Q1. You should never offer your customers "freebies" unless they are truly valuable and expensive, otherwise you will earn a negative reputation among your customers.
a. True
b. False
Q2. E-commerce requires focusing on technology first and then determining how the technology fits the business idea.
a. True
b. False
Q3. The single most common reason for abandoning online shopping carts is ________.
a. shipping and handling charges were too high
b. delivery times were too long and the checkout process required too much information and time
c. there was insufficient product information available
d. the inability to compare the final price before buying
Q4. Businesses selling less well-known brands should ________.
a. reduce prices
b. offer freebies
c. use customer testimonials and endorsements
d. All of the above
Q5. Although e-commerce can lower many costs of doing business, it still requires ________.
a. a professional Web designer's input
b. a basic infrastructure in the distribution channel to process orders, maintain inventory, fill orders, and handle customer service
c. a brick-and-mortar store presence
d. None of the above
Q6. Web sites have two conflicting goals regarding security. The first is to establish a presence on the Web so that customers from across the globe can have access to its site, and the second goal is to ________.
a. maintain a database system of customer information and preferences
b. have a system in place to prosecute hackers
c. maintain a high level of security so that the business, its site, and the information it collects are safe from hackers and intruders intent on doing harm
d. develop an in-house payment processing system
Q7. The Web typically lacks the ability to lower the cost of doing business.
a. True
b. False
Q8. Some companies use ________ to encourage customers to participate in the design of their products, a process called ________.
a. wikis; co-creation
b. wikis; collaboration
c. widgets; co-creation
d. mashups; co-creation
Q9. To avoid unpleasant surprises in launching an e-commerce effort an entrepreneur should ________.
a. test the Web site with real customers to make sure it is easy to navigate
b. avoid being talked into establishing a privacy policy
c. cancel all current advertisements in other media
d. not try to out-guess customers, and handle order fulfillment as orders come in
Q10. ________ monitor customers' behavior while they are on a site, giving Web-based businesses the information they need to make their Web sites and their online ________ efforts more effective.
a. Wikis; social marketing
b. Tracking tools; marketing
c. Tracking tools; security
d. Tracking tools; listings
Q11. One of the most important determinants of customers' response to a price is whether they perceive the price to be a fair exchange ________.
a. compared to what they have paid in the past
b. regardless of their actual experience with the product
c. based on their expectation, not reality
d. for the value they receive from the product or service
Q12. ________ pricing is a technique that involves marking down the normal price of a popular item in an attempt to attract more customers who make incidental purchases of other items at regular prices.
a. Leader
b. Markup
c. Markdown
d. Multiple unit
Q13. Below-market pricing strategies can be risky for small companies because they require businesses to constantly achieve high sales volume to remain competitive.
a. True
b. False
Q14. Which of the following statements concerning the impact of competition on a small company's prices is true?
a. When setting prices, a business owner must either match or beat competitors' prices on similar products or services.
b. Because federal laws prohibit the practice as an unfair trade practice, business owners should not monitor their rivals' prices on identical items.
c. When going up against larger, more powerful rivals, small firms should consider using nonprice competition as a way to differentiate their products or services rather than head-to-head price competition.
d. All of the above
Q15. Which of the following is/are true regarding cost-plus pricing?
a. It encourages the manufacturer to operate efficiently.
b. It fails to consider competitors' prices appropriately.
c. It fails to guarantee the manufacturer a desired profit margin.
d. Only A and C.
Q16. A common pricing mistake entrepreneurs make is lowering prices because they fail to recognize the ________.
a. extra value, convenience, service, and quality they offer their customers
b. advantages they have due to their lower cost structure
c. complexities that larger competitors have to face
d. driving need that all customers have to find the lowest price possible
Q17. ________ tells what portion of the total revenue remains, after covering variable costs, to contribute toward meeting fixed expenses and earning a profit.
a. The full absorption statement
b. The break-even selling price
c. The contribution percentage
d. Cost-plus pricing
Q18. One advantage of installment loans for a small business is that the business owner retains a security interest in the item sold as collateral on the loan.
a. True
b. False
Q19. The acceptable price range of a product or service is the area between the ________ defined by customers in the market and the ________ established by the company's cost structure.
a. price floor; price ceiling
b. image; quality
c. price ceiling; price floor
d. price floor; value
Q20. A key ingredient to setting prices properly is to understand a company's ________.
a. cost structure
b. most aggressive price competitor
c. target market
d. profit expectations
Q21. Which of the following combinations of ratios would indicate that a company is financially mismanaged and is not a good credit risk?
a. High liquidity; high leverage
b. Low liquidity; high leverage
c. High liquidity; low leverage
d. Low liquidity; low leverage
Q22. Generally, the higher the small firm's average collection period ratio, the greater the chance of bad debt losses.
a. True
b. False
Q23. Gaither Mack is preparing projected financial statements to include in the business plan he is preparing for the launch of a specialty retail store. Using published financial statistics, Mack finds that the typical net profit margin for a store like his is 7.3 percent. If Mack's target income for his first year of operation is $32,000, what level of sales must he achieve to reach it?
a. $233,600
b. $438,356
c. $2,966,400
d. Cannot be determined from the information provided.
Q24. Pro forma financial statements show a company's most recent financial position.
a. True
b. False
Q25. ________ are those items of value the business owns; ________ are those things the business owes.
a. Assets; liabilities
b. Liabilities; assets
c. Ratios; equities
d. Equities; liabilities
Q26. The ________ represents a "snapshot" of a business, showing an estimate of its value on a given date, while the ________ is a "moving picture" of the firm's profitability over time.
a. balance sheet; income statement
b. income statement; balance sheet
c. statement of cash flows; income statement
d. balance sheet; statement of cash flows
Q27. Small businesses with high leverage ratios are more vulnerable to economic downturns, but they have greater potential for large profits.
a. True
b. False
Q28. The ________ shows what assets the business owns and what claims creditors and owners have against those assets, and is built on the basic accounting equation:
Assets = Liabilities + Owner's Equity.
a. income statement
b. sources and uses of funds statement
c. balance sheet
d. cash budget
Q29. The times-interest-earned ratio tells how many times the company's earnings cover the interest payments on the debt it is carrying.
a. True
b. False
Q30. Generally, the higher the current ratio, the stronger the small firm's financial position.
a. True
b. False
Q31. ________ is the most important, yet least productive, asset that a small business owns.
a. Profit
b. Cash
c. Inventory
d. Accounts receivable
Q32. Rather than build the current year budget on increases from the previous year's budget, ________ evaluates the necessity of every item.
a. zero-based budgeting
b. zero-based accounting
c. ground-up budgeting
d. year-one budgeting
Q33. ________ typically lead(s) sales; ________ typically lag(s) sales.
a. Production; receivables
b. Collections; purchases
c. Receipts; production
d. Purchases; collections
Q34. Which of the following is an effective way to trim overhead?
a. When able, buy instead of leasing.
b. Hire more full-time employees; reduce the number of part-timers.
c. Eliminate zero-based budgeting.
d. Negotiate fixed loan payments to coincide with company cash flow.
Q35. On March 10th, a business owner receives an invoice from a supplier for $416.27 with "Net 30" credit terms marked on it. On April 7th, the owner writes the supplier a check for $416.27 and mails it. When would this cash disbursement show up on the company's cash budget?
a. March 10th
b. March 30th
c. April 7th
d. April 10th
Q36. The real benefit of barter for the entrepreneur is that ________.
a. it is essentially without cost to the business owner
b. it is considered a depreciable item for tax purposes rather than as income
c. it saves the small business owner between $100,000 and $150,000 a year on the average
d. it is "paid" for at the wholesale cost of doing business, yet it is credited at the retail price
Q37. A common cause of business failures is that owners neglect to forecast how much cash their companies will need until they reach the point of generating positive cash flow.
a. True
b. False
Q38. A firm's cash budget should ________.
a. be prepared on a monthly basis for at least one year in advance and cover all seasonal fluctuations
b. cover a longer planning horizon when a firm's pattern is highly variable
c. show the amount and timing of cash receipts and cash disbursements on an annual basis
d. show the amount and timing of cash receipts and cash disbursements on a quarterly basis
Q39. Patel Industries recently filled an order from one of its customers, Oxmoor Gardens, a small garden supply store. Oxmoor's owner recently received an invoice from Patel for $1,278.64 with selling terms of "2/10, Net 30." Therefore, ________.
a. the selling terms indicate that Oxmoor must pay 2 percent of the invoice by the 10th day of the month with the balance due in 30 days
b. the selling terms are offering Oxmoor a 2 percent discount if the bill is paid within 10 days; otherwise the full amount of the invoice is due in 30 days
c. the selling terms indicate that the full amount of the invoice is due within 30 days and Oxmoor will be subject to a 2 percent finance charge for every 10 days that the bill is past due
d. the selling terms indicate that Oxmoor has not yet qualified for a quantity discount and must pay the full amount of the invoice within 30 days
Q40. To project cash receipts, an entrepreneur must analyze accounts receivable to determine the company's collection pattern.
a. True
b. False