MABINI COLLEGES

Daet, Camarines Norte

GEC Elect 2

(Business Finance)

1 Semester SY 2022-2023

PRELIM EXAMINATION

Name:Jeroshi Mae I.Pacion Day/Time: Mo.We.Sep. 14,2022/5:30-7:00 Score:

Course/Year:BSBA Financial Management Instructor: RONNEL C. YU, LLB,MPA

Note: Fill up all blanks above before you start the test.

NATURE AND AIMS OF BUSINESS

1.Is the amount of capital investment, the size of the organization, and the number of employees
material in determining if an economic activity qualifies as business?

Yes, because when economists refer to capital, they are referring to the assets physical tools, plants, and
equipment that allow for increased work productivity.Capital comprises one of the four major factors of
production, the others being land, labor, and entrepreneurship.Common examples of capital include
hammers, tractors, assembly belts, computers, trucks, and railroads.Economic capital is distinguished
from financial capital, which includes the debt and equity accumulated by businesses to operate and
expand.

2. Discuss the free enterprise system.

Free enterprise, or the free market, refers to an economy where the market determines prices,
products, and services rather than the government. Businesses and services are free of government
control. Alternatively, free enterprise could refer to an ideological or legal system whereby commercial
activities are primarily regulated through private. measures.

3. To survive and grow, what are the objectives to be attained by the business firms?
To survive and grow, business firms must attain the following multiple objectives:

•the provision of products and services to the community,

•the satisfaction of personal objectives like: a.profits for owners b.adequate salaries and compensation
for executives and employees; c.psychic income for all, including pride in work, security. recognition,
and acceptance;

•protection and enhancement of the human and physical resources of society, and

•economy and effectiveness of operation.

4. What are the classifications of service firms? Discuss.

A service business is one which sells services to buyers, Service firms may be classified as: (1) recreation,
such as movie houses, television and radio stations, theaters for drama and stage presentations, and the
like; (2) personal, such as restaurants, barber shops, transportations, hotels, tailoring shops, and the
like; and (3) finance, such as banks, insurance companies, investment houses, financing institutions,
credit unions, savings and loan associations, and the like.

5. Why is profit a requirement for business? Explain.

Profits help business owners and their advisors determine whether a business can, or should, grow. If
the business has very little profit at the current size, it may be even less profitable when it grows. The
business needs profits, before and after growing, to fund the new working capital requirements.Profit
equals a company's revenues minus expenses. Earning a profit is important to a small business because
profitability impacts whether a company can secure financing from a bank, attract investors to fund its
operations and grow its business. Companies cannot remain in business without turning a profit.

ORGANIZING A BUSINESS

6. What makes a person decide to engage in business?

People engage in business for several reasons, but the most compelling reason for many is to earn a
substantial income.When individuals set up their own businesses, they are able to set their own hours
and policies, establish prices, and make all important decisions on how to operate the company.

7.In organizing a business, there are two main sources of capital. What are they?
A new firm may be financed by one or a combination of the two main sources of capital

(1) the owners; and (2) the creditors.

8. What is meant by the following

a. Franchise-is an exclusive right granted by the franchisee to franchisor for the operation of a public
utility service, or the selling or distribution of a product in a specified area

b. Concession-is the right granted by the government to a concessionaire for the exploitation of natural
resources placed at his disposal for a sum consisting of a minimal periodic payment plus a percentage of
the income from sales

c. Patent-gives the holder the sole right to make, use, or sell his invention during the period the patent
remains in force. Patent rights can be obtained for new products, a new substitute for existing products,
as well as new production or marketing techniques. The patent holder may license others to make use
of his invention in return for payment of royalties

d. Copyright-gives the holder the monopoly on the exploitation of a literary or artistic work for a certain
period subject to renewal

9.What is the function of the promoter? What are the kinds of promoters?

The promoter is the person responsible for the formation of a company. He sees the opportunity for a
new business; interests other people in it; makes the business blueprint; arranges for the initial funds,
labor, and skills required; and sets the business going.

The kinds of promoters are:

•professional promoters-they are those whose main occupation is business promotion.

•side-line promoters - they are persons who perform promotion activities occasionally.

• banking promoters - they are banking institutions which provide business promotion services to their
clients.

•financial promoters- they consist of investment houses engaged in the promotion of certain business
ventures through the sales of securities; and

•subdivision promoters - they are those engaged in the development of new subdivisions
10. Is the promoter exempted from any liability arising out of his actions?

The promoter undertakes to pursue his job with the capacity of a temporary trustee. He cannot legally
bind the firm into contracts and deeds unless approved by the board of directors. This is legally tenable
because the promoter cannot act as the agent of a corporation still to be formed, hence, he does not
have a principal to represent.The nature of the job of the promoter provides him with an opportunity to
make excessive gains at the expense of the owners. Professional ethics, however, require that he can
only make profits up to the amount previously agreed upon. A secret profit made at the expense of the
firm is ground for the cancellation of the promoter's contract. He may even be sued for the recovery of
profits he may have made or obtained as compensation or for any losses he may have caused.