniqueness
c. no real insight into the market
d. lack of objective evaluation
ANS: D

6. Poor financial understanding is characterized by which of the following?

a. failure to anticipate technical difficulties
b. inadequate understanding of costs and funding requirements
c. failure to realize the life cycle of a product
d. lack of product differentiation
ANS: B
 7. Venture classifications include which of the following types of venture?
a. hobby ventures
b. smaller copycat ventures
c. high-growth ventures
d. survival ventures
ANS: C

8. Three specific phases that a new venture goes through are

a. prestart-up, start-up, poststart-up.
b. start-up, poststart-up, evaluation.
c. beginning start-up, start-up, ending start-up.
d. prestart-up, start-up, evaluation.
ANS: A

9. The type of venture that is expected to attract venture capital would most likely be a
a. corporate venture.
b. high-growth venture.
c. lifestyle venture.
d. smaller venture.
ANS: B

10. Which of the following as a factor contributing to new-venture failure?

a. product/market problems.
b. family issues.
c. personality clashes.
d. good management/poor product.
ANS: A

11. Using the failure prediction model discussed in the chapter, the risk of failure can be reduced by:
a. using less debt as initial financing and generating revenue in the initial stages.
b. using more debt as initial financing and generating less revenue in the initial stages.
c. using more revenue to enhance more debt in the initial stage.
d. all of the above.
ANS: A

12. Which of the following is a major reason for the failure of a new venture?
a. inadequate market knowledge
b. good product performance
c. opening in the wrong location
d. good product/poor marketing
ANS: A
13. Rapid technological advances in many industries cause a concern for in new venture development.
a. faulty product performance
b. rapid product obsolescence
c. inadequate awareness of competitive pressures
d. undercapitalization
ANS: B

14. Market feasibility analysis relies on

a. organizational competence
b. the entrepreneur’s vision
c. venture capital
d. general economic trends and competitor data
ANS: D

15. An approach developed as a criteria selection list from which entrepreneurs can gain insights into the
viability of their venture is the
a. feasibility criteria approach.
b. time-essence of a venture approach.
c. marketability feasibility approach.
d. comprehensive feasibility approach.
ANS: A

CHAPTER 7: PATHWAYS TO ENTREPRENEURIAL VENTURES

True/False:
1. Uniqueness in a product or service can be demonstrated through a new-new approach or a new-old
approach.

ANS: T
2. Perhaps the greatest advantage of buying a franchise, as compared to starting a new business or buying an
existing one, is that the franchisor will usually provide both training and guidance to the franchisee.

ANS: T

3. The prospective investor should get as much information as possible on the franchisor.

ANS: T

4. Franchisees have the option of using the logo and symbols of the franchisor.

ANS: F

5. The terms upside gain and downside loss refer to the profits the business can make and the losses it can
suffer.
 ANS: T

6. The elimination of time and effort associated with starting a company is an advantage of acquiring an
ongoing venture.

ANS: T

7. When purchasing an existing business, the prospective owner should conduct an assessment of the
business’s current group of employees.

ANS: T

8. The Federal Trade Commission does not provide information on franchise success.

ANS: F

9. In negotiating a deal to purchase an existing business, it is possible to request that the seller retain a
minority interest in the firm.

ANS: T

10. The Franchise Disclosure Document (FDD) is a legally required disclosure document that must be
presented to potential franchisees during presale discussions.

ANS: T
Multiple Choice:

1. When one designs a unique good or service, the individual is said to have used a(n) ____approach to
starting the business.
a. new-new
b. old-old
c. old-new
d. new-old
ANS: A

4. Which of the following is not a key question a prospective buyer needs to ask in buying a business?
a. Why is the owner selling?
b. What is the owner’s personal net worth?
c. How many of the personnel will remain with the firm?
d. What type of competition exists?
ANS: B

5. Which of the following is an intangible asset?

a. goodwill
b. inventory
c. plant
d. machinery
ANS: A
 6. An advantage to buying an on-going business is
a. reduced concern over future operations.
b. time and effort are reduced
c. it may be purchased at a bargain price.
d. all of the above.
ANS: D

7. A key question to ask when buying an on-going small business is which of the following?
a. How old is the business?
b. Where should you retire someday?
c. Can you become a millionaire by buying this business?
d. How many personnel are going to remain?
ANS: D

11. An agreement not to compete is also known as

a. a trade restriction clause.
b. a legal restraint of trade.
c. a waiver of competition clause.
d. a deferential sale of business clause.
ANS: B

13. The inventory should be examined for which of the following?

a. salability
b. correspondence between the physical count and the book count
c. up-to-datedness
d. All of the above.
ANS: D

14. An additional consideration to keep in mind when negotiating to purchase an existing business includes
requesting that the seller retain __________ in the firm.
a. a minority interest
b. a majority interest
c. either a minority or majority interest
d. none of the above
ANS: A

15. A ____ is a system of distribution that enables a supplier to arrange for a dealer to handle a specific
product or service under certain mutually agreed upon conditions.
a. franchisee
b. franchise
c. franchisor
d. franchiser
ANS: B

16. The individual who buys the franchise is the

 a. franchisee.
b. franchisor.
c. franchisette.
d. franchatter.
ANS: A

20. The advantages of franchising include:

a. training and guidance.
b. brand-name appeal.
c. proven track record.
d. all of the above.
ANS: D

21. The person who sells the franchise is usually required to do all of the following except:
a. pay a fee.
b. provide professional management training to the unit’s staff.
c. help out with financial assistance.
d. provide continuing aid and a guidance to the person buying the franchise.
ANS: A

25. When should a potential franchisee receive the FDD (Franchise Disclosure Document)?
a. two days before signing a contract or paying any money
b. at least ten days before signing a contract or paying any money
c. two days before signing a contract
d. at least ten days before paying any money
ANS: B

41. Which is not a key question to ask when buying a business?

a. Why is the business being sold?
b. Is the building heated with gas or electricity?
c. What is the condition of the inventory?
d. How many of the employees will remain?
ANS: B

48. Who must negotiate a final deal to purchase a business?

a. A lawyer
b. A CPA
c. The potential buyer
d. All of the above
ANS: C
CHAPTER 8: SOURCES OF CAPITAL FOR ENTREPRENEURS

True/False:

1. Use of debt to finance a new venture involves a payback of funds plus an interest fee for the use of the
money.

ANS: T

2. Sources of debt financing include trade credit, accounts receivables, factoring, and finance companies.

ANS: T

3. Equity financing is money invested in the venture with legal obligations to repay the principal amount of
interest or interest rate on it.

ANS: F

4. Because the advantages of going public outweigh the disadvantages, it is in a corporation’s best interest to
go public.

ANS: F

5. Private placement is a method of raising capital through the private placement of securities.

ANS: T

6. Regulation D augments the regulations for reports and statements required for selling stock to private
parties, friends, employees, customers, relatives, local professionals.

ANS: F

7. Sophisticated investors are wealthy individuals who invest more or less regularly in new and/or early- and
late-stage ventures.

ANS: T

8. Venture capitalists, surprisingly, require little information before they make an investment.

ANS: F

9. Informal risk capitalists are those who have already made their money and now seek to help new
ventures.

ANS: T

10. Informal risk capitalists are often referred to as “business angels.”

 ANS: T
Multiple Choice:

1. Which of the following is not a type of debt financing?

a. private placement
b. trade credits
c. finance companies
d. accounts receivables
ANS: A

2. A disadvantage of debt financing is

a. regular interest payments.
b. possible cash flow enhancement.
c. inhibition of growth and development due to equity investments.
d. relinquishment of ownership.
ANS: A

3. Which of the following is a type of equity financing?

a. convertible debentures
b. common stock
c. loan with warrants
d. loan without warrants
ANS: B

4. The most common source of debt financing is

a. trade credit.
b. factoring.
c. commercial banks.
d. finance companies.
ANS: C

5. Advantages of debt financing include all of the following except:

a. low interest rates that justify the opportunity cost.
b. regular interest payments.
c. potential greater return on equity.
d. no relinquishment of ownership.
ANS: B

6. One of the advantages of public offerings is

a. liquidity.
b. disclosure.
c. requirements.
d. cost.
ANS: A
 7. The main objective of Regulation D is to
a. increase investment in private placement.
b. regulate new small-business investment.
c. make it easier and less expensive for small ventures to sell stock.
d. reduce debt financing by small enterprises.
ANS: C

8. Major trends in the venture capital field today include all of the following except
a. less specialized and more homogenous funds
b. emerging feeder funds
c. decrease in start-up investment amounts
d. global reach
ANS: A

9. Which of the following terms is not synonymous with social lending?

a. crowdfunding
b. peer-to-peer (P2P) lending
c. banking 2.0
d. commercially viable lending
ANS: D

10. Which of the following statements is not true of venture capitalists?

a. They want the entrepreneur and the management to run the company.
b. They expect high return on investments.
c. They are interested in trying to manage firms themselves.
d. They take a long time to raise venture capital.
ANS: C
11. 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 wealthy?
d. Is the person a college graduate?
ANS: A

12. The entrepreneur should ask the venture capitalist _____ questions.
a. at most ten
b. exactly twenty
c. an unlimited number of
d. no
ANS: C
13. Which is one of the most important questions for entrepreneurs to ask regarding venture capitalists?
a. What is it like to work with their firm?
b. Are they good communicators?
c. Are they wealthy?
d. Are they good at financial computation?
ANS: A

14. An informal risk capitalist is referred to as:

a. your neighbor.
b. a business angel.
c. a retiree.
d. someone with extra money to invest but who is not interested becoming an entrepreneur.
ANS: B

15. Which of the following does not represent a category of angel investors?
a. micromanagement angels
b. entrepreneurial angels
c. amateur angels
d. corporate angels
ANS: C